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SMART Letter #91 -- December 10, 2003
Copyright 2003 by David S. Isenberg
isen.com - "the end of empire"
isen@isen.com -- http://isen.com/ --
1-888-isen-com
********* isen.blog at http://isen.com/blog
*********
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CONTENTS
> The Story Under the VoIP Story
> Destroy My Business Model? Yawn.
> isen.blog and The SMART Letter
> Conferences on my Calendar
> Copyright Notice, Administrivia
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The Story Under
the VoIP Story
by David S. Isenberg
These days there's
a flurry of newspaper stories about VoIP
(Voice over Internet Protocol) every few days, as if VoIP
is going to save the telecommunications industry -- or
maybe the entire tech investment sector. The stocks of
Net2Phone and VocalTec and DeltaThree are surging. Today
Verizon's going to do it. Yesterday, Time Warner telecom
announced expansion of recent VoIP trials to all 18 million
customers. Last week Qwest announced VoIP in Minnesota.
But the larger
story is not "new life for the telecom
sector." Quite the opposite. Because while VoIP will
probably be good in the long run for the tech sector as a
whole, VoIP will hasten the end of telephony-classic.
The mainstream
press gets the "VoIP cheaper" angle. Many
stories note that a VoIP package at $39.95 a month is
cheaper than the ILEC's comparable $59.95 plan. They
report correctly that this is due to the unregulated nature
of the Internet (escape from universal service
contributions, etc.) and to competitive pricing on bundles
of feature like caller ID, call waiting, et cetera, with
formerly fat margins. They often cite the greater
efficiency of IP over circuit-oriented protocols (but tend
to overblow the technology advantage).
Sometimes the
mainstream press gets little pieces of the
"VoIP better" angle, too. Recent VoIP stories acknowledge
that enterprises can consolidate voice and data on one
network, and that moves, adds and changes can be done more
easily under VoIP. A recent Wall Street Journal story
(December 9, 2003) even suggested a future Time Warner
integration of VoIP with Instant Messaging, but it failed
to follow with what that's good for, and what it replaces.
Further, most stories don't mention that VoIP over cable or
DSL can support multiple "lines", multiple numbers, and
multiple simultaneous calls per household with no new
wiring. Nor do they explore the implications of plugging
your U.S. landline number into a DSL or Cable connection
Japan or Mexico.
These little
blind spots are symptoms of not grasping the
larger story -- the destruction of the telcos. Sometimes
the mainstream press pays lip service to "the potential
threat to local phone companies," but usually this is cast
as a battle of telco versus cableco. The biggest story
still eludes the media: The telco business model -- that
is, the delivery of my app (voice) over my net (switched
circuits) for one integrated monthly price -- is going
away.
The reason is
that VoIP makes voice just another
application on the Internet. VoIP stories that focus on
the clash between telcos and cablecos fail to grasp the
importance of Vonage, Packet8, Galaxy Internet Services,
MyBroadLine, VoicePulse and Addaline, VoIP services --
applications, really, because they work just fine, no
matter whose connection service they use. And even as
these are halfway steps because they interface with the
switched telephone network via gateways, so do they provide
the means for pure Internet calling that bypasses the old
network -- and the old business model -- altogether.
Meanwhile in
Estonia, Ross Mayfield reports
http://tinyurl.com/ynwt
that Skype, an Internet telephony
application that doesn't even share a numbering plan with
conventional telephony has hit the tipping point. Even
doctors are using it to communicate with patients (while
U.S. doctors don't even use email). Ross reports that
because Skype's "mode of use differs it is gaining a
different culture of use." The future is not evenly
distributed.
Nor is mobile
service sacred. Today it is based on a
conventional, vertically integrated, circuit-switched
model. Tomorrow it will go the way of the wireless
Internet.
If the telcos
are to survive, they will have to choose
whether they're going to sell "my app over anybody's net,"
or "anybody's app over my net." That is, in the age of the
Internet, a company can be an application provider or a
connectivity provider. One company will not want to do
both. An app provider will want to use anybody's network.
Imagine, for example, VoIP that works on DSL but not WiFi.
Apps want to treat all networks the same. Conversely, a
connectivity provider will want to carry everybody's
traffic. Customers will not want to access some Internet
apps over one ISP's connection and other apps over
another's. I suppose that it is *possible* for one company
to do both apps and connections, but if so, one half will
need to treat the other half's competitors as customers.
What clear-thinking company would want to do that?
Telcos are already
in trouble. Voice revenues are the
lifeblood of a telco. In 2002, telcos lost about 4% of
voice-grade lines every year. The shift to VoIP,
especially to Vonage-type services, that is, services that
can connect to the Internet via any connection, will reduce
the need for conventional lines further. The telcos could
switch to data, but even as their data service sales grow,
they're finding it hard to make a profit on data. In
mature mobile markets, every user who wants service has it
and revenues per user are flattening out; the shift to VoIP
is only a matter of time.
Martin Geddes
examines the shift from a different angle in
his aptly named blog, Telepocalypse
http://tinyurl.com/yne4.
Geddes figures that if a
hypothetical telephone company with revenues of US$25
billion per year is to survive a Gartner Group prediction
that the last circuit-switched call will be made in year
2020, then this hypothetical telco would have to find (and
sustain) US$600 million in new business for 17 years,
through 2020. Total U.S. telecom revenues are about US$300
billion per year, so using Geddes' calculation the U.S.
telecom sector would need to find US$7 billion in new
business every year. This is only plausible under the most
extreme of scenarios. More likely, the U.S. telecom sector
will shrink by US$7 billion each year. Other mature
markets will shrink accordingly.
This, then,
is the story under the VoIP story that the
mainstream press is missing -- the telephone companies as
we know them are, barring some extremely regressive
shenannigans, on their way out. This departure will not be
linear or smooth -- nothing that big and well established
disappears without a struggle, or without unintended
consequences. But the telcos won't cross this chasm by
sauntering out over the edge at their accustomed pace, and
they don't have the innovative muscle to make the jump.
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Destroy
my Business Model? Yawn.
by David S. Isenberg
Back in 1998,
Tom Petzinger's Wall Street Journal write-up
of my attempts to convince AT&T to change her obsolete ways
http://tinyurl.com/yf3r
set my phone a ringing for weeks.
In contrast, an October 9, 2003 Wall Street Journal front
page story on VoIP http://tinyurl.com/yf6p,
which quoted me
saying that VoIP, "destroys the incumbent telephone-company
business model," created no detectable inbound activity on
1-888-isen-com.
I wonder why
I'm not besieged by worried telco execs trying
to understand why I said that. Maybe they already know the
problem and they're evolving as fast as they can. Or maybe
I'm obviously wrong, or obviously uninsightful.
Maybe. But I
have an alternative interpretation. I think
that telco corporate culture doesn't value discussing
business models. That was my experience at AT&T anyway. I
have two guesses about why:
Guess #1: Maybe
telco execs don't talk about business
models for the same reason that fish don't talk about
water. They were handed an established business model at
the beginning of their career. It was, literally, a given.
Guess #2: Maybe,
like sex, talking about business models is
just not a polite thing to do in certain circles. If so,
we'd expect telco execs to talk about it in private, with
anxiety-releasing humor and myth in lieu of fact.
In either case,
there is something deeply unsettling about
discussing anything identified with you that's about to
fail. However, telco execs who can learn new job skills
(Guess #1) or overcome cultural shibboleths (Guess #2) --
who can muster what it takes to examine their business
model and its alternatives squarely -- are more likely to
survive. Those who don't won't.
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isen.blog and
The SMART Letter
by David S. Isenberg
I've started
a weblog. It is called isen.blog. It lives
at http://isen.com/blog. Many of
the readers of The SMART
Letter have found isen.blog. But there are still people,
telecom-literate people, who don't know what a weblog
(blog) is yet.
Blogs are a
winner app, not a fad. By analogy, at a recent
FCC event, Kevin Werbach showed 3 Venn diagrams depicting
data, telephony, wireless, broadcast, etc. In diagram #1
data was shown as a little circle inside a bigger circle
called "telecom." In diagram #2 the data circle was
outside the telecom circle, showing the results of the
FCC's Computer Inquiry, which decided that data was an
"enhanced service." In diagram #3 the data circle was so
big that the circles for broadcast, cable and wireless were
inside it. As late as 2001 an ILEC exec was marveling at
how long the data "fad" had lasted. Blogs will do that too.
Start reading
the blogs. Read isen.blog. But don't stop
there. Follow some links. One of the best collections of
other people's blogs is David Weinberger's "Joho the Blog"
at http://hyperorg.com/blogger.
Another fabulous blog, by
a woman who writes like she's sitting in your living room
looking into your eyes, is http://riverbendblog.com.
RSS makes blogging
even more powerful. What's that?
Here's a really simple summary; RSS is a way to track
changes on a website without going there and saying, "Oh,
yeah, seen all this before," or, conversely, "Gosh, that
looks new." I won't explain anymore; you don't need to
know. But you should experience RSS.
My RSS experience
comes from the FeedDemon RSS reader. It
is a little program that runs inside my PC. You can
download and install it at http://feeddemon.com.
There are
other RSS readers besides FeedDemon, but I found FeedDemon
fall-off-a-log easy to install and use. No instructions
necessary. Do it now. But please remember to come back
and read the rest of this SMART Letter.
And the future
of The SMART Letter? It provides a less
instant, perhaps more thoughtful, more permanent venue for
my writing than isen.blog. I'd like to keep doing it.
Despite the write-now tug of the blog. If I write them
both, will readers read both?
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CONFERENCES
ON MY CALENDAR
January 27-28,
2004, Bedfont Lakes, Middlesex, UK. Access
to Broadband Campaign: Revolution at the Edge. Second
annual meeting. I'll be the first keynote speaker. My
friends and colleagues Peter Cochrane and Dewayne Hendricks
will participate too. http://www.abcampaign.org.uk/
March 12-16,
2004, Austin TX. Wireless Futures (A
conference within the South by SouthWest multi-palooza).
Don't know much about this yet, but from the list of
invitees, it's going to be good. http://wirelessfuture.org
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