In theory, technology is at the core of all companies active in the ICT arena, of which the C21 Telcos are prominent examples. Often, however, new technology can look like the worst enemy of incumbent operators.

This happens in two distinct ways which tell us much of what we need to know about how C21 Telcos relate to the world in which they live:
• almost every new technology, each successive ‘killer application’, seems to be a deadly weapon with incumbent PTOs positioned firmly in the cross hairs of its aiming mechanism. Last time we checked, however, most traditional operators are still there;
• incumbents have become convinced that they are hamstrung by their legacy networks. From the mid-1990s, the dot.coms and their supporters in the investment community derided these networks as outdated, inefficient, etc. These detractors had a point, but both they and the incumbents themselves drew the wrong conclusions from that view – dangerously for the latter and often fatally for the former.

The devils you know
The first thing to understand here is that, contrary to appearances, telcos have historically been technophobic and C21 Telcos have still not quite shaken off this antipathy towards new developments. The roots of this distrust are to be found in the state-mandated structures of old: consider the classical PTT. The conventional Posts, Telegraph and Telephone organisations of old were forced to tread with dread as each new technology emerged.

In the simpler world that characterised the first century of telecom development, each new advance in technology would loom large but, thanks to the prevalent monopoly structures in place, its introduction could be controlled, phased and priced to minimise cannibalisation of existing revenues. In this climate, few new technologies stood a chance of making it to the mass market without the say-so and the involvement of the incumbent telco.

This all changed as the industry moved into the 1980s. Straight-line evolution, easily and conservatively managed by the telcos, gave way to a proliferation of new services and applications built on the back of digital technology. Control, phasing and pricing were swept away. The levers by which the incumbents could manage their destinies, while simultaneously being exposed to genuine competition for the first time., were swept away. Each new technology seemed to pose a threat to existing telco structures and processes and to their business models, which themselves looked likely to be swept away.

The ghosts in the machine
The global PSTN is the world’s biggest machine. The incumbents are still the dominant powers in charge of this machine. It follows, therefore, that any new technology must either work with the PSTN and its owners or bypass it entirely. There is no middle ground.

First generation dot.coms, bedecked in ‘new paradigms’, failed to understand this. Emotionally. many telcos acquiesced to the bullish sentiments of their rivals, writing off the value of their ‘legacy networks’ at a stroke. This always seemed strange to me, since most people would benefit from a legacy, but telcos took the opposite view, as if they were an embarrassing dysfunction in the ancestral line. So bad did this become that for most of the 1990s any  attempt to discuss legacy networks with a late-C20 Telco was rebutted, while in markets such as the US they were rechristened ‘heritage networks’.

A glance at C21 Telco balance sheets shows the value of this once-disavowed legacy: copper loops have been beefed up to support different flavours of DSL, while regulatory denial of access to said loops has stymied rivals in many markets. C21 Telcos have control of the market more reminiscent of the century or even the one before that.

Other killer apps – mobile substitution, VoIP and WiFi spring to mind – are all firmly in the control of C21 Telcos. This will change over time, but only in a glacial and generational way. It’s even money that C21 Telcos will themselves change in time to provide a safe habitat or harbour for these new developments. It’s not what they normally do or what they are used to doing – but they could pull it off.

This all adds up to make telcos a nasty but durable piece of work. They will be back.
Jim Chalmers

Tomorrow: expansion, adventurism & déjà vu