Public perception – where ‘public’ equates to customers, investors and peers (although not necessarily in that order) – is a matter of deep concern for the C21 Telcos. After the bruising of the technology implosion, they equate a restoration of positive perceptions as a key stage in rebuilding their internal confidence. Of course, a valid question here is the extent to which telcos have ever really enjoyed positive perceptions out in their communities. It’s hard to win too many popularity contests when you send bills to every household in the land on a regular basis and your shares fail to respond to market surges but suffer along with the rest when times turn tough.

All too human...
Having studied and observed telcos for more than 20 years, I have succumbed to the tendency to see them as near-human organisms. Even their thousands of employees are like individual cells which collectively add up to a single living, breathing thing.

Over the years, these characters have come across as friends or enemies, delinquent or well-intentioned, dysfunctional or deliberate, aggressively arrogant or stolidly somnambulistic. So, apart from this admission marking me out as a suitable case for treatment, what of value can be learned in this way? What does their corporate DNA actually tell us as they face new challenges?

The first thing is that C21 telcos are still unloved and therefore insecure. They seek to mask this by any number of image makeovers and branding exercises, as if trying to deny the past and turn themselves into something, anything, that is not a former ‘telephone company’. The lengths to which telcos will go to shed their national identities and their utility backgrounds are truly remarkable.

Plus ça change...
Yet C21 Telcos are still the product of their pasts, thanks to what is the industry’s equivalent of the ‘nature vs. nurture’ debate. The race to dissociate themselves from a past steeped in utility operating and common carriage is extraordinary and, not to put too fine a point on it, warped.

Take the hoo-ha surrounding universal service when markets were first opened. This so-called ‘obligation’ was actually no more than a deeply entrenched ‘right’ to connect every customer in the land to services which were becoming easier and more profitable by the month to provide. That is the sort of ‘obligation’ that new entrants would die for. Yet told to connect every customer to the network, the telcos tended to complain and seek sympathy or subsidy (or both).

Odd behaviour from companies supposedly transforming themselves into commercially-driven entities and indicative of a total lack of understanding of how true markets work.Today, of course, C21 Telcos are more likely to be trying any means to keep competitors away from the universal platform of the local loop, as its value and potential is being realised (in both senses of the word ‘realised’).

We might conclude that myopia is one of the inherent physical characteristics of C21 Telcos. They would have none of this, of course, instead claiming unique powers of insight and farsight – at least until the fog descended and beleaguered telco chiefs complained of a lack of ‘visibility’ when the market melted down after 2000.

Smaller, better?
Then there is the long-standing obsession with size. This takes many forms, as physically telcos seek to get leaner and meaner (uh-oh, here come job losses) and yet in terms of market power and presence they seek to grow. The two are not mutually exclusive but neither is easy to achieve and executing both simultaneously requires balance and judgement.

Reducing staff numbers was long overdue even before markets were opened to competition. In most cases, by the time liberalisation and privatisation had occurred, telcos were running digital companies with analogue staffing levels. The apparent freedom conferred on telcos by the loosening of their ties to the state was largely illusory and employment issues remained highly political and politically controversial.

The solution adopted by most former monopolies in the 1990s was a combination of expensive attrition (voluntary redundancies and early retirement) and sleight of hand, such as the famous “transfer of staff from engineering positions to marketing functions” – coded language for the mass redeployment of semi-skilled technicians to call centres. Not quite utopia for those on the receiving end of the mantra.

The result is that, today, most C21 Telcos in advanced markets would probably declare themselves happy with current staff levels. This hides the fact they still struggle to compete on headcount with their newer rivals for any given activity. C21 Telcos argue that this enables them to offer more robust services than their flightier rivals; they may have a point.

Yet in pure market terms this leaves them vulnerable to undercutting on prices, when these are truly cost-based, or enables leaner rivals to enjoy higher margins from offering the same service at the same price. Additionally, when new entrants are forced to rely on network elements that are the sole preserve of the incumbents, they are forced to subsidise the cost of any related over-manning. Hence C21 Telcos maintain an unnatural grip on market dynamics.

Bigger, better?
Whatever the distortions created by the size and weight of C21 Telcos – and it should be noted that they have rarely ceded significant market power in any mainstream market or line of business – growing bigger remains their ultimate goal. For any company in any industry, this aim is laudable enough.The unique characteristics of the C21 Telcos and the commercial environment which they populate create some major differences, however.

Many aspects of this were examined in the previous article in this series. This sees C21 Telcos identifying opportunities almost anywhere at home and overseas and, when the mood takes them and the financial climate is favourable (as it becoming now), prepared to chase almost all of them by whatever means possible.

These strategies are no more than outward manifestations of the other facet of that internal obsession with size. This might politely be described as ‘benchmark competition’ but basically boils down to a philosophy whose purpose is to be able to say “my one’s bigger than your one”. Rather appropriate, for an industry still dominated by males in its upper echelons.

Benchmark competition first became fashionable in the telecom sector when few markets had been opened to competition and comparisons between equivalent telcos were the basis of a useful regulatory and policy tool. In the 1990s, telcos took the tool and used it to compare the size of their businesses and their egos with those of their peers. The results fed the headlong expansion we have already described.

For C21 Telcos, the only thing to have changed is that those ‘peers’ now include major players from converging technology sectors such as IT. Even in cases where the disparity in market capitalisation is huge, C21 Telcos are desperate to deal with giants such as Microsoft on equal terms. Some would call this a ‘cultural cringe’, but in most cases C21 Telco market power, in their native spheres of influence, deserve to be shown a degree of respect – however artificial or patronising this can sound at times.

It’s when attention turns to global markets that things get more difficult. Few would argue with the global status of the leading IT brands in software and services and, to a lesser extent, telecom equipment vendors. C21 Telcos undoubtedly struggle to match that. AT&T might arguably have achieved that status, but in the end it had little but the brand to show for a century of its efforts: as a corporate entity, it is now set to disappear into the hands of SBC.

The situation is little changed today from that which prevailed in the later 1980s and 1990s. Then, it resulted in the race for regional or global scale in which all but the smallest telcos participated. A flurry of often unstable alliances and partnerships were formed to achieve the scale then deemed necessary to succeed in international markets. Less than a decade on, none has survived.

There is not enough room here to cover all the character traits that these alliance revealed. There were the ‘studs’ who insisted on dominating any partnership; there were the submissive ‘mating partners’ who sought the protection of a stud against the overtures of others; and of course there were the ‘tarts’ who flitted from one stud to the next with disarming ease. We’ll look at this in more detail another time. C21 Telcos may have taken on human characteristics, but they still possess the basest animal instincts in matters such as these.

For now, the striking thing to note is that one cannot see what alternative avenues are open to C21 Telcos as they face the same challenges of creating global scale once more. Perhaps one difference will be that those who acted as cheerleaders for the alliance-builders of the 1990s, having been ignorant of the fact that the market was actually over-heating, will be more wary and therefore more measured in their support this time around.

Shareholders hold the keys now as well
Unfashionable though it might be to say so in the corridors of C21 Telco power, investor sentiment could have a greater role in shaping strategies in areas such as this than any amount of in-house brain-storming. This, too marks, a cultural change for telco chiefs who have for too long treated shareholder bases as personal fiefdoms. Two factors are relevant here: the flow of shares from small post-privatisations investors to the institutions, and the steady erosion of state-held stakes (although not always accompanied by an equivalent erosion of influence).

This makes the management of shareholder expectations, and hence the management of the share price itself, a key task for C21 Telcos. In common with most utilities, telcos historically saw their shares classified as ‘widows & orphans’ stocks. That stability was disturbed in the 1990s when, stung by investor criticism, telcos chased the dot.coms, largely underperformed them (cue more investor criticism) only then to be punished as harshly as any Silicon Valley when the world regained its sanity (even this was a cue for another bout of investor criticism).

C21 Telcos have spent the last five years – coincidentally, their first five years – rebuilding their position in this respect. With hindsight, one can see at least five basic miscalculations in the way that their late-20th century predecessors chose to manage their relationship with investors. To take a simple example, they all too breezily suspended dividends, the backbone of their W&O appeal, in favour of all-out share price growth at a time when observers were arguing that the levels being recorded in the latter context were unsustainable for the technology sector.

Think and think again
New opportunities for growth need not mean a return to that strategy. Indeed, bitter experience demands that C21 Telcos calculate risks and rewards according to the more conventional business principles that disappeared from view at the end of the last decade.

This does not mean that C21 Telcos must suddenly become ‘conventional’ companies. That is not a recipe for success in an industry as unconventional in so many senses as ICT.

Which brings us to the final irony of all those which have been exposed in this series. In most cases, the C21 Telcos, at the behest of investors, have removed the corporate leaders who devised such woeful strategies to capitalise on the opportunities created by liberalisation, privatisation and the dot.com era — only to be sunk because they underestimated the risks. Rightly so. The worry is that, with their departure, nobody will remain who has learned from those dismal mistakes.

C21 Telcos may be the future of the ICT Redux. In which case, the future of C21 Telcos themselves is of paramount importance to us all. Try working that one out.
Jim Chalmers

An abridged version of the five articles in the C21 Telco series with added summaries, areas for further study and overall conclusions will be available on TelecomRedux shortly.