36 thoughts on “Telco dogs need to learn software tricks”

  1. A want my telco to provide me a big fast reliable pipe — not try to sell me a suite of revenue generating services. In BT’s case this is not new thinking. It is a jump back to the 80’s mindset before the Internet, when the telco thought they had a captive subscriber.

  2. I agree Om, your point becomes especially interesting when it comes to behind the firewall applications. Many large businesses will not trust their applications to ride the internet, which currently excludes them from using most of the current web2.0 software.

    Will there be a telco with enough vision to provide hosted web2.0 technology within their IP VPN infrastucture.

    The fit almost seems perfect: web2.0 companies are often lacking customers but their software is unique. Telcos are exactly the opposite, rich in customers but starved of differentiation.

  3. OM, how do you see BT’s strategy of only rolling out ADSL2+ and no VDSL/FTTH in this strategy? Though Ben Verwaayen said at an Ofcom conference (see youtube) that it will deliver 24Mbit/s we all know that that is not what most people will receive. It is not stimulating the roll out of new networks. They are even doing a 5.5billion buy back of shares instead of investing it in better networks.

    Furthermore, I wonder why you are so happy about services. If you compare the income generated from services with the income generated from infrastructure, you will see that per household spending on infrastructure is more. On a company level it is different, but even there infrastructure is a sizable chunk of the budget. But services are incredibly more difficult to get right. Just count the amount of competitors Vonage, Youtube, Ebay, Google, Salesforce have, there are plenty. But all these upstarts beat the incumbents and work on a global scale, something most telco’s don’t know how to do. So for Telco’s to get into the services game and be good, they will have to do the following

    • Design a brilliant service that they can sell on a national or global scale. (Just build the next Youtube. If kids right of puberty can do it, a big Telco should be able to do it too)
    • Make/buy a very good IT-services company that works very well on its own, without needing to resell the telco’s infrastructure. (but where are the synergies??)
    • Leverage their network knowledge to build low latency/jitter services. (Oh wait, QoS mechanisms don’t work in real life, but increasing capacity does and systems management is hard in itself)

    Well you get the point, in my opinion East is East and West is West and success at one network layer doesn’t translate into success at another layor in the stack.

  4. Ask Exxon-Mobile what is wrong with being a commodity?

    Telco’s have no business doing value added services. They will (and have tried) it within their walled gardens of the past (and in mobile). Just deliver me the packets on time, please.

  5. they understand scalability, reliability and they have early outsourcing successes (particularly at MCI)…but if you look at where they have done well in IT outsourcing, it has been primarily in WAN services. End user services, data center ops, managed server/storage they are still bit players, and when it comes to apps outsourcing they are babes in the wood. SaaS would require many of these disciplines and additionally more of a software culture. Would need a huge transformation at BT or Verizon or Deutsche …

  6. Peter

    good point – it is just different kind of packets we are talking about. they have been good a WAN services, and using that expertise that can extend that reach into the SaaS side of things. Remember, it is like selling five different types of petrol/gasoline –

  7. Vinnie, (and raindeer) you make good points. THat is precisely why i am writing the post. they need to figure out a way to learn to play in this new market – software – which is where they can leverage their network skills more effectively.

    Its not about if they can build their own SaaS services (I don’t think they can), but more about where to press their advantages instead. learn new tricks and benefit from this big shift.

    if they don’t someone else will. like the global crossings of the world. or the cable companies. who are happy to try anything new.

  8. Vinnie, what WAN IT outsourcing do you think the telcos (even MCI) have been good at. Certainly not IP VPN’s and security. Just ask Cisco and Juniper (and the long list of now-dead edge router companies). They feed the telcos customers for IP services to try to get them to turn on the advanced functions on their edge platforms only to watch them screw it up.

  9. Kate – I agree the US telcos have trouble providing value added services. European Telcos do have more experience in delivering value. Companies in Europe have historically relied on large incumbent providers to manage the CPE. As a result they maintain very small (or non at all) in house networking skills where as the Telco has the skills and experience.

  10. Simon, agreed… European businesses have been much more willing to rely on the carriers. This because deregulation in Europe occured much later. The early Carterfone/Part 68/Inquiry II legacy has made US businesses much more independent. Still I think your point is that the telco is managing CPE (on-premise VPN concentrators, firewalls, routers, etc…) rather than selling carrier-based IP services.

  11. Om, do you seriously believe that telcos will be able to deliver anything like SAAS and not completely make a hash of it? I have a hard time believing that a telco could run something like salesforce.com and not have customers migrate off of it very fast based on things like customer support issues. The incremental cost switching to someone faster and nimbler is small in todays world. The best way I can put this is to think about all these companies and notice that none of them actually came from a telco. So why do you think they can sustain this model if they couldn’t create it in the first place?

  12. Vijay

    good points, but it is also the same group that promises to deliver television. I think given their previous experience (ATT enterprise) they have a much better chance of getting software right.

    i mean to say delivery of SaaS, not developing software – but actually insuring that the services work. they can basically provide the quality to large corporate customers who might be thinking twice about SaaS because of network issues.

  13. Om,

    I don’t usually disagree with what you say, but you’re way off base in this case.

    Don’t put too much stock in a bunch of consultant reports on SaaS. Yes, there are a lot of people chasing this concept, and it is growing rapidly in percentage terms, but that doesn’t make it the future. (The more important question is which is growing faster in absolute dollar terms — my guess is that 5% growth in software licensing far exceeds 20% growth in SaaS).

    Some applications (Salesforce.com’s CRM)are good candidates for this type of model, while others (Microsoft Office) are not. (Note: that doesn’t mean the pricing for Office won’t continue to migrate to monthly/ annual fees, just that it is still a license being sold, not a service.)

    However, that is beside the point. Raindeer has it correct — the telcos can go after the network-oriented applications (in which I’d include everything from Salesforce.com to Skype to eBay to Google), but it is a market wholly separate and independent of their core connectivity business. And a market they have little or no experience in.

    Every attempt to improve the network business by adding applications only results in applications that are constrained by the telco’s network. To tie the network to a specific application simply limits the network’s use for competing applications. Either move is a mistake.

    BT has done some smart things by creating an effective wholesale business an by focusing on building a competitive global network. If they wish to benefit from SaaS, they should not buy salesforce.com, but create the capability to enable/ support it and its 1,000-plus competitors. That would leverage its assets and capabilities — and just might succeed.

  14. Kate – I’d go further than just CPE management. Most corporate/government customers in the UK will either be on or about to move to a QoS enabled IP VPN infrastructure, many with managed CPE from the carrier. Plenty of these customers will have some added IOS or Junos feature – Netflow/NBAR or call manager SRTS as examples.

    I’d say only BT and DT provide software applications in the cloud. The trend has been to give system integrators the lead role in application deployment and management – but I think even this may be changing.

  15. Bruce, here is what i have tried to say in this post.

    SaaS needs to overcome bandwidth constraints, packet loss, jitter and latency. These are issues that telcos can address with their network capabilities, and they can start to learn the ways of the software world, and work with SaaS vendors.

    This is a business they should consider expanding into, because it is a natural progression for them, and as the headline suggests, they need to learn these new tricks. if they don’t they are missing an opportunity. whether they will, I don’t know.

    At least BT is trying.

  16. Bruce,

    of course, i am glad you disagree – otherwise we would be discussing some lame rumor about bebo and yahoo. appreciate the vociferous debate from our readers – and of course i am wrong, most of the time.

  17. Simon, I left Cisco 4 years ago, so I can’t comment first-hand on how they have progressed with BT and DT, but I can say if they are doing “large-scale” IP services it was a LONG HARD ROAD! Still it’s a streach to say because they are finally delivering Netflow that they now could deliver Salesforce.com.

  18. Thanks Om, for this interesting topic.

    In my opinion, Telcos must transform out of bit transport into becoming a digital distributor of digital goods. Else companies like Google, Yahoo and eBay will rise their backs like Zorro and pay nothing.

    While Exxon-Mobil is distributing a resource in finite supply, Bandwidth is now as freely available as Tap water, thanks to the fiber invested in the boom days and margins from that bit transport will fall. Future margins are in innovative SaaS applications (like Billpay or m-wallet)

    Telcos can transform themselves to Telco 2.0 by partnering with software services companies and building common capabilities that can be reused by third party innovators. It’s a win-win!!

  19. Om, totally agree. But one correction to your statement and all others…why just think of Salesforce.com when someone says SaaS. There are tons of other SaaS models. You can deliver pretty much any application, in a secure, VPN only-access, on a SaaS basis.

    I think as Om says, the Telcos shound brace and be prepared to deliver such a platform that would help them deliver these services.

    Ans finally please do not bring Web 2.0 here. It makes little relevance to this topic in my honest opinion.

  20. BT – OK – so BT Workspace was a good idea but BT Tradespace is a total disaster. They’ve made the classic Siebel mistake of not tying the applications together such that they ‘know’ which service you already have. Or for that matter that you’re already a user. Doh.

  21. Om, you said
    i mean to say delivery of SaaS, not developing software – but actually insuring that the services work. they can basically provide the quality to large corporate customers who might be thinking twice about SaaS because of network issues.


    This theme of latency and jitter and packetloss seems to be a common driver among people saying the telco can deliver SaaS better because they can ensure none of these issues crop up. My question is: since these aren’t monopolies in the last mile like home service, why would anyone put up with horrible service that has significant jitter, packet loss etc. They can switch their circuit to someone who doesn’t quote suck as much unquote

  22. Rajesh, wouldn’t partnering with a software company like Google violate net neutrality! Yahoo and Microsoft would be disadvantaged.

    I don’t see a win-win telco-software partnership that the public (or Congress and the FCC) will allow for residential broadband. Business private network services is probably a different story.

  23. Tom, I hear BT is using many global software services firms to develop these common capabilities and embed them as objects for third party innovation. When I meant software firms, I most definitely did not mean Google or Yahoo…hope that clarifies.

    Telcos stand to monetize their network and applications only through an ecosystem of software services and Web 2.0 partners.

  24. Rajesh, I understood what you were going. I was trying to test the parallel argument for residential.

    I just don’t buy the “dumb pipe can’t succeed” argument for either business or residential. Craig Moffett at Sanford C. Bernstein has been pitching the “Dumb Pipe Paradox” for the past year. His conclusion is that trying to be a “smart pipe” brings a lot more associated cost than revenue for all of the carriers and MSO’s. He makes a pretty strong case for the residential dumb pipe, especially for cable MSO’s getting out of the video business (this is from one of Comcasts leading analysts and a huge bull).

    Having watched the telcos struggle unsuccessfully to move up the value chain for the last 30 years from AIN to IMS, I am convinced they should focus on what they know how to do best.

  25. Vijay,

    agreed this is an open market place, and there are no monopolies, but that doesn’t mean that the telco experience is invalid. if that was the case then why buy old AT&T. That is a part of buisness where telco being telco is a good thing.

    Why not compete here with the smaller players who seem to have gotten the memo – and are retooling themselves.

    I am not suggesting as many of you are perhaps reading that they start software development business.

  26. I couldn’t find a link on their site, but this is the conclusion from my copy of the document:

    Our conclusions regarding the economics of “dumb pipe” status are, we suspect, quite counter-intuitive (and starkly counter-consensus). In short, the economics of such a scenario, as measured by purely financial metrics, are actually better than those of the business today.

    • Revenues would fall significantly
    • Operating expenses would fall even more significantly
    • Operating cash flow would therefore fall more modestly, while operating cash flow margins would actually expand
    • Capital expenditures would fall sharply
      Free Cash Flow would actually increase
    • Capital employed in the business would also fall sharply, yielding much higher ROI and ROE

    To be sure, our analysis ignores potentially painful milestones on the way to such a “raw connectivity” future, such as the stranding and subsequent write downs of a huge portion of Comcast’s current asset base. Growth prospects in this “end game” would likely also be lower than today’s (although not necessarily). Nevertheless, our analysis leads to the surprising conclusion that a disintermediated business would, on most financial metrics, at least, actually be a better business than the current one.

    Behind these counter-intuitive findings is a simple, and perhaps more intuitive, truth. In a high fixed cost business, it’s not such a bad thing to be the low cost provider.

  27. wow.. what a thread.. excellent debate here..

    I have a different twist for the debate.

    Lets take example of simple(!) portal by these Telcos as ISPs.

    AT&T and BT partnered with Yahoo while Comcast and AOL (earlier) created their own portals. What is the perception of success / failures and lessons learned for portal by these companies and does that apply to SaaS?

  28. Om – I fell out of my chair after I read this. This is hilarious

    Do you seriously think BT, C&W, France Telecom etc can do this? They are so distant from Software mindset.

    I have spent years working with BT, C&W, FT. Believe me each wanted to run and support Hosted IP Tel, Hosted call center services, Hosted CRM, Hosted what not …And they do offer these today. It probably forms less than 5% of all their revenue.

    They just cannot do it. Its Layer 8 issues (i.e., people politics and personalities.)

    They have the money to buy a SaaS player. But that will be choking and hanging the SaaS innovation.

    My 2 cents.

  29. Om,

    Actually, your point about improving the network was one thing I didn’t disagree with. Of course, unless BT can control the entire network end-to-end, there are limits to what this can accomplish. For example, they can’t improve jitter or packet loss in the WiFi connection in your local Starbucks. Still, to the extent they can deliver a high quality pipe, overall customer performance will improve.

    However, it is a leap to get from that to having BT (or any similar telco) get into the applications/ software space. As others have pointed out, no incumbent telco has had success in this area in the past. (Although, that could, in theory, be changed.)

    The problem is that the applications and network businesses don’t fit together. On the contrary, the more connectivity moves to the Internet, the more they are driven further apart. (Think of it as the Internet divergence.)

    BT could build a software business (after all, IBM transformed itself into what is largely an IT services business), but they won’t get there through the network.

  30. BT are revving up for this, they are well into an aquisition phase looking to buy businesses in the UK with exactly this SaaS expertise or at least having the appearance of it.

    You don’t have to frequent too many industry events to hear the favourite suspects for takeover.

    BT know they aren’t and can’t be agile so they act like retail supermarkets: they collaborate with selected partners ( in a supermarkets place they would take on a niche supplier) assess the response and demand for the product and then buy similar smaller companies used to being agile and rebrand them – look at BT iNet (they’re just like Sainsbury’s Organic Bacon 🙂 ) – BT can create a competitive agile stormtrooper business with the stability and backrooms of a monolith – we can still beat them as the agile stormtroopers get swamped but they can do a great deal of damage in the process.

  31. Great comment thread. Some related thoughts on recently leaving a big-4 US telco:

    1. The telco industry and web 2.0 zeitgeist really don’t even engage with one another — there’s a huge opportunity for the telco that can be at the forefront of this dialog.

    2. There are lots of really smart people at carriers, they just aren’t necessarily in charge.

    3. Carriers fundamentally do not understand incremental end-user product development, the name of the game in the rest of the tech universe these days.

    4. There are services carriers can provide that Web 2.0 folks would actually want, if they knew what they were or how to access them.

    5. Standard walled-garden stuff aside, carriers need to fundamentally rethink how they define “developers”.

    6. Carriers needs to stop trying to out innovate one another, and the web folks, when it comes to user-level converged services — they are just not set up for it and shouldn’t be trying.

    Whichever carrier can step it up and engage — engage developers, engage users, engage the web 2.0 dialog — will be the one that ends up on top. No manner of IMS, SDP, SaaS etc capability will compensate for a failure to appreciate the above. One guy’s opinion anyway ;-).

    P.S. Longer argument on my blog at: http://www.willmeyer.com/blog/2007/05/24/wheres-the-telco-in-web-20/

  32. In my opinion, Telcos are simply reluctant to shake hands. They seem to be selfish type!

    When a zillion startups are settingout with an aim to change the world and create value for customers (not thinking much about their profits- I have personally worked with few startups and none of them had major profit motives)… Telcos seem to be busy counting their earnings. It would be a miracle to see some CHANGE with the Telcos!

    Here is a news some of you might be interested in…

    Telecommunications companies like Verizon and AT&T want to build high-speed networks to provide video and Internet services in competition with cable companies. Will these networks be broadly available and foster technological innovation? Or will they simply benefit certain moneyed interests? The answer — and, ultimately, the future of the Internet — depends on the telecommunications bill currently winding its way through Congress. Consumer advocates and progressives like Rep. Ed Markey (D-MA) are pushing for the telecom networks, which will be built using public rights-of-way, to provide universal, non-discriminatory access. The telecommunications companies (along with the cable giants) want to reserve the right to give preferential access to whomever has the most cash. Thus far, unfortunately, the industry is winning. (Credits: ReachCustomersOnline.com)

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