Is The Sun Beginning To Set On The Telecom Sector’s Empires?

Are we witnessing the last days of the telecoms raj? At this year’s Mobile World Congress, the mobile phone industry’s biggest annual get together, there was a palpable sense that power is slowly, but surely, passing from the longstanding big guns of the mobile telecoms services industry, such as Vodafone, France Telecom and AT&T, to Google, Facebook, Skype and other web upstarts.

While the usual army of besuited telecoms executives milled around the conference center in Barcelona, a few hundred yards away,  Google engineers were handing out free Nexus One handsets (Google’s so-called super phone) to massed ranks of software developers in jeans and t-shirts. This stunt was part of a drive to drum up the development of more apps for the Google-backed Android smartphone operating system. Such apps, which enable people to access a host of slick web-style services on their phones, typically make use of the mobile networks, but don’t share any revenue with the operators.

Not far away, the Skype stand was crammed with people trying out the web company’s software for making cheap calls over the Internet, rather than using more expensive dedicated connections provided by traditional telcos.  Many of the publicity shots of gleaming new handsets featured Facebook’s f logo, underlining how the leading social network is fast becoming the communications medium of choice.

Although Nokia, the world’s largest handset maker, had relinquished its stand in the congress’s prestigious hall 8 in favor of, presumably cheaper, premises outside the exhibition grounds, a surreal business-as-usual atmosphere still pervaded parts of the exhibition. Most of the big equipment makers had again spent lavishly on hall 8 stands, in anticipation that telcos will continue to spend billions of dollars on new network gear and handset subsidies.

Stiff upper- lips

There is a scene in the movie Carry On Up the Khyber, a spoof about the British empire in India, in which His Majesty’s officials are sipping tea from china cups and saucers, pretending to ignore the gunfire and explosions knocking chunks out of their grandiose palace. To the casual observer, it can seem like the world’s biggest telecoms companies are adopting the same “stiff upper-lip” attitude as they continue to spend heavily on their networks, even as the web-fuelled revolution knocks chunks out of their revenues.  These giants haven’t yet articulated a compelling strategy for defending their core communications business as Facebook, Skype and Google Voice erode demand for conventional voice and text services.

Some of the big telecoms companies, like the British empire, seem to be bowing to the inevitable. At the congress, Verizon Wireless announced a deal with Skype, which will enable the American mobile operator’s customers to use the Internet to make low-cost calls over Verizon’s mobile network. Hutchison Whampoa’s 3 Group has done a similar deal with Skype in Europe.

But there were also signs that the transfer of power may not be entirely peaceful. In an effort to maintain a close relationship with consumers, Vodafone recently launched a free service for aggregating social networks, called Vodafone 360, which, like Google or Facebook, is available to everyone with an Internet connection. In effect, Vodafone is mounting a counter-attack. Moreover, Vodafone’s CEO Vittorio Colao used his keynote speech at the congress to call for greater regulatory scrutiny of Google, whose advertising-funded free services are probably the biggest threat to the notion that people should pay for telecommunications.    

At least for now, Colao’s call will probably go largely unheeded in Europe. For many policy makers, and the consumers they represent, Google, Facebook and Skype seem like a breath of fresh air in an industry long associated with complex tariff plans and high prices. The only thing that might dampen their enthusiasm for a toppling of the old guard would be a major deterioration in network quality if the telecoms companies were to call time on their two-decade spending spree. There is no sign of that happening yet, but Carry on Capital Spending might not have a happy ending.

David Pringle is a freelance journalist and media relations consultant. His weblog is located here.




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