Well, MWC is over. The general sense I got from those who attended, both the operators and the vendors, was that it was a cross between a wedding reception and a wake. That’s fair, because I think that’s actually what it was. It celebrated the marriage of telcos and AI, and it celebrated the death of 5G as a factor in transforming telco business models. What it didn’t do was answer any important questions, and in fact what it may have done is to sow the seeds of its own destruction. Many of the past trade shows have disappeared. Most have diminished. So, I think, will MWC.
CRN published a nice story on what it said were the biggest telecom announcements. What was most interesting was what wasn’t in it. I don’t think there are many in the telecom industry, in any role, that don’t believe that it’s essential for network operators to create new revenue sources. Yes, cost management is a way to keep the lights on while those sources are building momentum, but cost management admits to commoditization and stagnation. Yet, all the announcements are really about cost management and not new revenue opportunities. Private wireless was a story, but of course private wireless is revenue-negative to public operators.
A Light Reading story captures what I see as the summary position the show offered us. 5G has surrendered to AI as the Hype that Saves, but it really doesn’t save either, it saves the company by killing jobs. Forget the idea that some future services will raise revenues. This is now about facing the lifeboat problem of the Titanic; we have to kill a bunch to save a few. There are still some on board the 5G Titanic that express the belief in universal rescue (Microsoft, for example) but most now see it as a lottery. The question is whether that’s good or bad.
5G was always a false hope, and 6G will likely at least attempt to be the same thing. On one hand, it’s essential that the industry discard stuff that won’t work if it’s ever to find something that will. On the other hand, if the industry’s next shot at salvation is still going to leave more victims than survivors, that may mean that nobody will expect to survive in the long term. I tried to get consensus data on optimum headcount from the 81 operators I’ve been chatting with recently. The numbers are surely rough, but interesting. They say that CTO staff would drop by 50%, CIO staff by 20%, sales/marketing by 85%, network operations and NOC by 45%, and customer support by 90%. Overall, more than half of all jobs would be eliminated.
This isn’t exactly a happy outcome, of course, but it’s what the Light Reading piece is suggesting without the (admittedly sketchy) details. The truth is that if telecom services continue to commoditize, this sort of decline in headcount is not only inevitable, it’s smart. You don’t need all those people if all you’re doing is keeping things working. You don’t need to “sell”, only to take orders. Everything goes online or through other organizations—the MVNO model. Customer support is chatbots, sales support is chatbots. You promote your stuff by giving away phones or other gadgets. Buy a gallon of milk and get a coupon for cereal, because milk is a commodity but cereal still has differentiation.
Cost management, efficiency maximization, productivity, even sustainability in the form of energy savings, all relate in the end to commoditization. No seller ever tries them if differentiation based on something other than cost is possible. None of them will ever add that sort of differentiation either, which means they won’t put an end to commoditization. At some point, network operators slim down and perhaps actually require some form of subsidization. The 1980s were the decade of privatization, and the 2020s could be the decade of “publicization”.
Or we, and that includes shows like MWC, could stop frittering time and value away and actually try to do something useful. I’ve blogged enough about my real-time-services theme; if you don’t like that as an option then feel free to pick another one. The point is that a new service has to open new market opportunity or it’s not new at all. Mobile worked because people could use phones where they couldn’t before. Voice replaced telegraph because most people couldn’t use Morse code and voice was more personal. But incrementalism doesn’t work. People do video calling today because that’s more personal too, but they’d never accept it if they had to pay proportionally for the capacity needed. That’s the problem with incremental service changes; they work only if they devalue transport capacity.
Technology changes create service opportunities, they aren’t service opportunities in themselves. Cellular technology, absent mobile service context, wouldn’t change much. Think of CB radio or amateur radio; we had them for decades and they didn’t explode across the population to create new markets. AI is the same. If we want AI to be an opportunity for telco revenue gains, we have to use it to create something people will pay for. The current telco approach, to the extent that there is such a thing, is to supply something that’s not yet there and then let someone else figure out the compelling business case. The obvious problem with that is that nobody might do what’s needed. The less obvious one is that if someone does, the telcos will have taken a big leap toward “disintermediation” by letting someone else own the retail value proposition.
What do the telcos have that others don’t? In terms of technology or technology skills, nothing. Elsewhere? Well, there are a couple of things. First, they have enormous free cash flows, meaning they have money. That money could surely found something. Second, they have a very low internal rate of return. For those who didn’t take (or don’t remember) basic accounting, the IRR is a company’s average return on investment. If you invest at or above your IRR, if you put money into something that gives you an ROI at least matching your IRR, your business doesn’t go downhill. Having a low IRR means you can invest in stuff that others couldn’t, not without looking bad to Wall Street. So you can take a financial risk others could not, or perhaps do something that would be a risk to others and would actually be good for you.
Recall what I said in my earlier blog about barriers to offering a new service? “Overall, of the 48 operators who didn’t see themselves offering a new service set in three years, 44 agreed that lack of a solid candidate and first cost were the most convincing.” First cost means the cost of deployment and sustaining infrastructure before significant revenues develop. Think of cash flow as a sine wave that first goes negative then turns around; first cost is the area under the negative turn of the curve. Operators have long been wary of first cost, but my view is that to make a success of new services they need to embrace it, embrace it because they can afford do when almost all their prospective service competitors cannot.
But isn’t that what 5G was supposed to be doing? Spreading out fertilizer so seeds of service could be sown by others? Yes, but it’s the “by others” piece that’s a wrong turn, for the two reasons I cited above. In the case of 5G, and I think for 6G plans, the problem is that if telcos don’t know how a technology will be exploited, they don’t know if it can be or will be. You have to climb the food chain high enough to see mouths, and to know what they’re actually willing to eat. And, finally, to be sure that you’re high enough that you can’t be disintermediated.
You do that not by avoiding first cost, but by seeking it out. Find the stuff that’s expensive enough that others would rather buy a service (yes, a “facilitating service”) from you rather than build out their own. But you absolutely have to understand what’s necessary above, in order to create the right foundation. As I said, my candidate is real-time, real-world services, the metaverse of things. Other options are probably out there too, but unless telcos pick one and embrace the essential building up of the foundation toward that one goal, they’re going to be facing irreversible commoditization and the job cuts that come with it. Then MWC will indeed become a ghost town.
