Why, I wonder (and many even among telcos wonder) are we still debating new technology options for telcos? Wouldn’t a real tech opportunity shout out its effectiveness so clearly as to end all debate? If 5G features will revolutionize telco profits, wouldn’t we see signs of that by now? If AI is going to transform profits by transforming operations costs, couldn’t we expect the symptoms of that revolution to be obvious at this point? If a given capability was present in 5G and failed to catch on, is it logical to pin 6G hopes on it?
Logical, maybe not. Expected? For sure.
All public companies want to see their stock rise, or at the very least don’t want it to fall. Since roughly 2000, when financial regulators worldwide attempted to deal with the dot-com bubble, Enron, and so forth, this has meant the companies needed to articulate a good future profit picture, and back it up with good current results. For the companies who sell technology products to telcos, or want to, that means having a credible story that generates early engagement and sales and demonstrates staying power. The companies who want to sell technology, like chips, to those tech vendors, and so forth along the food chain. The smart thing would be to ensure actual good results and long-term outcomes, but singing pretty works faster. If enough of the food chain joins in the chorus, the result is a credible wave of goodness. Credible, but not proven.
The big problem we have in telco-land is the difference between “credible” and “proven”, between “utility” and “justification”. What AI or 5G/6G, could do and what we know it will do, is very different. Even what it can be used for, and where it’s value is sufficient to meet company investment thresholds for ROI, is very different. But all these truth are fairly obvious, even if we don’t consider the fact that past technologies that have made great promises have failed to deliver on them. Remember ISDN or packet switching or ATM?
All 88 of the telcos I chat with have commented, usually multiple times, on these issues, so what can we say about the situation, based on the telcos’ own view?
First, all the telcos admit that most of the technology shifts they’ve promoted have failed to generate meaningful financial benefits. All but 6 even admit that’s the case with 5G, but three quarters think that AI would pay off, two-thirds that 6G will, and just under a third that 5G will pay off eventually.
Why chase this stuff it the track record is so poor? 74 of 88 say “competition” is the reason. The hype waves that tend to accompany these new technologies raise the perception among investors and customers that these technologies give a major advantage to those who adopt them, and a major benefit to the customers who use them. Thus, it’s a competitive risk. The most-cited point here (by 59 of the 74) is the issue of handsets. The handset vendors, of course, want to sell more handsets, and since virtually every prospective user of cellular service is already a user, and over 85% use smartphones (it varies by market, of course), the only way they can do that is to introduce some compelling new feature. What could be more compelling than the ability to use a new generation of wireless service?
All of this leads to the vision of telcos, like the proverbial lemmings, marching to their doom. But of the 88 telcos, 53 say that they believe that 5G could have been redeemed, and they all say AI and 6G could pay off (as opposed to the three-quarters and two-thirds, respectively, that believe it will). So, in general, telcos admit to a failure to launch, a failure that they believe could have been prevented. Not only that, almost every telco who believes that believe the telcos themselves are the most to blame.
Here, we have an interesting division. The senior players among the telco commenters believe that there’s a combination of systemic problems and cultural inertia that a determined management initiative could resolve in (on the average) three years. The junior players think that these issues will never be resolved internally, and that telcos would have to use separate subsidiaries, companies, investments, to advance things.
One specific point that senior types make explicitly, and that most junior types acknowledge, is regulatory uncertainty. Telecom regulation varies considerably across the global markets, and in many (including and even perhaps especially here in the US) has varied considerably over time. There have been, and sometimes still are, requirements that telcos form separate subsidiaries for some non-traditional services, and that telcos can’t work together (read “collusion”) on service issues. I’ve seen, several times, this set of issues even bring meetings to an end when someone raised the need to consult their lawyers.
The reason this is an issue lies in the core thinking of telcos, honed through many decades. There are many opportunities that depend on telecom service advances, and if we deliver on the advances, the opportunities will deliver the ROI. There are many costs that could be radically reduced through new technologies, and if we reduce them the savings will pay for the adoption. Telecom has historically proven supply-side thinking works, and this is an industry that spent a lot of research dollars doing cost optimization without stringent proof that the benefit would pay back adequately; in the long term and in a mass market, optimum is a requirement, period.
The problem is that the market has changed. What telcos provide is a set of information pathways, and those have been seized by a whole industry we loosely call the “over-the-tops” or OTTs, to build new businesses. Yes, it’s increased telco traffic, but it’s done so by introducing applications that users see and value, when the don’t see or value those information pathways. Disintermediation, remember? Now, there’s a real risk that some of the OTTs, the cloud providers, may even see an opportunity to deploy their own bit pipes, displacing some telco services. Telcos could be left with the most expensive piece of the public network—access—and the least differentiable piece. When you look at the bathroom in a new house, are you looking for fixtures and tile, or the vent stack?
On the cost side, telcos have been working for decades to reduce cost, most specifically in the “craft” personnel who did the outside installation and related work, and in human customer support and even operator/information personnel. All cost management strategies tend to aim at the same targets, which mean that they vanish to a point as those targets are addressed. One junior type joked “We’ve plugged all the dikes, gilded all the lilies.”
Some thinking outside the box is clearly needed here, on the part of nearly every stakeholder in the telecom space. Telcos have to be governed realistically, to be not only allowed to try, and deploy, innovative new things. Telco cultures have to adapt to that reality, and telecom vendors have to step up and play a decisive role in the near term, pay less attention to short-term sales targets and more to the long-term health of the market. It’s a tall order, and I’ll blog about some of the details later this week.
