As I noted yesterday, telcos have a historical aversion to “disintermediation”, which is what they call situations when other companies build valuable services on top of telecom services, and those services earn their creators a major profit, where telcos don’t gain anything but low-revenue traffic. There are only two possible solutions to this—either you have to get those OTT creators to subsidize the telcos, or you have to get telcos to themselves offer higher-level services. Telecom policy has nibbled on both, but nothing decisive has happened. Why not?
Subsidies are always controversial, and in the EU where it came up for consideration, the notion was rejected. While it is surely true that tech OTT players have generated not only a lot of traffic, but also that most of the traffic today comes from those sources, it’s also true that without those OTT services, we likely would not have many of the wireless customers we have today, and surely would not be willing to pay a typical wireless bill.
The problem here stems from the bill-and-keep nature of the Internet, which reverses the practices of all telecom services before it. Each ISP charges its customers for attachment, and keeps all the money. In past data services, there would be some form of interconnect settlement between networks for traffic originating on one and terminating on the other. It would seem to me that if you wanted to mitigate the impact of OTT services on telco infrastructure profits, it would be more logical to impose some sort of settlement arrangement than to impose direct subsidies. However, that would almost certainly have a major immediate impact on the stocks of the “Internet companies”, the OTTs, and on everyone who invested in them.
The idea of having telcos get involved in OTT services has a longer history. Early in the process we called “deregulation”, a distinction was drawn in many markets (including the US) between “information services” that were accessed via the network and the “telecommunications” services offered by the network itself. The latter could be offered only through a separate subsidiary, and the terms that subsidiary was offered for the services of the telco had to be available to others. Generally, the idea was to prevent the telcos from benefitting unfairly from their previous regulated monopoly status. That, of course, is far from the problem today, but it’s still on the minds of many telcos, and also regulators.
That isn’t the issue that the junior telco people seem to see, though. Their concern is that any given telco OTT service has to either break ground, or compete with established providers. In the first case, the juniors think that competitors with more experience would simply jump in and steal any market the telcos worked hard to establish, and in the second case, the telcos would be unable to overcome the first-mover advantage of others. Lose-lose, in short.
This is perhaps why both senior and junior telco types dismiss the idea that the telcos could use their influence to validate an opportunity that would consume a service feature they wanted to offer, say for 6G. Behind the conviction that neither leading nor following in a market opportunity area would be successful has to lie the combined fear that telcos couldn’t recognize an opportunity, or fully realize it if they somehow found out about it. In any event, both groups point out, telcos tried to validate 5G opportunities, and failed.
What about the subsidiary point the juniors raise? Who staffs it? If they promote from within the telco, do they drag telco culture into the new organization, saddling it with the same issues the telcos themselves have? If they hire from the outside, how do the people doing the hiring recognize skills that they admittedly don’t possess and can’t develop?
Then there’s my often-stated point; telcos fear competition more than they value opportunity. Thus, to me, the conclusion of all of this is inescapable; telcos cannot now, nor will they likely ever to, save themselves. It will be up to the telco equipment vendors, because they have the same or perhaps even more stake in the situation than the telcos, and they have a far smaller burden of cultural and other baggage to carry.
I think view this is gaining recognition; it’s likely behind the Nvidia/Nokia deal, for example. I also think that deal is influenced by the fact that hype, in the case of AI, has driven the publicity for and investment in AI beyond the level that current missions for AI can realize. Everyone in AI has a frantic need to bridge between the over-hyped, trough-of-disillusionment present to a future when a realistic AI deployment will occur to justify heady levels of spending. How heady? Not perhaps as heady as hype; bulls**t has no inertia. Heady in terms of tech trends of the past. When have we seen the sort of concentrated spending boom that AI has produced?
This is also likely the case with the cost side of the picture, though, and there we find a problem. Vendors who could logically enhance opex impacts are faced with the problem of overhanging spending on their products and messing up their quarterly earnings reports, or introducing new competitors. The 21 CIO-organization planner contacts I have dismiss OSS/BSS vendors as a driving force behind AI modernization, for the simple reason that most of these vendors value their incumbency more than anything, and know that introducing a big, hot, AI story is an invitation for every competitor to call on the incumbents’ current customers to try to win them over.
The big news behind the Nvidia I’ll-buy-into-you-so-you-buy-my-GPUs story is that it’s really putting Nvidia out on a limb. If Nokia can’t create a credible telecom AI revolution with a billion dollars of Nokia’s money, what can? Nokia is out on a limb too; somebody gives you a billion to push AI to telcos, and you can’t make it happen? What’s wrong with you? Not only that, it’s hard to see how Nokia competitors like Ericsson can stand by while Nokia starts a vast AI experiment. Similarly, it’s hard to see how other chip vendors would be willing to sit on the sidelines on this point, while Nvidia sponsors a vast telco-AI experiment with Nokia.
Something has to give here, and as I’ve indicated, I think that vendors offer the only hope for a rational, technical, solution. I just wish we could be sure that there was a bit more than just “hope” here. What there might, perhaps even should be, is tomorrow’s topic.
