Competition in Transition

by Neale Martin published June 18, 2007 in Telephony Telephony

The nature of the competitive communications marketplace seems to have settled into a predictable oligopoly dominated by telecom and cable. Indeed, viewing telecom and cable as separate industries is questionable, as both are increasingly in each other's traditional business lines. Only wireless separates them, and the four major cable companies have a partnership with Sprint if quadruple play ever becomes a competitive necessity.

Currently, cable is having a field day with triple-play services, while AT&T and Verizon spend billions to deliver competing video services in their domestic territories. Similarly, the two largest wireless players are also the two remaining local providers spun off from AT&T in 1983. Sprint Nextel is a close third with more than 53 million customers. As the wireless marketplace approaches 80% penetration, growth is beginning to slow. The recent acquisition of Alltel by a private-equity firm may mark a change in the formerly merger-driven business.

In other words, telecom is kind of boring right now as major players execute their board-approved strategies. But the broadband networks built or under construction by wireless, telephone and cable companies are bringing revolutionary changes to a host of other industries.

Content companies — publishing, film, television and music — are reeling from changes to their fundamental business models. First, rogue peer-to-peer networks subverted the ironclad control music labels had on distribution channels, making the purchase of a CD seem quaint. The creation of hundreds of cable channels, combined with the popularity of the Internet, continues to erode the lock broadcast networks had on U.S. audiences, and the Internet is becoming a great alternative distribution channel for all things video.

The advertising model appears irrevocably busted as readership and viewership continue to wane. Advertisers are trying to figure out where to spend their billions, nervously moving more money to the Internet, unsure about new commercial rating services, click fraud and other changes to an already chaotic landscape.

Broad pipes and voice over IP have led to the outsourcing revolution impacting industries as diverse as software engineering to customer service. In the late 1990s, I had predicted this transfer of knowledge work based on big pipes and cheap apps such as Global Information Arbitrage. Though outsourcing results have been mixed, the marketplace is forever changed as employers and knowledge workers swim in a global pool of talent and opportunity.

Another interesting area of competition spawned by our pipe-builders is the manufacture of gadgets we use to connect to wired and wireless networks. PCs have rapidly evolved into multimedia and gaming platforms, while cell phones have similarly transformed into intelligent multimedia devices. Blurring the lines between PC and handset manufacturers are a new generation of intelligent devices referred to as UMPC, or ultra-mobile PC.

While laptop manufacturers are rolling out a set of these devices based on Intel/Microsoft specifications, the demand for these clever, portable devices remains nascent. Scaling up instead of down, handset manufacturers — notably Nokia and Palm — believe their advanced devices will obviate the need for laptops in the future. Palm's new Foleo is designed as a portable computer that will work with a smartphone. And start-ups FlipStart and OQO are focused exclusively on this space, offering unimaginably small computers running full versions of Vista.

So, although consumer advocates may bemoan the lackluster competitive landscape for phone, video and wireless, our erstwhile oligarchs have created (and continue to create) intense competition across a wide swath of industries. Back in the day (the mid-1990's specifically), we wrote about how broadband pipes would change the world. They have.