Telecoms & Broadband Business Newsletter - March 2010

Editorial - Are Google, Microsoft and Apple the next utilities in telecoms?

Over the last few years the increasing amount of discussion about telecoms reveals that the real competition for telecoms companies is not from other telcos, but companies such as Google and others.

BuddeComm agrees with this, but obviously it is important to analyse it further. For example, it is not just a matter of Google competing with something like the White and Yellow Pages directories. What is happening is that another utility function, other than plain telecoms infrastructure, is required for the emerging digital economy to get off the ground. Of course the telecoms infrastructure (broadband) plays an important role in this. But this somewhat raw material in itself doesn’t really provide the foundations for the digital economy just as, for example, iron ore is not the foundation for the car industry.

What has triggered the changes in telecommunications over the last 15 years has not been the basic infrastructure, which was secondary, but the Internet. Suddenly this new ‘half-product’ appeared that also sat on top of the infrastructure, and it was the combination of these two that got the digital economy underway. Only afterwards was there a need for an upgrade of the underlying telecoms infrastructure.

It is this Internet layer that provides the opportunity for people and businesses to develop their own products and services for their own participation in the digital economy. This ICT combination is now delivering applications that are progressively forming the basis of the digital economy.

This now begs the question what, in our industry, are utility investments and what are value-added investments? It appears that many of the Google, Apple and Microsoft investments will end up in the utilities corner. There is nothing wrong with that as long as the business models around that move reflect this. At the same time, are these companies able to use that utility themselves to also generate extra value-added revenue? BuddeComm is of the opinion that Google and Apple are well and truly on their way, while Microsoft seems to be struggling.

It is very important for all involved in developing the digital economy to understand the different business structures and investment models that need to be made available to them. Serious problems may occur further along the line if companies are not aware of this at the start, and do not address the specific structural components of their new company or investment in their business model.

The risk with utilities-based investments is that you can end up in dominant and monopolistic situations similar to, for example Microsoft, which then result in regulatory intervention. In addition, as is currently happening with energy companies and telcos, such a situation could possibly lead to a forced split between the assets.

Furthermore, the new idea of what is utility and what is not in relation to the infrastructure needed for the digital economy has consequences for its design and architecture. It is not just a matter of providing the raw materials for the infrastructure, but also all the basic ICT elements which are an essential utility in creating the new economy.

Paul Budde