I know I promised in the last post to talk about why
network investment dried up after the 2000 techplosion and never really
came back. It strikes me now that the answers are so obvious that it’s
hardly worth addressing. I was having dinner with a senior exec from
Telecom Italia last month, and he put it all in one simple statement
(in between mouthfuls of a delicious carciofi dish and some deep-fried zucchini flowers): “Back then, there was competition. Now, not so much.”
That about sums it up. When return to shareholders depends on
achieving a more efficient network — for instance, highest return on
network capital employed, and lowest cost of operations per unit of
service delivered — then the incentive to take calculated risks on
innovation goes up, as does the cost of doing nothing. When return to
shareholders depends instead on favorable transaction reviews by
antitrust authorities and beneficent telecom regulation
— then the innovation incentive goes down (and the price of outside
counsel hours goes up). Venture investors have backed away from the
network space because the capital required to support multi-year sales
cycles, and the increasing uncertainty that those cycles will ever come
to a happy ending, make the projected returns prohibitively risky.
So as Shakespeare’s *** the Butcher put it in King Henry VI should we all chime in with “First thing we do, let’s kill all the lawyers“? Maybe not yet, or at least not all of them.
The current macroeconomic crisis may ironically be delivering some
early stage network tech providers (at least those who are adequately
capitalized) with an unanticipated boon. ARPU pressure, accelerating
loss of wireline revenue, and operations snafus that are killing IMS,
IPTV, and broadband rollout schedules are raising the premium on
network engineering and ops efficiency again. If you have a solution
that makes networks roll service out faster with less manual
intervention, and you can prove that it scales to meet meganetwork
needs, you may be living the early stages of a telecom renaissance.