Death (2)
February 19, 2009
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 Dick 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.
