Will Telcos and Cable Companies Really Compete with Apple and Google?

By Gary Kim, Contributing Editor

One hears more talk these days that telcos and cable companies are competing with, or about to compete with, the likes of Google and Apple (News - Alert). It’s a catchy headline. But is it a serious reality?

Essentially, contestants in the communications and entertainment ecosystem are finding they increasingly must compete not only with other competitors within a portion of the ecosystem, but even to a certain extent with partners in the rest of the ecosystem. That’s the sense in which there is validity to assessing how much, and where, telcos and cable companies might actually find themselves competing with traditional partners in the value chain.

Some would say service providers are moving to develop new services ranging from mobile advertising to new messaging technologies to counter competing and often free services from Apple and Google (News - Alert). Google Wallet and Isis are direct competitors, for example.

But that raises a bigger question: to what extent is it even feasible for access providers to consider abandoning that role within the ecosystem. In other words, are they network players or not?

There is a “soft” way of answering that question, and a “hard” alternative. The soft answer is that a specific company continues to offer access or transport services, but sources them from a third party.

As a mobile virtual network operator buys capacity from an underlying carrier, or a competitive local exchange carrier buys wholesale service from a third party, so a “soft” way of answering the question of whether a network services provider continues to operate is to say “yes,” but with an increasing emphasis on other ecosystem roles.

One example is the difference between a firm that sees its competencies in “marketing” rather than “network management.” That sort of firm might be comfortable sourcing access and transport from third parties. A firm that believes its core competence lies in networking will generally prefer to own its own network assets.

The more radical “hard” answer is that a company literally divests network assets and seeks its fortune elsewhere in the ecosystem. That so far has seemed an unworkable strategy.

But it is not unknown. The 1985 divestiture of the Bell System had AT&T (News - Alert) completely getting out of the access business, to focus exclusively on long distance and technology services (Bell Labs and Western Electric). In essence, AT&T became a technology supplier and long distance specialist, and not longer was a “telco” in sense of providing access services and “dial tone.”

Rochester Telephone in the 1990s essentially gave up its local exchange monopoly, creating a separate wholesale access company and then a separate retail services division. The deal was part of a larger bargain that gave Rochester Telephone the right to create a long distance services business, at the time seen as the faster-growing revenue opportunity.

In similar fashion, Singapore Telecom gave up its own retail monopoly in exchange for freedom to pursue offshore growth opportunities.

In those cases, an incumbent gave up ownership of the “networks” business to become just one of many local retail providers. To be sure, Rochester Tel and SingTel (News - Alert) continue to sell access services, but don’t own the networks.

The more radical, “hard” strategy would have had either firm abandoning the access business entirely. That might seem unlikely in the extreme. But softer forms of competition seem increasingly rational.  







Edited by Jennifer Russell