The redundant telco?

A couple of months back, I relayed the story of a 'perfect storm' in Birmingham, where BT and Virgin were attempting to block the Council’s attempt to develop, independently,  a new superfast broadband network in and around the jewellery quarter of the city – the development funded by the government’s ‘Super-connected Cities’ project.  I’ve heard no more about that impasse but it occurred to me that, as the penetration of fibre networks grows, and broadband speeds head from famine to feast, our ISPs will increasingly lose what may be their major source of differentiation.  This certainly appears to have been the case in the US where a number of university towns, including Chicago and Seattle, are partnering with a venture capital operation called Gigabit Squared in raising the money to construct new ‘ultrafast’ networks (comprising FTTH and wireless solutions).  Following the deployment of its fibre network in Kansas City, Google is similarly looking to work with municipal partners in other areas.  

This new, non-ISP model appears to have been generally well received by users.  As one commentator put it: “our problem with broadband is not with technology - it is because the networks are too often accountable to entities outside the community - Wall Street most notably”.  And the views of the ISPs themselves?  Well, short of the sort of legal intervention attempted here by BT and Virgin, it is not at all clear how they can - or should – respond…

 

Marital problems

Two recent articles in the FT grabbed my attention.  The first was a rather retro piece by Ian Livingston, Chief Executive of BT, explaining that the justification for BT’s expensive foray into the market for TV content (sports) rights was all to do with something called ‘convergence’.  Now there’s a term I haven’t heard in a while.  To be fair, the real thrust of Mr Livingston’s article was to bemoan the asymmetry in competition between the content business and his traditional telecoms base:

“In a converged world, communications companies should surely be able to offer TV services as easily as TV companies can offer broadband…What we have is a situation where the regulators, Ofcom and the Competition Commission, have declared the UK’s pay TV market to be broken”. 

So, for the umpteenth time, the article was actually a diatribe against the dominant position of Sky in the pay-TV market and its relatively lightweight regulation.  If only it was that simple… 

The other article, in the same FT edition, was a rather more contemporary take on the challenges involved in exploiting convergence.  The article cites the limited success of the telco/content model, explaining that several such alliances are now being unwound, e.g. Vivendi:

Philippe Capron, Vivendi’s chief financial officer, says: “The previous structure was not understood by the market [and so] we needed a change in tack. Vivendi has been a product of history as much as design. We may not be the best owner for each of our assets”. 

The FT piece goes on to look at some of the explanations offered for the apparent demise of these traditional TMT mergers:

“Tony Worthington, head of TMT at Standard Chartered, says the success or otherwise of convergent TMT business models depends on the market, and whether or not managements have a clear model of synergy delivery. History has proven, he says, that the ones that have to carry legacy infrastructure have struggled more as investors have taken a dimmer view on the pipes and cables compared to the “asset-light” approach of Apple… Corporate advisers say the problem has been that the infrastructure-heavy elements of telecoms have struggled to break down the walls into the other sectors partly because they lack the more nimble mindset found in technology and media”.

None of this bodes well for a group like BT that could hardly be described as ‘asset-light’.  And the nimble mindset?  Let’s just say it’s not a traditional strength.