Several times in the last month I’ve heard industry insiders emphasise the need for telecoms-related companies to gain scale. The comments come both from the vendor side and from the communications service providers (CSPs) and, while each faces different pressures, there are similarities.
On the CSP side it’s clear that scaling up is being seen as the way to generate cost savings through increased purchasing power and developing products and services for a larger market. Ultimately, that will give CSPs even bigger big data that they’re still working out how to monetise. However, as – at best – an amateur economist, I struggle with the concept of how investing in more of the same results in a better position.
Admittedly, there is value in becoming a complete service provider encompassing mobile, fixed and entertainment and we’re seeing a raft of CSPs make moves to accomplish a complete portfolio – as witnessed by cable companies buying mobile operators and vice-versa and CSPs such as British Telecom buying sports broadcasting rights as well as a mobile operator. However, the market consolidation moves seem to make less sense. If you’re AT&T and bemoaning dwindling margins in your core business, how does investing heavily in the same sort of assets in Mexico represent an optimum use of capital? Isn’t that just investing in more of the same in a margin-constrained business that faces substantial challenges?
Scale for the sake of scale simply doesn’t work – there needs to be a reason beyond the notion of potential cost saving synergies. I don’t believe a massive CSP group will be able to achieve those across 30 different operating companies and numerous campaigns, services and propositions.
Maybe virtualisation and telco cloud present opportunities to reset the cost base of CSPs, but the benefits seem asappealing to a smaller CSP as a large one, there’s just an order of magnitude to consider.
The vendor sector in the O/BSS market is also chasing scale. The last year has seen smaller BSS companies Volubill and Orga Systems acquired from distressed positions by CSG International and Redknee respectively (the full story of the Orga Systems acquisition by Redknee is live at www.vanillaplus.com now). That suggests smaller vendors have less of a role to play as their customers focus on becoming bigger and want to deal with companies that have the scale to cope with their large and tangled operating units – and can handle their demands for financing, managed services and cost reductions.
My fear is that in this march towards supersized CSPs and vendors, some things will be lost. Agility, innovation and non-standard approaches to unusual problems seem to be most under threat from investment in more of the same.
