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Time for New Thinking in Telecom

Even as traditional telecom companies display a lower profile at ITU Telecom World 2003 in Geneva, other players are stepping into the spotlight. Microsoft (MSFT) Chairman Bill Gates, hardly a Bell head, delivered the keynote speech on Oct. 13, the first full day of the confab presented every four years by the International Telecommunications Union, a global telecom coordination organization. The Colossus of Redmond's gigantic booth comes with a sound stage, espresso bar, and demo area loaded with the latest in wireless gadgets and Internet-based TV. Conference veterans are comparing it to the telecom monuments erected in 1999 BC (that's Before the Crash). Intel (INTC), Cisco Systems (CSCO), and Hewlett-Packard (HPQ) also have a huge presence on the exhibition floor and in the auditoriums.

Telecoms have done an extraordinary job cutting costs during the last few years, albeit at the expense of their own long-suffering workers, hundreds of thousands of whom lost their jobs. The next item on the agenda is to kick-start innovation, developing new products and services that will revive revenue growth. Only then can real recovery begin, most of the execs attending this conference agree. And the process will be a lot faster if telecoms look beyond their own kin for fresh ideas.

JOINING FORCES. The industry's business model itself is starting to change. Until now, telecoms have simply built communications networks and charged a fee for transporting their customer's information, be it voice or data. An alliance between Microsoft and British wireless giant Vodafone (VOD), announced on-stage Oct. 13 by Gates himself, works in a different way.

This new business model is much more like the one that led to innovation in computing. Microsoft and Vodafone are developing standards that will clear the way for a new generation of mobile Web services. Microsoft plans to gain more access to the world's 1.1 billion cell-phone users, where it has a toehold among just a few hundred thousand.

Gates & Co. are out to sell these users everything from Microsoft e-mail to downloadable music and maps to help would-be commuters avoid that traffic jam just down the road. Vodafone would benefit from increased traffic on its network. But more important, common industry standards would encourage software developers to create new applications for wireless phones, just as they have for computers. "In the future, when you think about phone calls, you won't just think about voice. You will think about [services]. And this can drive revenue," Gates told the gathering.

DANGEROUS FRIEND. You can't really blame telecoms for being nervous about Microsoft getting into their business, however. With a record of extending its monopoly into new lines of business, Redmond could be a dangerous friend.

Microsoft says it will collaborate with the wireless industry. It will seek feedback at a developers conference this month in Los Angeles and at a January workshop in London. But a key rival complains that Microsoft's initiative will clash with some existing standards. "I heard a lot of lip service about openness, but the behavior of the old days is still there," says Mark Bauhaus, vice-president of Java Web services at Sun Microsystems (SUNW). Java is a software platform that has been used to develop multimedia applications for millions of phones.

Bauhaus said the new Microsoft and Vodafone initiative will be compatible with Java -- but it will conflict with technical standards backed by other companies, such as Nokia (NOK). Wireless operators should attend the workshops planned for Los Angeles and London and insist on openness and compatibility.

READY TO GAMBLE. Still, if telcos wants to grow robustly again, they'll need to take a risk or two. Working with tech companies such as Microsoft and Sun will open the telecom world to the greatest number of application developers and new ideas. "We believe it's necessary to partner with other players," Vodafone chief Arun Sarin told a panel on Oct. 14.

Other telecom executives appear ready to listen. "It will take a while, but the kinds of things that Microsoft is talking about will happen," says Steve Naylor, head of BT Global Services. And that's a lot more important than whether BT's booth has an espresso bar. By Steve Rosenbush at ITU Telecom World 2003 in Geneva. Follow BusinessWeek's exclusive telecom coverage, only on BusinessWeek Online

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