After three years of bruising turmoil, the world's telecommunications giants might be justified in thinking the worst is behind them. Smart new management teams are in place at many companies. Debt is falling from the nosebleed levels of 2001. Earnings are climbing. Relieved investors have driven up telecom stocks by some 10% this year.
But the crisis facing big telcos is, in truth, just beginning. Although most still dominate in their home territories, they have lost a third of the market to upstart rivals in conventional local and long-distance service, and plunging prices are hurting revenues. Worse, the rise of mobile phones is likely to take an ever bigger bite of their key market: plain old phone calls. While conventional wire-line voice revenues drift down at 1.5% per year, wireless revenues are climbing 14%. Sure, many carriers operate both wire-line and wireless businesses, but even they are struggling to shift customers from fixed to mobile without losing them to rivals.
Some companies have figured out that the network doesn't matter anymore. For the last 100 years, telcos have believed that their business was owning and operating a complex mesh of wires and switches. Now, facing the harsh light of competition, they're beginning to realize that their true job is helping people communicate. And their focus has to shift from managing infrastructure to making sure customers are satisfied. Consumers frankly don't care what kind of technology is behind the phone. They just want to talk to friends and family, send messages, and get onto the Internet. Companies still split along technology lines are missing the point.
A handful of industry leaders are showing the way. Britain's BT Group, which sold its wireless unit in 2001 to cut debt, now offers fixed-line customers cellular service by renting network capacity from another mobile player. Even without its own wireless network, BT understands that many customers want a single bill for all of their telecom services. And Swedish-Finnish carrier TeliaSonera has similarly blurred the line between wired and wireless by doing away with separate service divisions and reorienting its marketing toward specific customer groups, such as consumers and businesses.
Regulators can speed this shift by pushing the dominant carriers even harder to open up their networks for voice and broadband competition. This increases choice for consumers, of course. But it also accelerates the evolution of a new industrial model, wherein carriers divorce service from the underlying network. The age of virtual telcos is upon us, and the visionaries who embrace it first will be the leaders of telecom's new epoch.