A new decade dawns, but what lies ahead?

Citation

Curwen, P. (2010), "A new decade dawns, but what lies ahead?", info, Vol. 12 No. 3. https://doi.org/10.1108/info.2010.27212cab.001

A new decade dawns, but what lies ahead?

Article Type: Rearview From: info, Volume 12, Issue 3

A regular column on the information industries

For followers of the telecommunications industry, the first decade of the new millennium could aptly be described as a busy one. For someone such as myself, switching from research into privatisation just before the decade began, it meant inter alia having to specialise in mobile in order not to lose all control over the vast outpouring of telecommunications-related information over the internet, especially as it rapidly became clear that much of it was either misleading or just plain inaccurate. In the event, not yet being in a position to forecast what the decade would bring was perhaps a blessing in disguise, but a few comments about the new decade can be ventured from a position of improved knowledge compared to 2000.

It is appropriate to begin with a bit of speculation: will there be a Google of the second decade? Most people believe that decent GSM coverage and handsets date back to near pre-history so they also tend to think that the likes of Google have been with us for at least a couple of decades. In fact, Google, based initially in a garage, was incorporated in 1998 and the toolbar first appeared in December 2000, so it can truly be said to epitomise the first decade of the millennium. Right now it is very difficult to pinpoint an equivalent for the new decade, which is not to say that one will not appear. Is this a forecast? One thing is certain, which is that several recent developments appear to have taken the form of persuading people to use services that (unlike an efficient search mechanism) they were not really aware that they were managing without in the first place – if you needed to know where you were going, you bought a map! Furthermore, imitators tend to be created almost instantly, so no single company can gain the massive first-mover advantage that Google did in search. Hence, I am inclined not to expect another Google in the foreseeable future.

It is also a matter of speculation whether China will come to dominate the telecoms industry in parallel with its increasing influence in geo-politics. So far as its desire to become a technological force in the 3G arena with home-grown TD-SCDMA is concerned, the answer is assuredly negative – no other countries need it and nor do they want it (except insofar that they are anxious to curry favour with the Chinese government). The likes of Huawei will become an increasing force in the vendor industry so long as they can keep down their prices (and, where necessary, provide vendor financing that few other vendors can afford) but, equally, the likes of Ericsson and Nokia, let alone geographically closer rivals such as Samsung, will hardly run up the white flag. On the operator front, it is notable how little progress was made by China Mobile prior to 2010 in acquiring overseas networks, and whereas a few weak players may welcome a cash infusion from China, it is much likelier that Indian operators such as Bharti Aitrtel will build substantial overseas empires as the decade proceeds.

Moving on, it is worthy of note that some bad decisions take a long time to remedy (at an inevitably high cost). Take AOL Time Warner, for example – or perhaps not if you are were a shareholder when AOLTW was worth $330 billion at the time the company was formed and held on to your shares. Multimedia and convergence between different stages of the value chain were “hot topics” in 2000 and the formation of AOLTW was going to prove that the concept would work in practice. It is possible to argue that it was not the concept that was flawed but rather the execution and the timing, but those who claimed at the time that you cannot bring together two highly incompatible business cultures and expect things to run smoothly clearly knew what they were talking about. When Time Warner re-listed as a separate company in October 2003, it left a virtually valueless AOL as a subsidiary with a rump of dial-up and advertising businesses which it was decided would be split apart during 2009 and the dial-up part either sold or spun off. Interestingly, it was also decided that Time Warner Cable would be sold, effectively leaving Time Warner as an old-fashioned purveyor of entertainment and journalism for global audiences. In the event, AOL re-listed in December 2009, valued at $2.4 billion because it still had millions of profitable dial-up subscribers, but a mere shadow of its former self.

It is safe to forecast that there will be no further attempts to build multimedia empires during the current decade. Indeed, convergence has shrunk in meaning to encompass little beyond a coming together of fixed-wire and mobile services, although, in turn, the popularity of this strategy has finally put paid to the costly Vodafone-led expedition into the land of the mobile-only empire. As it happens, most of the large mobile operators remained attached in some way to fixed-wire businesses (and, in Europe, O₂ became re-attached to one when sold to Telefónica) so the associated restructuring has been relatively cheap and straightforward. The problem of culture clash has also been minimised.

This, in turn, has implications for M&A activity. The broad lesson is simply to acquire only businesses with similar cultures in parts of the world where you already operate and feel comfortable. Given the so-called credit crunch, the recent absence of high-value takeover bids comes as no great surprise, but it is again of interest that the only takeover bids during 2008 involving a target with assets (as against debt) worth over $10bn comprised France Télécom’s unsuccessful offer for TeliaSonera and Vivendi Universal’s unsuccessful bid for Zain Africa. Zain, once again under offer during 2009 (but this time in the form of a 46 per cent stake in the company itself), remains unsold, as does (for now) MTN despite its active pursuit by Bharti Airtel. However, a key point is that Vivendi has other African holdings while Bharti reckons to be able to transfer its expertise in an emerging country market into others that are similar. Hence, it is reasonable to forecast that unless (at least theoretically) transferable skills are involved, major takeover bids will rarely be launched during the next five years. Furthermore, most will probably fail, often for political reasons as governments appear to be becoming increasingly choosy about what makes a suitable buyer, especially in the case of so-called “national champions”.

Indirectly, this should serve to accelerate the resolution of longstanding disputes involving operators that have ventured into places that they might, perhaps, have best left alone, and discourage others from following suit. As an example of the former, take the disputes involving the Russia-based Alfa Group, Telenor and TeliaSonera. The October 2009 agreement to merge Alfa and Telenor’s stakes in VimpelCom and Kyivstar will, when completed, bring to an end a constant succession of legal challenges and enable the operators to pursue an agreed strategy at long last. Importantly, no-one has “won” and no-one is altogether happy with the outcome, but if nothing else the risks associated with operating in Russia and the Ukraine will have been much reduced – although few other EU-based operators will now want to venture into Russia and the CIS in the near future.

The dispute between Orascom and France Télécom in Egypt raises similar issues, but in the context of a country with ostensibly more reliable regulation. For over two years, Orascom has been trying to prevent France Télécom from acquiring control of mobile operator Mobinil even though it had itself triggered a buy-out clause in a fit of pique. Initially, Orascom was able to rely on its contacts and “local knowledge” to keep France Télécom at bay (through a regulatory obligation to pay more than it thought appropriate). However, after the Egyptian President visited France (one of its largest inward investors) the regulatory decisions suddenly swung in favour of France Télécom. What lessons will be learned from this is a moot point, but one at least is that you should not go shopping for foreign assets unless your government is willing to push your case when the chips are down.

Turning to technological matters, the past year has witnessed a sharp upturn in the speed at which new smartphone designs are hitting the market, and the forecast here is essentially more of the same. Naturally, it can be argued that the process will rapidly become one of imitation rather than innovation – there are only so many ways to configure a handset with or without a QWERTY keyboard – but the physical design is only one element of the whole, which includes the operating system, the applications and the operator. In essence, everything is up for grabs, with every proprietary OS, such as that of Apple, coming under fierce attack from open-source systems such as Android; every vendor fighting for market advantage by combining different services – for example, location services, social networking, camera/video or music – in different ways; every operator trying to decide whether to go for exclusivity or offer as wide a range of handsets as possible; and so forth.

This is not quite on the scale of the coming of the internet but it is hugely disruptive. So the forecast must go on to include the disappearance of some famous names’ activities (even if the name lives on in the style of Nortel Networks) and possibly the creation of more joint ventures, although this is made much less likely by the poor performance of the likes of Alcatel Lucent and NSN. Ultimately, there are too many vendors, too many operators, too many platforms – too much of everything really. So the forecast is that there will be progressively fewer of everything as the decade proceeds.

This is not going to please regulators, especially as the move towards a more laissez faire approach in, for example, the USA, during the previous decade has been brought to a halt. But forbidding takeovers and demanding ever-greater reductions in termination rates may simply cause unprofitable operators to withdraw from markets (without being replaced) and that is something regulators cannot prevent (although they can, as an interim measure, forbid joint ventures). So the forecast is for some severe quarrels between regulators and market operators of all kinds that will ultimately see regulatory influence on the wane. Naturally, all concerned will claim that they are behaving as they are to protect the interests of consumers who will themselves continue to ignore all the theoretical arguments when taking sides.

Oh, and the internet will continue to spew out ever more misleading and/or inaccurate information. And the only organisations with the resources to distinguish fact from fiction will charge ever more money for this service.

Peter Curwen Visiting Professor of Telecommunications at the University of Strathclyde, Glasgow, UK.