Data, drones and driverless cars – will new technology create or destroy growth?
Writing for Tata Communications, John Strand, CEO of Strand Consult, discusses the implications of technological innovations forthe telecommunications industry.
Around the world, there is much focus on convergence and disruption. The media touts innovations such as drones, driverless cars, and 3D printable pizza as if the Internet of Things (IoT) will revolutionise the world. It would seem that old industries and companies don’t have a chance when faced with competition from new players that get a lot of media attention. Indeed, of the top 20 telecom media and technology companies by market cap in 2005, only 9 remain today. When it comes to telecommunications, 11 of the 20 companies came from the telecommunications industry, but just 7 do today. Technological change creates large value for some players while eroding it for others very quickly.
What drives development in the telecommunications world?
In a rapidly changing world where survival is at stake, it is a challenge to create value for customers and shareholders. Even though network-based connectivity is a common feature of the IoT, this does not mean that traditional telecom operators which build and run networks will see more revenue. Some will win and some will lose.
For the last 20 years, Strand Consult has examined how technological development, new business models, and distribution channels have changed the telecommunications world. Our reports describe the paradigm shift for the classic telecom operator which sold voice and SMS to one that sells broadband combined with new services. Over the last 20 years, this development has increased the value of the market and the size of the industry. Despite this, the telecommunications industry is under a lot of pressure. Yet, there are still countries and product areas with large growth potential.
In the past the value of the market was derived from services such as voice and SMS/messaging, and access to infrastructure. Operators were able to price services in a way that they covered long term network investment costs plus a healthy profit. But the Internet changed that. Now operators deliver third party providers’ services. People have switched to free communication services such as Skype and WhatsApp, and no longer buy voice or SMS subscriptions. In addition, the popularity of real time entertainment services like YouTube and Netflix has exploded, taking up more than half of all network capacity but contributing little to the cost of infrastructure.