'Complosion'-Global Communications Industry Exploding with Restructuring

By Peter Bernstein June 27, 2013

I always hated when in school I was taught to not start a paper with, “As the dictionary says…” Why not start with a definition of terms and some context? It is for that reason that I would like to introduce everyone to the term “Complosion.” Believe it or not the Urban Dictionary has defined it as, “An explosion inside a robot.”  

Well, while it is arguable that the worldwide global communications industry is a robot, there can be no denying that there is an explosion going on inside. In fact, I am going to make a prediction. 

The industry structure of the global converging communications industry will look drastically different, particularly on the service provider side, in terms of owners and winners and losers, three years from now.

I say this based on hard evidence. Let me explain.

In just the past few days we have seen the following:

  • Verizon is rumored to be interested in buying Canada mobile newcomer Wind Mobile for up to $700-million and also is supposedly interested in Canadian provider, Mobilicity. This is a strategic move to enter the market since Verizon as a new entrant could bid in the coming Canadian cellular auction for two out of four blocks of spectrum in each geographical region while big incumbents Rogers Communications, Telus Corp. and BCE would be limited to just one block each.
  • Financial strapped Vodafone despite its problems announced that it was buying the German cable operator Kabel Deutschland for 7.7 billion euros, or US$10.1 billion. This is further indication over the value of cable properties as critical parts of the puzzle going forward for operators looking to get better/total control over customers with quadruple play capabilities.
  • In a hard-fought battle, SoftBank got Sprint shareholders to approve their offer instead of one from DISH. Again, showing how various global interests are busy looking at both geographic expansion opportunities as well as having a full arsenal of capabilities to offer an increasingly fickle customer base.

In fact, in Europe where one would thing economic conditions would put a damper on deals, in the past six months we have seen: Liberty Global acquiring Virgin Media and increasing its stake in Dutch cable provider Ziggo; Telefónica selling its Irish unit to Hutchison Whampoa following Hutchison’s purchase of Orange Austria; and, Mexican billionaire Carlos Slim Helú now has stakes in various European cell phone companies, including KPN of the Netherlands. I could go on and on but hopefully you get the point. This is a global phenomenon and valuations are going up as the stakes go higher.

As the world turns! Why all of this and why now?

Periodically, the service provider part of the communications industry goes through restructuring cycles. For example, who in the U.S. for example does not remember the seven RBOCs, and the fact that we used to have numerous cellular competitors? And, while state-run monopolies in many parts of the world serve as a break on such activities, realities have always been that competition abhors too many players and that as markets mature size matters.

However, what makes this time different are the forces of change—technology and consumer behavior being the two biggest—now at work. While the talk and promise of “convergence” has now been around for decades, its context has been altered somewhat. 

Convergence used to describe how the digitalization of information and communications would ultimately see the deployment of end-to-end IP networks where all interactions were done over a consolidated infrastructure and over packet broadband data networks. We are well on the road for that to happen in the fixed world and with the aggressive deployments of LTE in the mobile world. However, convergence now also is about customer capture and retention, driven by such things as the explosion of multi-modal mobile devices, the apps they consume, user demand for “rich” data and more immersive experiences (streamed and interactive video), the cloud and virtualization just to name the usual suspects.

As I have written on numerous occasions, the world going forward from a competitive perspective is about Facetime. This is not the Apple real-time video conferencing capability, although that is part of the equation, but is about creating “E”vironments and ecosystems where customers are always on your network and engaged with your and partners’ value-added capabilities. The goal is a version of the popular rock group the Eagles hit song “Hotel California” whose refrain is, “You can check out any time you want but you can never leave.” That is precisely the point.

Look no further than South Korea for confirmation. Following Samsung’s release of a Galaxy S4 with the Snapdragon 800 SoC and LTE-Advanced support—the first smartphone in the world with LTE-A support — SK Telecom has launched the world’s first LTE-Advanced network in South Korea. The new network, which is billed as the world’s first technically true 4G network, is capable of download speeds of 150Mbps, which means you can download an 800MB movie in 40 seconds. With the addition of Hetnet capability, where subscribers can access SK Telecom via fixed, mobile and Wi-Fi, they literally can check out when they want but really do never leave.

This is another way of positing why COMPLOSION is at hand. 

Network operators of all types have been staring the fact that they me be relegated to be “dumb pipes” in the face as subscribers abandon fixed networks, use mobile ones just to access the Internet with decreasing ARPU, and Wi-Fi penetration if not done by them diminishes use of data minutes. And, this is going in the face of a data tsunami that is picking up speed, as witnessed not just by device shipment numbers but the amount of video now being used. There is also the regulatory backdrop that includes vexing issues like net neutrality and VoIP regulation just to name two big ones.

In short, for service providers trying to divine a strategy for success it means that if you don’t have all of the puzzle pieces on the access side of things you are at risk of losing relevance. It explains the rush of interest in anyone with radio spectrum as well as in cable networks as opposed to content. Operators rightfully see that they can remain relevant and profitable if they are the dominant suppliers of access always and all ways. It is also why Google has dipped its toe in the broadband networking business and others are sizing up their options.

I do not pretend to have a clue as to how things will turn out. The fix of personal hubris by CEOs, feelings of manifest destiny, politics, technologic change, customer behavior, and the turbulent nature of what has value in what I have called “The Age of Accelerations”—where the only constants are change and the fact that its speed is increasing—are variables that figure into this. They are all highly unpredictable. 

What is not unpredictable is that this volatile mix is about to “complode.” It will be sooner rather than later and the impacts are going to have enormous and long-term consequences. 




Edited by Jamie Epstein
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