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Rebalancing Telco Infrastructure Investments

One of the reasons telecommunications has been so successful for more than 160 years is that it adopted a strategy that resulted in a seamless network all around the world. You can pick up a phone anywhere in the world and, with little or no instruction, make a call to anybody else in the world without worrying what phones and technology they are using on the other end of the line.

For 130 of those 160 years the telephone companies basically provided a national service for the good of their country. However, once telephone saturation started to occur in the developed economies and new technologies began to appear on the horizon, the system began to falter. The major problem for the telcos was delivering innovation at affordable prices. Government policies led to the introduction of market liberalisation and competition, which produced—over the last 30 years—an explosion in innovations.

But during that process the nature of the network operators changed. They were forced to be more competitive and innovative, and they became increasingly commercial and less focussed on the national good.

We have now reached a point where, on the one hand, good quality telecommunications infrastructure has become even more critical for the social and economic benefit of the country—because of the extra services that are now carried over it—while, on the other hand, these extra services require quality infrastructure that cannot be delivered on a commercial basis to all of the countries’ citizens.

The social and economic benefits of the services carried over the infrastructure do not show up on the balance sheets of the national operators, and as they are now operating in a competitive environment they can no longer afford the extra cost involved in looking after the national good.

Government policies need to be rebalanced. If infrastructure is critical for the national wellbeing some of the load of the infrastructure needed for this will have to be carried by the nation.

The best way to achieve this is not to bring back regulation—as some of the European telcos are suggesting—but to make structural changes that better reflect the future use of this infrastructure.

Today’s reality is that already telcos are no longer the gatekeepers. By using OTT services, and through devices such as smartphones and tablets, service providers and users are bypassing the telcos. The telcos have been slow to keep pace with these developments and have been pushed further and further back into their infrastructure and basic access business.

Moving into the future more developments will take place that will see the infrastructure being used for a range of different services. Next generation networks based on fibre and IP will, by their very nature, be much more open networks. Services such as M2M, e-health, smart grids and so on will require different access regimes. NGNs will allow for parallel connections, independent of each other, with no single gatekeeper in the middle.

If that is the reality it is much better to structurally separate the infrastructure from the services and develop a separate national infrastructure plan that better reflects the social and economic benefits that countries derive from it.

Tinkering in the margins with new regulations is only pushing the problem forward, and this has the potential to bring back the good old days where telcos were the inflexible and expensive gatekeepers. This would be a major step back.

Like so many other industries the network operators will also have to accept that the digital revolution is forcing them to transform themselves. Trying to hold that back will create similar problems to those experienced by other sectors that refused to transform in the wake of the emerging digital economy.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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