If you were among those lucky enough to sit through five hours of presentations last week during BCE Inc.'s annual analyst conference, the emphasis on selling Internet-based services to residential and business customers was crystal clear.
"On [Internet Protocol], this company will simply not be outflanked," said Michael Sabia, BCE president and chief executive, in setting the tone for a series of presentations by Bell's senior business and technology executives.
Bell's strategic commitment to IP can be seen on a number of fronts. It has made a major investment in migrating its older networks to Internet-based technology, launched new services for residential and corporate customers, and purchased two system integrators in Ontario and Quebec to help meet the telecom and IP needs of small and medium-sized customers.
Bell's enthusiastic move to IP is a necessity because the Internet is revolutionalizing the telecom industry as it lets service providers easily reach customers over a high-speed network. While carriers such as Bell and Telus Corp. control the "pipe", anyone can piggyback on it to offer services. Look at what Vonage Holdings Corp. is doing in the telephony space.
Bell can either jump on the IP bandwagon or it can watch rivals step into the breach and win market share. Bell can be given credit for recognizing the threat/ opportunity and attempting to transform itself while going through an extensive cost-cutting agenda.
The biggest issue facing Bell and other carriers is whether the "build it and they will come" approach to the Internet will work. Sure, they have made extensive investments in their networks but will customers actually buy value-added services -- other than connectivity --from them? This is the big unknown because carriers have rarely been seen as innovators. Instead, they have provided connectivity services and thrived on the healthy margins they offer. The Internet has upset this happy arrangement because increased competition means lower prices and reduced margins.
This means carriers have to use connectivity as the starting point and sell new, high-margin services to their residential and high-speed customers. These must be more than plain-vanilla products. Real growth will come from developing innovative services that blend together connectivity with compelling voice, video and data applications.
Robert Lloyd, who heads up Cisco Systems Inc.'s operations in Europe, the Middle East and Africa, said there are three major IP trends taking place. These trends involve layers of "convergence," he said, but not in the way the term was used in the late-1990s when it meant a combination of connectivity and content. According to Mr. Lloyd, the three elements of IP convergence consist of: -
Network convergence where carriers take a variety of networks to create a single IP network that helps them reduce operating and capital spending expenses; - Service convergence where the way customers access services -- be it through high-speed wireless, Wi-Fi, DSL and fixed-metro ethernet connections -- are consistent and seamless. -
Application convergence whether data, voice and video are blended together -- a trend in which Mr. Lloyd contends carriers will be able to "take advantage of disruptive technologies such as VoIP, and turn them into revenue growth opportunities."
Most carriers are working on network convergence because it is a straightforward and obvious target. Who wouldn't want to reduce costs at a time when competition is becoming more intense? For a chief executive and chief financial officer concerned about having a healthy balance, there is more comfort spending money if you can recover the investment quickly.
Application convergence seems to be more challenging because it will force carriers to change how they do business and how they deal with customers.
Mr. Lloyd said rather than structuring operations around networks, carriers must look at structuring operations around customer segments. This seems simple but it represents a huge cultural shift.
One of the larger obstacles facing carriers in the short term is they are not the most flexible or quick-acting entities. While they can talk the talk about new IP services, it is smaller companies such as Vonage and Salesforce.com that are actually selling them.
This means carriers must take a multi-prong approach to the market. Some services they can develop and offer themselves, while others will come from partners.
It is a whole new world and it's left to be seen if the carriers can adapt. What they have going for them are the networks and customers. It is a good foundation for the future but there are no guarantees of success in a fast-changing market.