For Carriers, It's Whole New and Confusing Ball Game

Carl Weinschenk

Though it is interesting, this post isn't all about this piece in The Register, which reports on a JD Power survey that says mobile call volumes are declining in the U.K. The survey notes that pre-paid customers are making four fewer calls per week -- 10 versus 14 -- this year compared to last. Contract customer calls have declined from 35 to 27 per week.


This isn't the only indication from the industry that their voice business is in the dumps. For instance, Nortel's voice revenues declined 13 percent during the first quarter of the year. The simple truth is that carriers' traditional core service is under siege from replacement services (i.e., VoIP replacing legacy phone) and changing customer tastes (texting and IM replacing voice calls).


The question becomes when and how phone companies should go into competition against themselves and push the services to which their customers are migrating. There is nothing a carrier can do about the fact that people's taste are changing. If they want to text instead of talk, so be it (though since it's a British survey, we would be remiss not to say that Shakespeare would be appalled). The obvious response is for carriers to respond with their own texting services. The irony is that the more effectively the carrier markets a competitive service, the faster its core service will decline.


The decline is due to the general decline in voice traffic and in per-call revenue (due to more efficient technology). Most importantly, savvy carriers will aggressively push current voice customers to their own text services. The thinking, repeated in almost the same language by any number of executives, is simply that if customers are switching services anyway, the company should do all it can to keep the customer -- and his or her money -- somewhere within the organization.


Setting up shop against itself is hard for companies steeped in the strange regulated environment of the phone industry. Carriers must fight against corporate inertia and reticence to take the initiative. Ideas such as fixed mobile substitution -- in which customers ditch their landlines altogether in favor of cell phones -- must be truly frightening.


This transition has been ongoing for a while, and extends to all facets of the telecommunications landscape. For instance, carriers resisted IP-based networking services because they threatened their T-1 cash cows. On the services level, it took the incumbent telephone companies a long time to truly recognize and react to the competitive threat posed by VoIP. In some cases, telcos' VoIP services were thought to be half-hearted.


Perhaps it is late enough in the game for the new reality to have sunk in. This Oracle survey suggests that telecommunications executives acknowledge that the ground has shifted. It seems, however, that a minority of the respondents are from established incumbent local exchange carriers, the group with the most to lose -- and the highest likelihood of being in denial.

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