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[The dictionary definition of the "endgame" is: the stage of a chess game after major reduction of forces. I would add that it is the point where the player with the advantage starts to push hard for the win, whereas the other player is now playing for a draw.]
This series of articles has been my attempt to predict, based on recent events and current trends, the shape of the global communications industry for the next few decades. The fact that "UC" is in the title indicates a bias on my part, but I haven’t had any pushback on this. I contend that what we now call "Unified Communications" will soon be referred to as "Communications." But moving past the obvious trend, what then is the specific detail of the transformation of the industry and what can we expect to emerge to replace the PSTN?
In Part 1, I presented a case for the decline of the incumbent telephony carriers as end-to-end suppliers of consumer and business communications. I speculated that this business, like many others, was being disaggregated and that henceforth their primary function will be to provide IP network services to support, among other things, the communications services of other enterprises.
In Part 2, I argued that emergent IP communications services from technology companies would become the primary networks upon which both consumers and businesses communicate. Furthermore in the short term, these communications networks would be fragmented due to lack of interoperability and the lack of incentive to overcome that problem. This leads me to the purpose of Part 3.
It is becoming clear to me that the PTTs that, until the late 20th Century, held monopoly or oligopoly control of national communications, will be overtaken by international, if not global, communications businesses. I can see evidence for this not only being a clear goal for the companies concerned, but that the plans for this are already well advanced.
Can Communications Globalization Overcome Sovereign Interests?
In general, this notion is not so radical to anyone involved in the communications industry over the last decade or so. There are, today, multi-national communications businesses in operation across large swathes of the developed world: BT, Telefonica, Deutsche Telekom, Verizon and Vodafone spring immediately to mind. However, what is radical is that these businesses will, I contend, fall into the ISP category and the actual communications services will be operated by other companies. But with the communications industry continuing to be so heavily regulated, it seems a little far-fetched that other companies could take over from these closely regulated multi-nationals. (Also, I have no doubt that certain governments will unsubtly tilt the playing field to favor their domestic communications vendors – China/Huawei being foremost here.)
I made a case in "The Implications of UC as a Cloud Service" that sovereign governments would or could not allow non-domestic vendors to control strategic national assets (i.e. communications networks). That could still turn out to be the case, but I will come back to that later. However there has, to-date, been little or no regulation of IP communications other than, for example, to enforce the integration of VoIP services with the emergency services networks. Another indication was a paper published by the Obama administration in 2009 ("The Economic and Security Costs of Obsolescent Computer Laws") which acknowledged “…the enormous economic and competitive potential of UC technologies…” and specifically reversed prior rulings that enterprises hosting or offering UC services would be subject to Federal regulations related to "lawful intercept" and communications security:
“It is inconsistent with new Federal policy to stimulate the economy to allow 20th century computer laws…to inhibit the availability of new technology solutions that enable American companies to realize new efficiencies and competitive advantages.”
So it would appear that IP communications technology companies will be able to take advantage of a regulatory respite designed to stimulate innovation.
A Global Communications Company?
Self-evidently, the Internet is a global network (ignoring a few notable national interventions). The emergence of cloud-based systems serving 100s of millions of users (e.g. Facebook, Google, Amazon, etc.) indicates the potential for technology companies to host communications networks on a global scale. In particular, the advent of cloud-based UC (i.e. UC as a Service, or UCaaS) shows a clear trend towards businesses outsourcing communications services in order to reduce costs while simultaneously gaining the access to advanced communications technology. The ability of UC to handle signaling and feature interaction within the infrastructure and yet allow (high bandwidth) media to be routed directly from client to client illustrates that monolithic telephony infrastructures are obsolete and that UC networks can scale on a global level. Even more impressive is the low/zero infrastructure peer-to-peer communication networks such as that of Skype. So the technical potential for a global communications company exists today, but what about the intent?
We know that whatever entrepreneurs can do, they will do. The success of businesses like Facebook and Google indicate the power of cross-referencing data on people’s identity with their relationships, behavior and preferences. These companies own powerful data sets that can be monetized in a variety of different ways, not least of which is the presentation of targeted advertising. Furthermore, the "ownership" of a customer relationship, even one that generates no direct income, can be extended later into other paying services that develop naturally from the original free service. So even if basic IP communications continue to be free, or offered at a massive discount to current communications services, this is a very attractive business. But who are the contenders that plan to replace the incumbents and take over their direct, and generally longstanding, customer relationships?
The 21st Century Global Communications "Pretenders"
In Part 2 and above, I have already named some of the following companies as being interested in, and capable of, taking over the communications service business:
Additionally, the following companies have yet to make a strong move in the communications service space, but retain the ability to do so at any time:
As an indication of the intent of Cisco and Microsoft in particular (see also Part 2) to compete with each other and with the incumbents for a share of the global communications business, I highlight the following:
1) The creation of UC multimedia federation capabilities by both vendors (and the only ones to do so to-date) which are not interoperable with each other but are interoperable with their own hosted/cloud deployments. This is forcing enterprise customers to make a choice between Cisco and Microsoft if they want to have inter-company multimedia communications.
2) The multi-billion dollar expenditure of both companies on various other communications related assets, such as WebEx, Tandberg and Yammer.
3) The offering by Microsoft of a "Lync Hosting Pack" to the incumbent communications service providers – thereby creating competition for Office 365, but countering the same strategy being employed by Cisco with HCS.
4) The purchase of Skype by Microsoft for $8.5Bn in 2011 and the unprecedented integration of that company as a standalone business inside of Microsoft.
5) The belated appeal by Cisco of the EU approval of the Microsoft Skype acquisition in February 2012.
6) The fact that Microsoft just last week moved the Lync product group from the Office business unit to become part of the Skype business unit.
Points 5 & 6 are critical. From the announcement of the acquisition onwards, it was the clear intent that Lync users would be able to "call" Skype subscribers on the Internet to provide a powerful and compelling B2C network. (Indeed, the attraction of that model had already been recognized by Avaya in 2010, but they were trumped by the Microsoft purchase just six months later.) That Cisco saw that as a threat to their strategy is itself indicative. However, the merging of the Lync group into the Skype business unit is a powerful indication that Microsoft intends to build a communications platform that blends business and consumer services and offer that to a global market. I fully expect Cisco to respond in some way.
A Global Two-Horse Race?
In Part 2, I suggested that Cisco and Microsoft had emerged as clear leaders in enterprise UC and that I didn’t see many, or even any, of the remaining vendors having a defendable market share in the medium term. The question is: does that extend to the global communications business? The answer is "yes" and "no" (I like to cover my bets…). On the one hand, I have already made the case that both companies have built a lead over other communications technology companies and incumbent service providers that will be hard to surmount in the medium term, if not the long term. Yet, on the other hand I have also suggested a number of other powerful companies that are already, or could soon be, developing equally compelling communications businesses.
However, it would be naïve to assume that the incumbent service providers will concede their communications service business without a fight. After all, they have existing relationships and closely aligned national and fiscal interests with their respective governments who obviously wield legislative and regulatory power (once again, see "The Implications of UC as a Cloud Service"). Furthermore, they share the ownership of the customer relationships that Cisco and Microsoft would need to subsume. So it comes as no surprise that both Cisco and Microsoft are offering the incumbents the opportunity to host their respective technologies in their own cloud facilities. Indeed, many incumbents, such as BT, are hedging their bets by offering access to both vendors’ technologies. While the regional service providers (i.e. CLECs in the US) could also theoretically host these cloud facilities, it is much more likely that such a strategy would struggle to compete with the national vendors on economies of scale. It is more likely that they will become resellers of the services or, at best, offer hosting of dedicated platforms for larger companies that wish to outsource that function.
Over three parts of this series, I have argued that the communications business is undergoing a revolution. Even casual observers would not disagree, but the mainstream media focus appears to be on the prevalence of smartphones and non-voice communications apps. I have argued that the revolution is more fundamental than that, as presaged by the rapid decline in the usage of voice and the sudden loss of the user experience to device vendors such as Apple. All of the interesting innovation has been provided by technology companies and I doubt that the incumbents have the capacity to reclaim the user experience. In the meantime, compelling alternative communications technologies have been developed either organically, or via acquisition, by Cisco and Microsoft.
As a consequence, a Cisco/Microsoft communications oligopoly seems as likely as any other scenario that I can currently envision. These two companies (and possibly several others) will emerge, if not as owners of the customer relationship, then as providers of the user experience and as vendors of infrastructure. I contend that they are already well positioned to do that, and network effect (see "The Economics of Interoperability") ensures that the continued absence of any other compelling alternative only makes that outcome more likely.
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