The year of living dangerously

We columnists, industry pundits, gurus, or what the late and disgraced Vice President Spiro Agnew (VP to President Nixon for you youngsters) used to call "the nattering nabobs of negativism" always face a dilemma at this time of the year. 

1. Do we acerbically and with extraordinary 20/20 hindsight list the past year's dumb and dumber? 

2. Do we shamelessly show our keen grasp of the obvious with a "Top 10" list of people, places or things that were remarkable in our sector? 

3. Do we construct a list of the top technology trends that will reshape our world (carefully avoiding predominantly wrong lists of the past)?

4. None of the above.

5. Some of the above.

6. All of the above.

I choose No. 4, "None of the above."

Given the past year in telecom, ridicule is too easy. This is true for making a list (and checking it twice) to identify the naughty and nice. We need to move on. As Satchel Paige said, "Don't look back, they may be gainin' on ya." 

As for technology predictions, I defer to those who care right now. Clearly, in 2003 the disruptions that will shake the global telecom markets will have almost nothing to do with new technology. They will have everything to do with marketing, regulation, unintended consequences of human actions and interactions, and technology we know and are learning to use. 

This will be a watershed year in our industry. Continued gut-wrenching industry restructuring is not a question of if. When is no longer an issue except over whether it will be weeks and months instead of years. This is why I choose to look not at technologies that will disrupt markets, but at "other stuff."  The "stuff" that will shape and mold markets and balance sheets. 

Rather than cover the entire landscape, this month I will focus on something at or near the top of everyone's list in the U.S.--the cable/ILECs battles, and the threat cable telephony poses as the vehicle for cable gaining the upper hand. Subsequent columns will get to things like: UNE-P, the fate of 3G wireless, the impact of Wi-Fi, security, broadband policy (or lack thereof), failed business models, etc. And before you jump on me for backing off my decision to not cover "keen grasp of the obvious" things, read on. 

Yes, picking cable telephony seems an obvious selection based on widespread coverage and Comcast CEO Brian Roberts' recent remarks about how this is at the top of his agenda now that he has the old AT&T (even older TCI) assets under his control. Yes, cable companies have 2 million plus telephony subscribers. Yes, cable modem acceptance is faster than DSL, although the gap is stabilizing. Yes, the "triple play" (bundled TV, Internet and telephony) is key to cutting customer churn and establishing long-term differentiated value and profits, and ILECs need to fill the entertainment void if they are to compete. Yes, to all of the above. 

However, even with all of these yeses, the reasons why cable should be striking fear in the hearts of the ILECs, and why this is the year of living dangerously, is yet to be listed. As I see it, the two main missing reasons are: flat-rate IP voice over cable for the residential market, and reliable broadband access for the business market.

First. The "voice over..." market is truly disruptive. The rapid rise of SIP-based IP telephony carriers will reluctantly force cable companies to take cable telephony off the meter. As part of their "triple play," cable companies will fold telephony into Internet service under a higher flat-rate regime. This will accelerate the destruction of the ILEC cash/profit cow, intraLATA toll residential service, which is already under attack from cellular service.  It will force the ILECs to offer voice over DSL, something they've been loath to do since they have continued to get revenue from the voice line that must remain when you subscribe to DSL. Cable companies will move aggressively because voice is the true differentiated value they can offer vs. the satellite companies who are rapidly penetrating the cable industry's entertainment cash cow. 

ILECs are going to be on the horns of a dilemma. They get nailed with a nasty triple play.  If they offer voice over DSL and respond with flat-rate service using IP technology for always-on unlimited use, they will have lost not just their intraLATA toll business, but also their additional residential line business. The former Bell companies in fact will enter the long-distance market just when the reason to enter, the ability to run a meter, disappears for the most savvy and desirable customers. If they don't respond in kind to the cable offers, they will be put out as well. Out of business as traffic, specifically premium traffic, leaves their network with little prospect of it returning.

Second. The above is the devil everyone sort of knows and is developing alternatives for. The devil not known well is what happens when a Comcast, for instance, hooks up with an AT&T who turns its sales force loose on the suburban office park business for inexpensive broadband access. Unburdened with legacy OSS systems, and armed with the lots of fiber to enable great broadband experiences at reasonable rates, it is going to be business customers in the suburban office parks which are almost universally passed by cable TV plant and the home office workers, that will be under siege first. Cellular and Wi-Fi will be part of the mix as well.

"No self-respecting businessperson is going to buy data service from a cable company," has long been an telephone industry mantra. Guess again. Sold as part of an IXC service with end-to-end QoS and strong SLAs, it will be interesting to see how fast the cash cow T-1 business can be cashed in by competitors. IP VPNs and voice will run over this plant. A lot of traffic may never have to touch an ILEC facility--around the block, around the state, country or the world. Unless of course it is an ILEC operating outside of its franchise area. 2003 will see the outbreak of ILEC civil war.

Will 2003 see the end of the ILECs? No. Are the scenarios painted going to happen over night?  No, revolutions tend to happen in evolutionary steps in technology markets. Will the dye have been cast about what the future of the industry will look like for the next decade by what happens in the next several months? Absolutely. This is going to be the year where we all live dangerously. 

I don't know about you, but I can't wait. It is kind of like the anticipation I already have for the final installment of "Lord of the Rings."

Peter Bernstein is President of Infonautics Consulting Inc. He can be reached at pb111451@optonline.net.