For someone in the telecoms industry, yesterday’s results from BT were perhaps a little counter-intuitive. Only a couple of weeks ago I heard someone at a conference suggest that BT was ‘struggling’. I disagreed, but wasn’t too surprised to hear it.
The fact is that the market sees any company that owns a network as outdated. Thanks in part to the new dotcom boom, there is the perception that hardware is old-hat, and those that make it or operate it are going to struggle in the new world of ‘2.0’. The theory goes that bandwidth becomes a commodity, and the service owner, rather than the connection provider, owns the customer. The telcos — fixed and wireless — will be left holding a high capital investment with no way to make returns at an appropriate rate.
This is, of course, bollocks. Compare the revenues of a Vodafone, or a BT to any one of the new boomers and you realise that however hot the new company may be, they have a long way to go.
“What about Google?” someone says. “That’s a software business that has comparable revenues”.
And what is Google spending all its money on at the moment (apart from YouTube)? Hardware. It is building out enormous server farms and global Ethernet networks to support the services it delivers today and those it envisions for the future. I might have questioned the minds that paid so much for YouTube, but I don’t think they are dumb enough to blow a fortune on hardware if it’s going out of fashion.
In short, the theory that you can’t make money out of owning a network is a dumb one. Yes data prices are falling. Yes voice minute revenues are falling. But we’re going to be using a hell of a lot more data in the next few years, and the margins for the smart providers are growing, not falling, as they replace expensive legacy gear with cheap, reliable IP networks.
BT’s data business has gone from a few hundred thousand business customers paying £6k a year for a leased line, to millions paying £150 a year for DSL. On top of that they can now sell the business customers IT services, and the home customers media.
Want to make some money out of the new dotcom boom? For me, the smart money’s on the networks.