The return of telco mania?

30 Oct 2003

While a three-legged dog might still be a dog, the telecoms industry has been nursing its wounds for three years now and it is clear that the limping mutt is anxious to show that it still has teeth.

Three years after the telecoms industry downturn that sapped investors’ money and confidence as well as costing the livelihoods of thousands of workers, there is a tone of optimism running through the industry, as evidenced by the buoyant mood that emanated from the recent Telecom World show in Geneva in recent weeks, where the merchant princes of power in the telecoms industry throughout the world gathered to share thoughts and inspire hope.

Even Microsoft’s chairman Bill Gates was in town to cement a software alliance with Vodafone, indicating a considerable shift in emphasis in the software giant’s strategic vision — it’s on our PCs, now it wants to be on our phones.

After three years of seeing billions of euro of venture capital investment as well as misplaced pension funds disappear into doomed business plans and equally doomed technologies, ranging from data centres to €160bn spent on 3G licences in Europe alone, the industry has begun a backslapping exercise that may seem premature.

The telecoms industry has much to be grateful for, it seems. Those that have survived with their careers intact have survived to see broadband finally be rolled out in most of the world’s progressive societies. 3G is already a reality in much of Europe and will be available in Ireland from December. Over 50pc of the world’s most progressive economies’ populations are now online.

E-business and internet commerce, ranging from online banking to buying holidays and plane tickets, have enjoyed a gradual growth to become an almost completely accepted part of our lives, rather than the big bang prophesised by the dot-conmen. Newer forms of broadband distribution such as satellite and wireless as well as a sprawl of public wireless local area networks (WLANs) in cities and towns are also a breeding ground for new hope and even newer forms of entrepreneurialism.

Indeed some of this all-pervasive optimism appears to have contaminated the minds of Eircom’s board, which is rumoured to be considering floating the company’s shares once again. News of this, however, has been greeted with dismay by much of Ireland’s investment community, which has lost millions of euro of clients’ savings in Eircom’s previous ill-fortuned foray on to the public market. Other rumours hint at Eircom’s return to the mobile market once its moratorium ends next May.

Much of this optimism pervading the telecoms world balances on the edge of a very fine sword, one that could tip the industry in the wrong direction and at the same time cut it up pretty badly. The one thread that all of this optimism depends upon is the consumer and what they perceive to be value for money. In a curious way, the Irish telecoms market is a microcosm of how the European telecoms market will fare in the coming year.

3G services have been available through 3 in the UK and Italy since early this year and lagging demand, not to mention unwieldy, oversized devices and immature content services, has forced the company to beg for more investment from its parents Hutchison and DoCoMo. Another member of the 3 alliance, KPN, has exited the alliance because it is unwilling to plunge more funds into what it perceives to be a bottomless pit. When 3G services come on to the Irish market this Christmas, it is certain that the arrival will be greeted with more of a whimper than a bang. It seems the various operators here are aware of this and are adopting a cautious route. Vodafone has made it clear that it will concentrate on selling value-add 3G services that the business community would appreciate rather than plying consumers with expensive, flashy handset devices. 3, which is also licensed to operate in Ireland, appears to be targeting the business community in Ireland first, with a few base stations installed as part of its €100m contract with Esat BT up and running in Dublin. Innovative services and value for money will make or break 3G in Ireland.

Despite Eircom claiming that more than 850,000 telephone lines around Ireland have now been broadband-enabled, consumer adoption of DSL services is still somewhat influenced by price and perceived quality of service. Throughout Europe, lower priced offerings have influenced take-up, with the UK in particular enjoying two years of broadband services. However, much of the progress in the UK has been marred in recent months by criticism of DSL-lite services, whereby consumers pay knock-down rates for a watered down service that turns out to be little better than traditional dial-up in terms of speed and quality. If Irish-based telcos wish to capitalise on the introduction of DSL services, prices must continue to fall and operators here must never go down the road of DSL-lite, a move that would fall flat at the feet of the discerning Irish consumer.

The advent of newer technologies such as public WLANs in bars and hotels, otherwise known as Wi-Fi, and the sudden arrival of alternative wireless broadband as evinced by services offered in Dublin to date by Irish Broadband, offer hope for the entrepreneurial proponents of the telecoms industry. In particular, in a country that is two years behind the rest of Europe in terms of broadband technologies available to businesses and consumers, such services could do very well in Ireland.

At 81pc population penetration, the Irish mobile market’s apparent success has come under fire in recent weeks from consumer groups and is now the subject of an Oireachtas Committee on the pricing schemes and regulation in the market. In a recent presentation to the Oireachtas Committee on the Mobile Telecommunications Market, the Irish Consumers’ Association alleged that Ireland’s GSM market is in effect a duopoly between O2 and Vodafone and that prepaid mobile users pay more for their calls than billed users.

In the face of more discerning consumers and newer business models, perhaps it is too early for the European telecommunications industry to be so optimistic, but it is hard to blame it. Recovery is far from complete and broadband adoption is far from universal. It is still less than a year since WorldCom’s collapse. That said, newer business models are springing up and creating major opportunities. Non-existent in the late Nineties, text messaging has grown to become a €9bn market and downloadable ringtones are now worth €1bn to Europe. In the UK alone, ringtone downloads at €365m this year are bringing in more revenues than CD single revenues.

It is hard not to feel giddy, but the caution and realism called for in the aftermath of both the telecoms and dotcom bloodbaths should still be exercised.

By John Kennedy