Two-Front War: Traditional Telecom Providers

I’m sure many of you are keenly aware that traditional telecom providers have been facing a major industry shift over the past 15 years , with the introduction of Over-the-Top (OTP) streaming services such as Netflix, Hulu, Disney+, etc. What you may not know, is that in addition to stiff external competition, these Telcoms are also fighting an internal war against obsolete infrastructure. They must determine how to overcome obstacles on two-fronts and decide where to spend their resources.

The Infrastructure Front

ICOMS User Interface

For those of you who don’t speak computer, the image above depicts an example user interface of a program affectionately known as ICOMS (Integrated Communications Operations Management System), which runs billing systems for Telecommunications Providers. You may be surprised to know that this this effective, but mundane software is still being utilized by some of today’s leading Telecoms (think Comcast, Cox, Convergys). If you look even more closely, the screen shot indicates a copyright from IBM way back in 1980, which was recertified again in 2015 a full 35 years later! Seem familiar?

Boston College UIS Application

Yes, its strikingly similar to the old BC UIS application used for course registration. Behind the scenes these two programs have aged, but still serve a highly effective, specific purpose, and require little-to-no maintenance. The dilemma their organizations face is how to upgrade or transform these old programs to ultimately provide their end users with a better experience. Consider for a moment the impact of the migration away from UIS to EagleApps. Students faced major challenges in registering for courses including delays, outages, and the confusion that comes with navigating a new system. Now consider the impact of inaccurately billing hundreds of thousands of customers! For these reasons Telecoms have neglected to invest additional dollars in outdated software support systems, while decades of technological advancements have passed.

The Over-The-Top Service Provider Front

              What strategies do traditional telecoms employ to compete in today’s market?  One popular and highly effective method is to utilize Bundling, which is the process of adding additional products to your service offering to increase revenue among your existing customer base. In 2017 Comcast added Xfinity Mobile to their offering and moved to a Quad-play bundle of wireless, cable, internet, and home phone. Customers were happy to reduce the number of interactions with separate companies and combine their services into one discounted package. In-fact over the past 4 years Xfinity Mobile has added 2.8 million subscribers (Xfinity-Mobile-FAQ). Another example is AT&T, a traditional cell-phone company, who purchased DirectTV for $48.5 billion in 2015 to enter the television space. However, this move was not as effective and AT&T recently spin-off their television organization into a new company (AT&T Spin-Off).

Traditional cable companies have begun to punch back. No new kid you can’t sit with us (Amazon Prime Video, YouTubeTV, Tubi)! As an alternative bundling, companies have begun to embrace the OTP strategy through add-ons and in some cases started their own streaming services. For example, TMobile offers free Netflix with a qualifying plan, while traditional cable providers like Verizon allow you to open Netflix applications directly with their cable box. This strategy helps to ensure the traditional Telcoms are not replaced, but rather working in partnership with the new streaming services. Comcast went a step furhter and invested billions in creating their own streaming service, Peacock, which is given free with a cable subscription.

What challenges do Over-the-Top Providers face?

                In the past 7 years there has been a dramatic increase in the number of “cord-cutters” who opt for strictly for wireless and home internet services, while removing home phone and traditional cable (Number of Cord Cutters Triple Since 2014). However, competition is stiff in this market and even established industry giants like Netflix face major risks in the form of new streaming platforms from blue chips like Disney and Amazon. Consider the decades of original content that Disney has cultivated and compare that to the brief history Netflix has been around. Netflix has a larger existing subscriber base, but some economists are already predicting Disney will surpass its market-share in the next 3 years (Disney Projected to Take the Crown). Another original content differentiator is live-sports, which have been dominated by the cable industry for years (Streaming Apps Add More Live Sports).

Traditional telecoms are waging a war on two fronts with an internal battle to upgrade existing infrastructure and an external battle to avoid being displaced by Over-the-Top streaming service. My bet is that those that can evolve at a rapid pace and transform their business model will survive, while others will fall victim to the rapid cycle of mergers and acquisitions.

8 comments

  1. I was an early cord-cutter. I found ways to stream the shows I wanted, albeit with a bit of pain every time I wanted to watch anything (where is it being streamed, how do I get it to my tv…etc), but it was monetarily free. Now, though, cord-cutting looks very similar to traditional cable television, minus the mandatory LAN line telephone. One reason for cutting away from traditional telecom companies to new, transformational options, was, for me, price. However, YouTubeTV, for example, continues to increase prices. Interestingly you called this a two-front war…if that is so, YouTubeTV, HuluTV, Netflix, and other streaming platforms may be Greece, designed as a trojan-horse, and my house, Troy. They entered our living rooms with promises of low, sometimes free, prices, and now that we cannot live without them, they increase their price. So while the return of cable tv may not look like it once did, I wouldn’t be surprised if there was more transformation in this space now that the cord-cutting alternative to cable tv looks a lot like it’s predecessor. I anticipate the next transformation being a-la-carte options – you pick a number of channels you want to have available and pay a certain price based on each channel…a “dim sum” style telecom service (I love dim sum).

  2. Like, Brett, I was an early cord-cutter. Had AppleTV for 5 years (and a cheap antenna to pick up football games, if it wasn’t raining). Then, when I moved to Boston last summer, I switched to xFinity. Maybe I am old, but they gave me the Flex box for free that connected to my tv and replaced my AppleTV. It seems they saw an opportunity to come in and replace my hardware, then push services like Peacock to my TV. I think this connects to Brett’s point about Greece and the Trojan horse, but in the hardware realm: provide free hardware to stream services, then push these services with promotions, discounts, and more. I also think the pandemic and closing of movie theaters have pushed streaming services (like Disney+ and HBOMax) to experiment with premium subscriptions to gain access to newly-released movies. It will be interesting to see whether this stays.

  3. I just flew with United this weekend and was shocked that they provided DirectTV on all of their flights. I mean cool…but so outdated! United also had an application to access movies and TV shows similar to their competitors like American, Delta, etc. It got me thinking why these airlines choose to create their own application and licensing instead of using established streaming services. I learned that the “big guys” in streaming are simply too expensive and require a high bit rate to stream. I argue that Netflix or Amazon Prime should have explored creating a simplified application for airlines to use. It would take minimal effort on their end and provide a wide range of exposure globally. Maybe this was explored…maybe the numbers didn’t work out…but why keep paying for DirectTV? Seems odd to me.

    https://www.aviationbusinessme.com/airlines/inflight/19196-streaming-netflix-and-amazon-content-to-passengers-would-be-a-challenge-says-emirates-vp

    Great post, Green Monster! I wasn’t aware of the challenges behind the scenes.

  4. My friends and I joke that we replaced cable with a more complicated version of cable. Instead of scrolling through the channels, we are jumping between Netflix, Disney+, Apple TV, and more.

    I agree that there is a war going on, and the incumbent cable companies such as AT&T are losing this battle. I thought the author of this post did an excellent job in illustrating why the traditional cable companies are losing this war. Using outdated technology and code, and failing to create their own products quickly enough, they are forced to offer their competitors products on their own platforms.

    In the next few years, the war will be over and we will have a dominant streaming service. But until that happens, the “cord-cutters” will continue paying more than they did for cable for their multiple streaming services (Note: I am guilty of this)

  5. Great representation of how even the more “digitally mature” companies like telcos still have their own growing pains with internal digital transformation, whether it stem from reluctant adopters within the organizations or the use of such entrenched systems as the ‘outdated’ billing system. Marriott uses a similar relic of a system for some functions, and when questioned about why there hadn’t been an update the answers were largely centered around the encryption and security benefits of the existing system (I’m presuming there were also enterprise licensing reasons, and definitively a measure of fear about the potential disruption of transformation). Will these systems eventually become obsolete/unsupported by new technology forcing a change, or are they such a bedrock of so many large organizations that they will continue to be accommodated? Perhaps the telcos’ next steps will indicate what direction we’ll all go in

  6. Great post, I had no idea that telecoms still had such outdated infrastructure. For no reason other than the size and industry of the company assumed that would be at least evolving with the times. As you said, this is definitely a battle to update their internal infrastructure while simultaneously competing or collaborating with new streaming services.
    I know for a while that most that kept cable did so for sports and with more of that coming to streaming services, it seems less likely for the telecoms to keep up. Which seems to be providing these streaming platforms to increase their prices as they already have penetrated the market and taken so many of cable’s customer base.

  7. Thank you for sharing your insight with us, and I agree if traditional companies can evolve quick enough and update their infrastructure, then they will be left behind or gobbled up by larger streaming services. However, I don’t know if its a war or a lopsided battle between large streaming services and traditional companies. I also like the recommendation you made about bundling service being an effective tool to maximize revenue, and that companies like AT&T should do the same across the different services they provide. Unfortunately, I can’t stand Comcast, and I wonder if these type of tactics actually do more harm than good, particularly if consumers are getting hit with large cable and internet bills.

  8. I think something that has enhanced the credibility of the streaming services is their role as creators and the quality of actors that have been pulled over from mainstream companies (like Shonda Rimes from ABC to Netflix). Like most cord cutters, Rimes indicated moving to Netflix to protect her creativity and her ability to explore options (this analogy is a bit of a stretch, but bear with me). This has been affirmed by prestigious awards considering Netflix and Amazon Prime as legitimate competitors in awards shows.

    Essentially, too many people did not take the threat that streaming services posed and are now paying the price with the loss of customers and talent.

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