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
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?
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 For these reasons Telecoms have neglected to invest additional dollars in outdated software support systems, while decades of technological advancements have passed.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.