Daily Archives: April 9, 2011

200 Billion

Water go down the hoooole.
Toilet paper go down the hoooole.
Diaper go down the hoooole.
Nana go down the hoooole.
Ducky go down the hoooole.
Toot Toot go down the hoooole.
Kitty go down the hoooole.

The Potty Years

According to this recent article in Fortune, telecom investors might be the 21st century’s biggest chumps, and they might be right. Since 2000, the United States’ telecom tab is down 22% in inflation-adjusted dollars. In otherwords, the telecom networks have destroyed nearly 200 Billion in value over the last ten years — despite the fact that cell phone use has tripled, that high speed residential internet connections have jumped from 2 Million to 24 Million, and that wifi is almost ubiquitous.

So what happened? The article puts forward three hypothesis that, taken together, paint a compelling picture.

1: Internet protocol networks are like Pac Man. Eventually they will eat everything.

The days of expensive, custom-built communication networks for a single purpose — radio, telephone, cable tv — are over. Now, everything flows over the internet in packets. Packets here. Packets there. Packets, packets everywhere.

2: If a customer likes it, then it doesn’t matter what it does to your economics — it’s going to happen.

The cell carriers fought wifi tooth, nail, and claw for years to prevent cuts to their (sometimes ridiculous) margins, but it happened anyway. Eventually a carrier realized that offering wifi would result in a huge increase in customer base, it happened, and now every cell carrier supports hybrid wi-fi devices in an effort to keep their customers.

3: Anyone who relies on the fact that they own a scarce distribution resource is going to face ten years of turmoil.

It’s a new age for telecom and no longer are networks analog, expensive, and single purpose. Now they are digital, ubiquitous, and multi-purpose.

The question is, will the telecoms adapt? How much more will be lost as they try, competing with each other for a consumer base that becomes less profitable by the day? And will it be worth it in the end? Is it a situation where last man standing wins a defacto monopoly, pumps up prices to cover the losses, and profits big in the end (just like Google, who won the search engine war)? Or will an entirely new type of network provider emerge and wipe out the telecom industry as it exists today.

Water came back.
Water came back.
Water came back.

But will the 200 Billion come back?