Narrowing the Telecommunications Field

Originally published December 11, 2007

Competition, in both terms of sellers and buyers, in a particular marketplace is important to many aspects of the product or service being offered. When you have many “seller” competitors, you have price and innovation competition. When you have many “buyer” competitors, you have a diverse marketplace where new “sellers” are encouraged to join the market.

In fact, you could say that the following quote from William Knudsen applies:

In business, the competition will bite you if you keep running; if you stand still, they will swallow you.

The telecommunications and business intelligence markets have seen an unprecedented consolidation, or “swallowing,” at almost the same time.

Consolidation in the telecom service provider industry has removed not only competitors on the “seller” side of providers, but competitors from the “buyer” side of the business intelligence market. The consolidation in the business intelligence industry has reduced the number of enterprise partners for those telecom service providers to support their customers.

Looking at Too Many Trees 

One of the more interesting aspects of taking potshots… err… blogging on the telecommunications industry is that you sometimes get the bite-sized snippets of information and not the whole picture. In other words, you may not see the forest for the trees. For example, a look at the individual merger and acquisition activity in the telecommunications space from a blogger’s perspective shows the following:

However, it is not until you pull back and see a visualization of what the forest looks like that you understand what all of this merger and acquisition activity means. For example, I recently found a map (see below) that shows in the broad strokes the Regional Bell Operating Company (RBOC) coverage in the United States. Also, it should be noted that this map is not 100% accurate for coverage and shows the “majority” RBOC for each state. However, it does portray exactly how widespread the “new” AT&T’s footprint is.

Looked at individually, all of this merger and acquisition activity can just seem like a collection of events. However, it is truly interesting the amount of consolidation that has occurred in the telecommunications industry. And this consolidation is not confined to the United States (see the aforementioned Telefonica and Deutsche Telekom) or to a particular part of telecommunications (sees Nokia and Dobson). It appears that all telecom providers are attempting to become “all things to all people” – from voice in terms of both wireline and wireless to video in terms of cable, satellite and IPTV to data in terms of DSL, mobile broadband and fibre to the home (FTTH).

Caveat Venditor

Most of us are familiar with the concept of “caveat emptor” or “buyer beware.”  However, when there is a relatively low number of buyers (read: competitors or enterprises) in an industry, this creates a situation where the buyers have more power with that industry’s suppliers than if there are a relatively large number of buyers. This is a situation that might be described by Michael Porter’s Five Forces Model as “caveat venditor” or “seller beware.”

Whether they are reacting to the consolidation of “enterprise buyers” in the telecommunications industry or not, the predominant information technology providers are themselves undergoing a similar round of consolidation. This has been highlighted by the recent slew of merger and acquisition activity surrounding business intelligence vendors. Here are some highlights of the past 18 months of activity:

Again, if you were to simply look at these as individual events, you might miss the fact that the business intelligence organizations supplying the telecommunications industry have gone from a relatively large number to a relatively small number, thus theoretically “stabilizing” the power between buyers and suppliers of information technology to the telecommunications industry per Porter’s Five Forces Model.

In fact, this has caused quite a bit of debate on the pluses and minuses of these types of consolidated or conglomerated organizations.

Unrelated Diversification Equals …

In both of these merger and acquisition trends, the industries in question seem to be violating another of Porter’s theories. This one is the concept of generic strategies.  Simply put, Porter theorizes that companies should pick to be:

  • A low cost provider to all parts of an industry

  • A value-add provider to all parts of an industry

  • A niche player to a particular part of an industry

To attempt to be all things to all buyers in an industry leads to unrelated diversification or the concept of conglomeration. These mega/one-stop/one-throat-to-choke organizations seek to enter “any industry and any business in which they think they can make a profit.

In doing this, companies, whether they be Verizon attempting to provide all telecommunications services to every man, woman and child in the United States or Oracle attempting to provide every enterprise application conceivable to all companies, have historically faced difficulty putting all the pieces together to be successful at attempting to operate across all those different aspects of a particular industry without diluting their products/service, their brand or their corporate resources.

In fact, some say that the only way to be successful with this type of conglomerated organization is to have “extra” headcount in the corporate office to support and direct this unwieldy structure.

Note: I have never read a press release about a merger/acquisition that did not include the obligatory “synergy” language, but I have also never seen those synergies include keeping around “extra” executives to implement the strategy… with the possible exception of GE under Jack Welch – but I would say that the Welch/GE combination was the exception rather than the norm for unrelated diversification.

Double Black

For the telecommunications industry, all of this means that they will have to navigate the twin challenges of serving wider and wider corporate strategies to serve their diverse customer base and customer requirements with a narrower, and potentially less innovative, array of enterprise tool sets from their smaller collection of enterprise partners. Business intelligence organizations in the telecommunications industry will have to manage these risks to the best of their abilities.

On the ski slopes of Colorado, we will often describe this type of risky proposition as “no guts, no glory” or with the double black diamond symbol:

 

Providing increasingly precise and segmented customer strategies to serve the many disparate markets will require integration across multiple operational systems. Many of these operational systems will be coming from a single enterprise vendor. While it is possible that the data integration and extract, transform and load (ETL) aspects of their jobs will get easier with an integrated business intelligence stack from a single enterprise vendor, the question remains if these solutions will be the best for the telecom service providers or the best for the few organizations providing those solutions. 

Being locked into that single vendor’s solutions will create challenges for business intelligence organizations that want to think outside of the box of that vendor’s product road maps if those solutions do not meet their requirements for functionality or price. Often, these business intelligence organizations will require the ability to put together quick “prototype” models beyond the planned vendor functionality. It is possible that the business intelligence organizations will need to look to outside platforms or vendors to meet the requirements that the enterprise vendor does not provide.

In any event, business intelligence organizations will face continued challenges and rewards from the consolidation of not one, but two marketplaces. And, it will be a slippery slope to meet those challenges. 

  • John MyersJohn Myers

    John Myers, a senior analyst in the business intelligence (BI) practice at  Enterprise Management Associates (EMA). In this role, John delivers comprehensive coverage of the business intelligence and data warehouse industry with a focus on database management, data integration, data visualization, and process management solutions. Prior to joining EMA, John spent over ten years working with business analytics implementations associated with the telecommunications industry.

    John may be contacted by email at JMyers@enterprisemanagement.com.

    Editor's note: More telecom articles, resources, news and events are available in the BeyeNETWORK's Telecom Channel. Be sure to visit today!

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