Eye on the Carriers By Johna Till Johnson, Network World, 11/16/06

A long-term trend I've pointed out over the years is that the definition of a "service provider" has grown and changed, to the point where it can encompass everything from Vonage to Google to your local municipal wireless network or cable company.

But regardless of how providers like to classify themselves, they're all subject to some of the core laws of telecom economics, or "telecomonomics." Herewith:

• In a virtual world, you still need infrastructure. Whether you own it or rely on someone else to supply it, in order to deliver services to your customers, you need reliable infrastructure across which to operate. Your best bet, as a provider, is either to own the facilities yourself, or have a solid win-win relationship in place with an entity that provides it.

That's why Google is building wireless networks (it's using the "own-it-yourself" theory). And it's why in the long term, Vonage is toast: the company offers a service that relies on infrastructure provided by its competitors, to whom it's unwilling to pay fees. That's not a "win-win" relationship - that's exploitation. And it's a bad idea to try exploiting $50 billion companies (whether cable companies or telcos) who control a resource you require - they tend to notice and retaliate.

• Long-distance is nice, but access is king. As noted in last week's column, one of the great fallacies of telco deregulation was the notion that long-distance was somehow a sustainable market. It's not. If it were, AT&T would have bought SBC, and MCI would have picked up Verizon - not the other way around. That's because access is a scarce - therefore expensive - resource.

Why? Most companies (and consumers) don't want or need multiple pipes coming in the front door - they'd prefer one pipe, with a range of services across it. That preference means local access is a "natural monopoly" - it's naturally going to be less competitive than long-distance. Therefore, he who owns the customer rules the roost, because the access provider controls the scarce commodity (the user) and can choose to build or buy the cheap commodity (infrastructure for long-distance).

This is also why convergence (in the broad sense) ultimately will triumph. Given the choice of having a range of content and communications services delivered across the same pipe, vs. separate infrastructures for each - users generally prefer the former.

• The devil (and cost) is in the details of customer service. Oddly enough, customers consistently require a few basic things: reliable, innovative service; fair and accurate bills; and fast fixes if the provider fails to deliver on either. In other words, service providers are all about (cough) providing service. There are lots of ways to do this, but broadly speaking, providers need to invest wisely in both R&D and customer service infrastructure. Failure to do so over the long term will result in a lack of competitiveness.

The bottom line: Providers come and go, but the teleconomics rules don't change. Ignore them at your peril.