The utility factor: are telecom operators in a low-margin utility business, or
can they command the returns of value-added service providers?

The telecom industry has seen steep price falls since deregulation. It is also undergoing a profound technological shift. In the place of multiple switched networks, such as ATM or Frame, dedicated to different services, IP networks are being implemented that will, essentially, be uniform. This will mean that the industry moves away from being a purveyor of dedicated circuits and services reliant on engineering know-how to one where software plays an increasingly important role.

In this new world, the question for telcos is whether the services they have traditionally offered will cease to pack a margin punch and whether, if so, they can move into services that do have real clout. The ground has already started to shift.
"In my mind, they have no choice but to think of alternative business models and alternative revenue streams," argues Jean-Herve Jenn, president of Convergys' information management group, EMEA. The market, however, does not seem over-confident on the ability of the telco industry to make the adjustment.

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"Telecom relates to the transfer of bits/bytes or analogue waves of voice and data and as such is as much a utility as electricity or gas, albeit a little more complicated," argues Morten Singleton, director of telecom research at West LB in London. Singleton points out that many people in the industry talk about the extension of the telco value chain, but he is not sure that this is a realistic assessment of the actual trend. "In my view these are media/entertainment services being offered over telco infrastructure," he says. Other financial analysts agree. "I think they are utilities. They have been trying to develop VAS for many years, but most of these efforts have stayed close to their core business," says Henk Doorenspleet an analyst with Rabobank in Amsterdam. "Mobile is not much different to fixed," he adds. "There is a 'time shift' with mobile, but their current turf of minutes will continue to be commoditized, to be offset by SMS, MMS and other data, which are also, in essence, utility products."