Are vendors now “telcos”?

(Last Updated On: October 19, 2006)

I was reading the recent Gartner report entitled “Telecom New Zealand Pioneers a new kind of Carrier-Vendor Business Model”. It discussed how TNZ decided that given it being a relatively small carrier, that it will focus on customer related services (value added services) and be reliant instead on only one vendor. One vendor has been given two distinct roles- one to procure equipment/design and plan for the network and the other to actually run and operate the network (other than internal IT). Whilst this was not to mean they were totally buying only from one vendor, it definitely gives that vendor a competitive advantage over the others, especially since they were involved in the early stages of buying. To ensure some level of arms length in the purchasing decisions, a comprehensive system of governance was put in place to keep the two roles distinct and separate, whilst still offering remunerative benefits to both parties.

Very interesting arrangement indeed, as now it would appear that the vendor becomes the operator in many ways. This is clearly defined in the governance model whereby the vendor is clearly responsible for the network whilst the carrier responsible for the customer ownership, experience etc.

Does this now mean that vendors will become “carriers” yet operating under the carriers licence?

Is this model replicable and is it illustrative of a trend in the industry?

The article indicates that whilst there is some movement in that direction it may only apply to some carriers. It did not feel that the TNZ model was replicable and I agree. I feel that there are many questions that need to be explored before this becomes obvious- Should carriers be limiting their options to select the best of the breed for different solutions or is it preferable to look for economies of scale and outsouring to the same supplier? Meanwhile, would vendors want to become operators, considering especially that they may competiting with their customers domestically and internationally. It is indeed a very strategic decision to make, and in this case, given that TNZ is largely and dominant carrier in New Zealand and not an active player on the regional or international scene, these risks did not also come into play.

Having said that, these are indeed interesting trends to observe to see if we are watching another influx point of the telecom industry. Keeping an eye on this will be crucial in determining how to market and sell to telcos in the future. However, telcos unlike ISPs have always been more dependent on vendors – expecting service at beck and call. IP NGN not surprisingly, forcing telcos to rely even more on their vendors, given the greater complexities in routing versus switching technologies. Will this now also mean that telcos are becoming less nimble and less competitive against their younger innovative competitors in an IP NGN world? Could this also mean that vendors who go this route may be limited to selling a smaller pool of incumbents players who are not competitors to each other?

From the telco side, I feel to a large extent telcos have never truly understood their customers and so I am not sure this focus will help them succeed in a competitive market. For TNZ as a dominant market player, maybe it does. For a more innovative and competitive market, especially where users are more participative and creators of new interactive services, will telcos be able to understand and succeed with their new customers even with a focus? Meanwhile, will dependence on one vendor mean they also become replacable by their own vendors, if they fail at focusing on customers? Since all contracts can be broken given reasonable notice- what will happen to a telco who becomes so dependent on one vendor, when it pulls out and worse- goes over to work for their competitor?

Interesting points to ponder and definitely an article worth a read.