From America's Network
situation isnt going to improve unless we take ownership and find
leadership. Policy changes are needed. Here are suggestions and methodologies.
Krish Prabhu and Greg Blonder
Has there ever been a period in telecommunications
history when the outlook appeared so bleak? Those who remain in our decimated
industry strain for metaphors to describe the current situation - "nuclear
winter" for the almost total absence of demand in some sectors and
"deer caught in the headlights" for corporate executives who
don't know which way to turn.
To find clearer direction, however, we would
do well to look to our brethren in the semiconductor industry, whose entire
history has been one of dramatic highs and terrifying lows. Survivors
in that industry have become experts in looking beyond reflex responses
to decreased revenues - e.g., plant closings and layoffs - to create new
business and technological fundamentals that will form the basis for the
As Craig Barrett, CEO of Intel, likes to
say, "You innovate your way out of recessions."
In the case of telecom, however, plenty of innovative technology is available;
what we need most is innovative policy, both corporate and governmental.
Food for thought - and action
Herewith are three policy suggestions that,
if adopted, could open the way to a much more productive telecom environment.
For carriers: Unequivocally
divide service provision from network operation by creating an open standard
interface. This would facilitate third party services development that
can be used on their networks, as well as allow carriers to offer their
service on others' networks.
Over the next decade, service providers
will increasingly focus complete on delivering to customers the Internet
benefits we all know are inevitable: games, music, entertainment, news
and information, commerce and communications. In other words, this is
the "always-on" world. The mindset of the service providers
would be to find and integrate all the software and connectivity necessary
to create that always-on world - no matter who developed or owned it -
and to completely satisfy the consumer.
the network side, by contrast, the energy should be focused on providing
the best pipes and connecting seamlessly with all other networks, large
and small. The mindset ought to be to become the network of choice for
service providers everywhere.
such unbundling appears to neutralize a carrier's existing advantage,
at first glance, one has to realize that it is inevitable in the long
Besides, it may be necessary to expand carrier
service portfolios to offer a full slate of Internet services, and just
to keep up with the pace at which these services would evolve. Enough
new technology, whether wireless or satellite, is emerging and enough
overall demand is growing that some competitors will put themselves in
a position to eventually offer low cost broadband service. In so doing
they will capture valuable, perhaps even irretrievable, market share.
The way for carriers to head that off is to unbundle now, reap the resulting
cost savings, and get Wall Street excited. The carrier that becomes the
first to take this approach, will emerge a winner.
For large equipment vendors: Take the layering of the industry
one step further and accelerate the transformation into becoming system
integrators just as IBM has in the computer industry.
a corporate structure would get vendors closer to the customer and raise
margins. Though much discussed in vendor boardrooms, however, actual change
has only proceeded partway. Vendors have been reluctant to part with hardware
or processes they think give them proprietary advantages, when the best
course would be to sell them while they still have value.
all, vendors need to speed up adaptation to the very different culture
of system integration. Successful system integrators, for example, often
reap most of their profits several years after the initial sale. They
know how to make accurate projections, set appropriate prices and then
extract a profit. The successful telecom equipment vendor will be the
one that learns how to graft talent with those skills onto its existing
For the government: Release much more unlicensed spectrum.
The small amount of such spectrum already released has proven the most
fertile for innovation (cordless phones, et al). More spectrum would mean
even more innovation, especially in wireless communication, and, indeed,
would inevitably introduce more competition.
is no need to repeat the government's Soviet-style policy of allocating
fixed spectrum to fixed uses. Such policy not only obstructs innovation,
it proceeds on the assumption that spectrum is inalterably fixed. It's
not. New technologies enable us to both expand and reuse spectrum. Release
of fresh spectrum would thus produce a powerful multiplier effect.
Finally, there are far more sensible alternatives
to auctioning off spectrum, which effectively bankrupts companies before
they get started. Instead, the government could statistically monitor
signals and charge a small, ongoing fee for usage. With clear "wins"
possible for so many players, we believe this is one policy change that
could actually make it through the Washington labyrinth. The result would
be a regular revenue stream for the government, a profitable field for
implementation of new ideas and a reinvigoration of the entire ecology
No one could ever pretend that fundamental
change comes easily. Yet we believe each of the above policy innovations,
driven by the energy that comes from desperate times, are achievable.
We are beyond simply waiting for the business cycle to rescue us. It is
time for leadership.
and Krish Prabhu are general partners at Morgenthaler Ventures, a venture
capital firm, and are based, respectively, in Princeton, New Jersey, and