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Reckless venture capitalists urged so many telecom players into so many spurious business models that the crashing and burning has just begun.
That was the mea culpa consensus of leading industry analysts and venture capitalists gathered at SuperComm in Atlanta last week.
“Im to blame. Its my fault,” said Howard Anderson, founder of The Yankee Group, just half kidding. He and others like him told competitive carriers to “go big or get out,” he said. “The fools — they believed us.”
No, it was the venture capitalists who are to blame, said Tim Savageaux, communications infrastructure analyst at WR Hambrecht & Co.
“Guys like me pulled a dirty trick on the industry,” Savageaux said. “We gave these start-ups tons of money, mostly in debt, and we told them, Build out the nation in six months. Thats an unreasonable expectation.”
How will the industry emerge from its slump? The pretenders will go bankrupt or, if theyre lucky, be bought up. Survivors will go horizontal and try to be the best at one thing, rather than just OK at everything.
Service providers are wonderful at being mediocre, but that 100-year-old pattern means certain failure in todays competitive landscape, said Christine Heckart, president of TeleChoice. “To be all things to all people, but not great at anything, is not how to thrive in a competitive industry.”
Winners will let end users get much more involved in deciding how much bandwidth they want and when they want it. Fred McClimans, founder of Current Analysis, sees profits in flexible services — letting the end user provision services in real-time.
One company vying to put more control in the hands of the customer, California start-up Network Equipment Technologies, also called Net.com, last week introduced its Scream 100 and Scream 50 service creation platforms. The platforms allow end users to provision extra bandwidth in less than a minute to gain the upper hand in Internet video games played against someone across the globe. “Surpluses and shortages fluctuate on a daily, even hourly [basis],” McClimans said. “Provisioning should be much more rapid.”
So should fundamental speed, said John Ryan, principal at telecom market research firm RHK. Dont fret about an elusive “killer app,” Ryan said. What frustrates consumers is the slow speed. “Switching Web sites should take the same time as it takes to change channels on a TV,” he said.
Over the past 18 months, Ryan has seen pell-mell spending spur tremendous innovation, but also hook start-ups into unrealistic business models. “There has been a transition from irrational exuberance to unwarranted pessimism,” Ryan said. “The fundamentals are absolutely spectacular” when looking ahead five years at the money that will be spent, the productivity that will be enabled and the lives that will be enhanced.
Demand for bandwidth is growing about 120 percent per year, but costs are growing faster than revenue.
“Will we be out of the woods in 18 months?” Ryan asked. “No, I dont think so. It will be longer than that.”