Ringing the Changes

Memo to telcos everywhere: the world is changing. Get used to it.

Life will always hold certain bizarre mysteries for me. I'll never understand why some men, clearly in love with themselves, go for a jog in Lycra Speedos; or why service station attendants cannot be bothered to notice they place the "8" upside down when habitually changing the petrol prices on their roadside signs.

I'm not sure which one upsets me the most, although the upside down numeral "8" does seem to freak me out a bit, especially after a couple of short-black coffees. (Guys, the small loop goes on top!)

Another mystery is the constant surprise of the general population to the fact that the world is changing. This stunning revelation occurs about once a quarter in this country, when the leading executives of Telstra stroll up to the podium to tell their long-suffering shareholders that the grave for their corporate coffin is another 6 inches deeper than the last time they stood before them.

Their fashion at the moment is to whinge about regulation - a legacy of the company's own price-gouging and generally dismissive attitude to customers during previous decades. There are now nearly 350 pieces of regulation today where there were 20 in 1997, complains the chairman, Donald McGauchie.

Good. And there are reasons for that, as you well know, Mr Telstra. Anything else on your mind?

The trouble with Team Telstra, as they delightfully describe themselves in their e-mail addressing convention, is that they don't get it; or they do but just will not admit it beyond hushed conversations of their own offices.

Regulation, Helen Coonan, John Howard et al are not the problem, not even the reality that government owns 50.1 percent of the company. In fact, there is not even a problem. There is a challenge and it comes in the form of new technologies and entrepreneurs whose vision is still a decade from global manifestation but is already rocking the status quo.

It is hard for Telstra shareholders, especially the mums and dads who crashed the party too late with the T1 and T2 offerings, to hear that the great cash-cow of fixed line revenue fell 1.5 percent in the first half of the financial year and then went skydiving in the second-half, free-falling 5 percent.

Cheques to the value of $2.5 billion are being sent out to shareholders, representing about 20c per share, to ease the shareholders' pain. The more astute in this community of 1.6 million might be concerned by this action. The investor Warren Buffet is famous for being wary of companies that pay out dividends, saying it is an indication that the management think you can get a better return on investment elsewhere in the market. That's not something that inspires him.

Given that one imported Telstra manager would not recommend the stock to their mother, Buffet's generalization might ring especially true here.

Page Break

Spooking the Telcos

So where should Telstra - an organization that represents 2 percent of Australian GDP - cast its visionary and managerial eye? CEO Sol Trujillo is due to release his plan any day now. Already, he has said he will employ a five-pronged framework - market segmentation, one-factory philosophy, innovation, cost effectiveness and execution.

With the exception of the one-factory philosophy, the rest are basic statements that could come from any management diploma course. But saying is easier than doing.

One of the unpredictable elements in this fabulous saga is the attitude of the customers - both individuals and corporate. Clearly, those at home are using fixed line phones less and less. In my house, I constantly wonder at the wisdom of having a land-line, as I watch monthly phone bills of $100-$150 come in for nothing of substance. If I was not so lazy, and paid reasonably well, I'd do something about it, too.

Eight organizations in Australia offer VoIP services for the home, such as Engin, Ace Communications and FreshTel. (I have to confess to having done past work for Engin, but my laziness is pretty entrenched so I never used the service.)

The service that everyone bangs on about is Skype, the Scandinavian miracle workers for VoIP now based in London, attracting 51 million fans of free Net telephony and then blew everyone away last September 12 with a $US2.6 billion sale to online auctioneer eBay.

Amid that kafuffle, Google was launching a thing called Google Talk, which allows their customers, among many offerings, to use VoIP technology for their mobile phone. Yahoo!, meanwhile, are busy in the US, attracting hundreds of thousands to the net-telephony services of SBC and Verizon.

Unless Verizon and SBC have made specific provisions about the age-old argument about who owns the customers in these channel arrangements, we can expect Yahoo! to be just as aggressive as other online leaders in the field of Net telephony.

All this is interesting, but is it relevant to running an IT department? Oh, you bet. When might your organization trust its telephony services in the hands of a Google or eBay? Never, I hear you say? That's a long time.

Already, there has been a fundamental change in the way Australia's mid-size and large companies run their telephony assets. They have embraced IP telephony in significant numbers, retiring old PABX systems when tax amortization benefits end. For the past two years, about 12 percent of Australian businesses have been taking this action each year and that trend will either continue or increase.

There have been moderate savings on phone bills but significant benefits in administration and maintenance. The internal telecommunications division has been collapsed into IT department. Companies such as Telstra and Optus are now fighting to keep their traditional services space against IBM, EDS, and local firms such as UXC, to name but three three-letter acronyms. There are plenty of others in the field, too.

Many CIOs feel more comfortable with their traditional IT partners looking after their IP assets and are increasingly consigning the telcos to the role of pipe and infrastructure supplier, a low-margin, high-volume and generally thankless existence unless you enjoy complete or near monopoly.

This trend in the market has spooked telcos. There is enough to worry about without fighting the slick sales machine of IBM, Hewlett-Packard and company.

Inevitably, the likes of Google, eBay and others unknown at this point will be looking at the business community as a massive revenue opportunity. That means they will one day knock on the door of yourself, or your service partners. eBay's CEO, Margaret Whitlam, offered this view in outlining her vision for eBay's telephony play: "The largest number of registered users, the largest number of voice minutes, the largest number of developers who develop the platform, the best product . . . that users will and want to pay for."

Sounds like something William H Gates III might say. This time, though, we're talking phones not PCs, and the revolution will be just as dramatic.

It won't stop people running in their Speedos, or miraculously putting the "8" right way up outside service stations, but it will change how we communicate at home, at the office and on the road. The only losers will be those who cannot keep pace, think they can hold back the tide, or hold stock in telcos on death row.

Mark Hollands is an Asia-Pacific vice-president for the research and consulting company Gartner. His views in this column are purely personal