Will Martin Geddes and Telco 2.0 Turn Around BT?
Written by FNN contributor   
bt_booth_ingyBT is hurting because the wireline phone business is inevitably declining. Their new hire is one of the world's most interesting thinkers on possible new businesses for telcos. Martin has been part of the Telco 2.0 group at STL Consultancy, the best small group of European analysts. They concluded that the profitable future of telcos is services and wholesale to non-traditional customers. Telcos don't just have networks; they have billing platforms, IT experience, customer relations and other advantages they might leverage into profitable businesses. The Telco 2.0 manifesto http://www.telco2.net/manifesto/ has led much of the European thinking. I'm skeptical that telcos can efficiently move into these related businesses other than by controlling access to their customers. There's little evidence that telcos will succeed in diverse activities.

Martin blogs "I've spent most of my career as a hands-on 'doing' person, which very much contrasts with the 'thinking' and 'advising' role many people have seen me in at Telco 2.0. I am now returning to implementation, and will be putting many of our ideas into practice at BT. The team I've joined is responsible for maximising the business value of BT's capital expenditures.”

BT's most ambitious diversification, Global Servies, has recently lost more than a billion. GS was Ben Verwayen's attempt to recoup the wireline drop and was a natural extension of their capabilities. BT has developed massive systems and runs large networks. They are the primary contractor in the $20B contract to create an IT network for British Health, now four years late and having many problems while causing hundreds of millions in writeoffs.

BT has had the most thoughtful management of any Western incumbent, including Paul Reynolds and Ben Verwayen. Their network design is world-leading, and their in-house think tank outclasses everyone. For the last two years, however, they have had some of the worst results on any major telco, and lost 2/3rds of their market cap. The possible explanation is that any telco without wireless is in trouble. Wireless is inexorably replacing wireline.

The access line decline was covered for five years by the growth of DSL, but DSL has little more room to grow, with 60-80% of homes covered in most developed countries. 3G/4G mobile is beginning to take share from DSL and cable, as some customers find their mobile speeds are sufficient. Net additions in DSL are down almost everywhere but China. Bell Canada and Hawaiian Telecom are seeing absolute drops. Randall Stevenson at AT&T is probably the only telco CEO that has decided to let wireline go (a really important story I need to write.) Amol Sharma WSJ suggests Verizon is considering offering a $5 wired phone lines, incoming and emergency calling only, just to keep the customer.

Martin Geddes is joining JP Rangaswami at BT Design, whose blog confusedofcalcutta.com is imaginative. “my thoughts on open source were probably more driven by Jerry Garcia than by Raymond or Stallman or Torvalds et al.” There's much more there about understanding our industry. Definitely worth a read.

BT has just imposed a 10% price increase on basic phone lines, as well as several other charges. A cynic might connect it to the losses in Global Services, but this has long been part of Ian's plans. BT's price increase, along with Britain's pullback on fiber networks, is strong evidence that “structural separation” is not a panacea. Better services and prices for consumers are the ultimate goal of policy, with competition, deregulation, and regulation itself merely tools. If prices consistently go up, something is wrong with the policy.

Splitting BT Wholesale and Retail has developed the most competitive retail market in the world. This reduced prices and soon British broadband deployment caught up to similar countries. But British prices remain higher than France. I believe that's because Ed Richards hasn't accepted the obligation to more effectively regulate the resulting wholesale market. BT has a monopoly across half the nation, and faces a recently bankrupt cable company in the other half.

Results are the best way to evaluate a regulator. Richards is allowing basic prices to go up while falling behind in Internet speeds, dismal results despite his thoughtful policy ideas. George Bush should have asked for Kevin Martin's resignation when he failed to deliver his most important goal, “affordable broadband for all Americans.” Richards doesn't answer directly to Parliament, but someone there should be asking the question “If prices are going up and Britain is going to have a second-rate Internet, should OFCOM change.”

From the Telco 2.0 blog:

“It’s been a great journey the past three years at STL Partners/Telco 2.0, with enormous progress made. Nobody else in the marketplace of ideas has anything comparable in terms of a coherent industry vision. This foundation will no doubt support ongoing success and growth of the business.

Before he left we asked Martin to give us 10 reasons why BT is well placed vis-à-vis Telco 2.0 principles:

1.) BT’s focus on enterprise networking and IT services opens up possibilities to exploit critical relationships with ‘upstream’ customers - a key requirement for ‘two-sided’ business models.
2.) It is represented in 160 countries, and BT ‘Global Services’ lives up to its name. This gives BT a further edge in creating innovative new business models with global partners
3.) BT’s retail arm has a strong and differentiated home hub proposition, a platform for new ‘digital home’ services. Integrating innovative consumer electronics with core telco services is the key to retail success in the Telco 2.0 model.
4.) Its trusted retail brand offers strong potential for experimenting with new business models.
5.) BT clearly understands the importance of wholesaling to grow revenues. Growth through richer wholesale products is a key Telco 2.0 theme
6.) BT’s technology platform is world class. In particular, 21CN removes many of the barriers to experimenting with business model innovation
7.) BT has invested in transactions as well as data transmission. For example, it supports e-commerce with Tradespace, and is piloting online advert insertion. These B2B services are the growth engine of Telco 2.0 business models.
8.) BT has a culture of adaptability and change. It has continued to thrive through privatisation, moving from products to services, divestiture of its mobile network, functional separation, and most recently with the creation of BT Design and BT Operate
9.) The recent purchase of Ribbit shows that BT is at the heart of converged Web and telephony. New business models tend to come from working across traditional silos, rather than within them. Personal communication will always be at the heart of the telecoms industry.
10.) Without naming names, BT has hired several people I regard as industry mentors or heroes. The quality of the people there is very high.

Taken together with BT’s financial health in testing times, the overall picture for BT is a good one.