The Telco Battle of Mice & Incumbents

The saying goes that elephants are afraid of mice. Actually that is not true. It is elephant keepers who like to kill mice because they carry disease that can bring down the mighty beast. The story is also true of the telecom industry, where mice aka oddly named voice companies (Jajah, Rebtel, Fring, and Zing), MuniFi, FON, and Clearwire are the disease carriers, the disease that impacts the revenues of the mighty carriers. It is hardly a surprise that the elephant keepers – telecom CEOs worldwide – want to kill these mice.

elemaufus.jpgRegardless of what is the final outcome, the swarm of these little creatures are utilizing the Internet to give the communicating public an alternative to sending checks to the incumbents. What they are doing is challenging the telcos’ share of the relatively fixed time people devote to communication. The telephone network functions more like a giant billing system than a communications platform, and by making people “bill less” on that platform, the mice hurt the elephant.

In the U.S., the Big Four – AT&T, Verizon, Time Warner Cable and Comcast – would get away with their oligopoly unless the mice who represent the Disruptive Communications sector keep doing what they do. The consolidation in the phone business is a sign that they are having an impact.

Consolidation arises from an effort to resist change. Comcast uses a model introduced by Vonage to compete with Verizon for voice customers. Verizon reacts to the same development by deploying VoiceWing as an option for customers calling to discontinue service. These are uncomfortable times for the incumbents, because they now need to adapt and compete with the “mice” despite their size.

When faced with such odds the incumbents resort to using government and legislation as their competitive edge. Government fiat created the telcos. Influence with government remains the primary means of survival. The telcos push government to raise barriers to entry for disruptors (FCC mandates on VoIP companies regarding registration, E911, Calea, and USF), clear obstacles to adjacent markets for themselves (national or state video franchise rules), and facilitate price increases on captive customers (eliminating UNE-P).

Yet, the “mice” keep breeding and coming back. The availability of faster cheaper hardware and software improvements make instant messaging, email, web based communication, and the many flavors of VoIP increasingly better alternatives to plain old telephone service. Consolidation does not change the fact people find fewer and fewer reasons to create a billable event by picking up a telephone. As long as one of them hits the jackpot like Skype did, there will always be funding available to nibble away at the revenues.

You know what they say – there is no mice-free elephant stable.