Telco dogs need to learn software tricks

Last year, after visiting British Telecom (BT) and meeting with their executives, I left London with one key take away: BT was one telco that completely understood that it was facing uncertain times, and had no choice but to reinvent itself to survive.

The senior BT management understood that while broadband was a start point for its reinvention, it had to boldly go where no telecom had gone before, if they wanted to survive. They had to behave and think like an Internet-based software company.

Ben Verwaayen, BT chief executive, when talking about BT’s transformation remarked :

“This is the second phase of BT’s transformation. The first phase saw BT shift its focus from narrowband to broadband. This next stage will see BT advance from a 20th century hardware-based company to a 21st century software-based services company.”

Though it may sound like a hookey statement by a telco chief, it is actually quite true. According to McKinsey nearly 60% of CIOs are currently considering software-as-a-service model. If you factor in the lag-factor typical of McKinsey reports (aka a year after the fact), the SAAS movement is well under way.

“There are more than 1,000 SaaS vendors in existence today, although 90% have less than $15 million in annual revenue, but are growing 4x faster than licensed software,” notes Colby Synesael, analyst with Merriman Curhan Ford.

The weak link, however, for SaaS, is the reliability of these services over an IP connection. Synesael, makes a good point when he argues that SaaS needs to overcome bandwidth constraints, packet loss, jitter and latency. These are issues that telcos can address with their network capabilities, and they can start to learn the ways of the software world, and work with SaaS vendors.

“In a software driven world, services will be available in real time and around the globe, harnessing the potential of BT’s 21st Century Network,” Verwaayen recently said.

That holds true for any telecom operator. The old AT&T CTO Hossein Eslambolchi used to talk about software-expertise-as-a-way out from telecom commoditization.

I wonder if this is a wiser, albeit less sexy way for telecoms to bolster their business. Instead of spending $6 billion on IPTV projects, AT&T could say buy a (have some money left over for satellite-based triple play) and ensure a few hundred thousand folks paying $60-odd dollars a month for the CRM as a service. It be a nice way to fight off the cable companies who are now gearing up to go after the small and medium sized businesses.