Ending the never-ending spiral of telecom value migration

A couple of weeks ago, I was invited to present on the topic of ‘The Future of Telecom’ at a private conference, and as part of my presentation I produced the figure below that outlined how I see telecom value has evolved over time.

The conclusion is undeniably stark – that the telecom industry has a truly compelling history of initial value creation in communications services and systems, but equally has almost as impressive a record of subsequent value migration and loss. ?I was initially cautious about showing such a brutal view because it felt negatively hyperbolic, but when I presented the figure at the conference, and subsequently to others in the industry, no-one really disputed that this is a valid qualitative perspective and analysis.?And that is in itself also shocking.?If indeed this is a common view of the telecom sector, or ‘common knowledge’, how is this the case and why is it permitted to continue? ?Surely over the many decades that telecom has been a sector, someone or some entity could have halted this demise and could have managed to retain significant value in/for this critical segment??Apparently not.?

Why is this the case??In my previous article, I wrote about the 5 issues that I think confront and confound the telecom sector, which are:

• The challenging market dynamics: Probably the most significant factor is/was the ever-increasing challenge of the economics of the telecom industry, which is perpetually over-constrained by consumer-driven price pressure on one end and the need for continual investment in infrastructure-heavy upgrades to meet demand, on the other.?When this is paired with the financial demands of quarterly earnings, this is fundamentally at odds with the ability to deliver pioneering disruptive innovation(s) to market, or to expand company scope, instead causing an excessive focus on incremental sustaining innovations in the current product spaces.?Market consolidation would normally result in stabilization and pressure-release, but the telecom industry invariably resists this, with the continual arrival of new entrants and new architectures and new technologies that create sufficient perturbation and renewed competition, leading to the continuation of this economic spiral.?
• The power of incumbency: Although it is true that deep knowledge of, and expertise in, the many complex systems and constituent technologies, and strong, trusted customer relationships, result in a level of incumbency that provides a barrier to wholesale change, the (attractive) size of the market and the multiplicity of evolving technologies means that the threat of change is perpetual and drives an effective ‘perpetual motion machine’ towards lower cost and higher performance – a challenging couplet.
• The clash of cultures: The nurturing of sustaining versus disruptive innovation effectively need two different ‘operating systems’ as outlined by John Kotter, creating one key type of cultural tension or clash in large corporations.?Separately, in multinational corporations, which have invariably grown by acquisition and agglomeration of other entities in different locations and with different cultures, there is always a geo-cultural disparity that exists; in the best case, if optimally managed, this provides a diversity of perspective and skills that enriches the company; in the worst case, this results in schisms and simmering tensions that act as a brake on forward momentum.?
• The continuity-futility conundrum: It is an unfortunate truth that after years or decades of struggling with the above factors, corporations can become imbued with a ‘survival mentality’ which, on one hand, leads to a confidence that one will prevail and persist through any/all travails, but on the other hand, a paralyzing inability to reinvent themselves, as it is simply too long ago, and too far-removed from the corporate fabric to know how to do so.?I think the telecom industry, as a whole, suffers from this conundrum in spades, and has for several decades, with the condition becoming even more pronounced with the rise of the webscale players, with their accumulated war chests and market influence.
• The leadership paradox: Perhaps the only way to counter the above elements is via truly exceptional leadership, capable of optimizing the current business, and investing ‘ahead of the curve’ in a new transformative business, whilst seamlessly blending cultures and managing market expectations.?Not only is this an incredibly tall order, but it is also antithetical to the process by which leaders are typically selected; the reality is that senior leaders are typically promoted or recruited based on their proven track record in managing for the near-term, with little or no accountability for the longer term, which is highly likely to be beyond their (or the Board of Directors’) corporate lifetime.?Moreover, this typically pre-ordains that those with strong business or sales credentials are favored over those with strong technical or vision/strategy credentials, the dearth of which compounds the problem of trying to drive larger, disruptive transformation in companies.

I think this is indeed the set of issues that, in combination, have conspired to cause the perpetual decline in value retention outlined above.?But I think this set can be reduced to a single core cause: a perpetual survival mentality, with no ability or ambition to regenerate.?Put simply, the industry has become intent on maintaining an equilibrium, albeit a perpetually declining one.?And, as a consequence, it has become an attractor for investors and BoD members and executives and managers who accept this reality and therefore further propagate this value migration spiral.?In short, investors want stable returns and dividends, Boards of Directors want to satisfy investors and so foster conservative approaches in CEOs who appoint exec teams that deliver on this ‘aspiration’; they in turn appoint managers who execute the strategy and hire the requisite employees with the right profiles and skills to achieve this goal.?But here is the saddest part: having spent decades in the industry, I don’t think anyone actually wants this to be the status quo – all of the above sets of people want to break this cycle and return telecom to value creation and growth.?But it seems as if the industry is caught in a form of economic ‘Stockholm Syndrome’ where each party has a captive affinity that justifies the behavior(s) of the other parties.?

So how do we break this perpetual cycle??Well, I think as with any relationship between parties or people, any person or group can start the process by standing up and saying, ‘enough is enough’ and demanding a new way forward.?It will take as much persistence and patient investment as it has taken to reach this point – there is no quick fix.?But surely it is a journey worth undertaking, given the fundamental importance high-performance digital infrastructure systems will have to the future of human productivity and our future digital-industrial economies?