The Telecom Zombies of 2008

I hate top ten lists, don’t you?  They are like zombies from the past which occasionally rise from the dead to eat our brains.

Yet, here I find myself, dirty shovel in hand, writing out a list of last year’s top telecom news items - inked in the blood of the victims of 2008.

Last year, we learned not to listen to PR flacks.  Like innocent lambs to the slaughter, the top telecom companies and equipment manufacturers spent the early part of the year denying any effects from the rapidly decaying economy but found themselves impaled on the sharp hook of 2008 in the final weeks of the year, desperately struggling to break free by laying off employees, cutting costs, looking for money, or preparing for bankruptcy (in some cases, all of the above).  Along the way, the telecommunications landscape was radically changed, groundwork was laid for a new future, and a new president was elected who will likely change the Federal Communications Commission forever.

We look forward to burying 2008 once and for all with this final look back.  And please stand clear of the zombies – Por favor permanezca lejos de los zombis:

# 1 - The Economy Implodes – What started off as simply a tough year for weak companies snowballed into financial melodrama.  It was as if Godzilla had walked into a bank and burned all the money.  Luckily, Ultraman was there to bail out the banks with lots of freshly printed greenbacks.  Unfortunately, the bailout has not yet reached the telecom industry.  The axiom that even in bad times people need phones proved to be only partially correct.  Businesses that go under don’t need services, don’t buy equipment, and don’t usually pay their final bills.  And all those unemployed workers cut back on their cell phone contracts,  Internet recurring fees, and become a drag on collections efforts.  We haven’t seen mass failures of telecoms and equipment manufacturers yet, but that could be the big story of 2009 if something doesn’t change fast.  The economy was the major story for all industries in 2008 but could be an even bigger one in the new year as economic injuries begin taking casualties.

# 2 – Smart Phones Take Over – 2007 was the start of the iPhone revolution, but 2008 was the year the smart phone finally took over the universe.  2008 saw the birth of Google’s touch-screen Android phone, a new “iPhone Killer” Blackberry, and countless iPhone clones.  Suddenly, consumers and business people everywhere were constantly jacked in to the Internet, thumbs typing feverishly on their virtual keyboards.  For the first time, the phone companies were no longer in charge.  Users, not carriers, determined what they would use their phones for and what applications and web sites to visit.  Smart phones are within a breath of being the ultimate converged devices with voice, data, photo, GPS, office productivity, gaming, and countless other applications.  The iPhone 3G in particular reaches the pinnacle of usability.  It may not have the best camera, or even the most robust business features, but it achieves what few other devices of such complexity ever have . . . simplicity!

# 3 – Developers Take Center Stage – With the launch of the iPhone 3G and its revolutionary App Store, the mobile device was unleashed in 2008.  Launching with just a few thousand applications in July, the Apple App Store has since ballooned into a universe of free or low cost programs.  Developers are quickly taking smart phones to new levels, making the devices much more than simple phones.  In 2008 you could use your “phone” to do all the following and more:  Set it on a table and use it as a level, shake it to find a local restaurant much like spinning the wheels of a slot machine, play an infinite number of games, use it as a GPS to find your way, speak commands to surf the Internet, contemplate a pool of Koi fish, record a call or access your desktop computer remotely . . .  And those are just a tiny handful of applications which make use of the iPhone and Android accelerometer, GPS, phone, contact list, and processor to deliver digital goodness.  We can’t wait to see the new applications that developers will deliver in 2009.  At an average cost of just $2 each (with thousands more available for nothing at all) the Apple App Store makes adding applications and functions inexpensive.  The ease and simplicity with which Apple allows users to customize their devices has not been lost on the competition.  Google, Microsoft, Blackberry and others are a ll racing to capture a bit of the Apple magic in a bottle.  And developers are waiting in the wings to be the first to market with the next revolutionary application.

# 4 – Open Source – Open source software platforms have been around for years and have slowly gained the respect of the IT community.  However, they haven’t really gained significant market share until recently.  The poor economy coupled with a need to continue refining business systems has led many more companies than ever to the Open Source gold rush this year.  Everything from browsers (Firefox) and operating systems (Ubuntu), to mobile platforms (Android) are available for free or at very little cost. One sector of the Open Source movement that we paid particular attention to in 2008 was telephony platforms from FreeSwitch and Asterisk.  As big players like Nortel saw sales shrink last year, Asterisk users downloaded 1.5 million copies of the free IP PBX software last year.  The value proposition that FreeSwitch and Asterisk offer is staggering.  An industry which once charged up to a million dollars for a full featured enterprise PBX now competes with free downloads from Asterisk and FreeSwitch.  Development still isn’t cost free, but a full featured system can be downloaded, configured, and  hosted on a blade server or even a desktop computer for less than a thousand dollars these days.  Open Source is a game changer.

# 5 – Business Goes IP – The long awaited conversion to VoIP didn’t really happen the way anyone thought it would.  Businesses didn’t migrate in mass to Skype or Vonnage.  Rather, they bought IP enabled phone systems which allowed them to connect directly to their remote offices and the phone companies via various Internet protocols, including SIP.  SIP Trunking quickly became a major industry trend, as mid tier resellers began offering low cost local and long distance SIP Trunking services to business customers.  As pressure to cut costs increases, more business and residential users are finally turning to lower cost VoIP and SIP solutions.  But rather than the VoIP companies killing telecom as we know it, the whole industry has embraced the IP model.  Many customers are unaware that much of their traffic is now carried and connected, at least in part, via public or private Internet.  One way or another VoIP is going to happen – and already has.

# 6 – Net Neutrality – Internet service providers are chomping at the bit to begin charging for priority access on the Internet.  Net Neutrality seeks to treat all traffic on the internet the same and prevent service providers from regulating availability or content.  On one side of the issue are major carriers like AT&T and Comcast which want the freedom to block, limit, or charge tolls on certain types of Internet traffic, on the other side of the issue are Google, Yahoo, and a slew of web sites, applications and small service providers which want to ensure that consumers are able to experience the next generation of high bandwidth Internet services and devices.  While the battle flared up from time to time between network providers and the FCC last year, and congress attempted to pass bills one way or the other on the issue, the election of Obama as president in November nearly ensures that some form of Net Neutrality will be passed in 2009.

# 7 – FCC Spectrum Auction – Although Google had entered and lost the FCC’s wireless spectrum auction in February, it still came out a winner.  Google’s stated goal was to ensure that whoever won the auction would be forced to allow the access of any wireless device across the spectrum.  And while the carriers were clearly against open access at the start of the year, a tone of openness is now beginning to bloom.  The carriers are learning that they can make big money as wireless data providers even if they don’t maintain total control over the content on their networks.

# 8 – Sprint Survives Another Year – or Yahoo, or Level 3, or Nortel, pick your favorite company and dangle it on a wire.  In some ways the Yahoo vs. Microsoft story was huge news last year.  Would Microsoft succeed in its takeover attempt or would Yahoo break free of the evil empire’s clutches?  In the end, Microsoft gave up, Yahoo’s CEO was forced to step down, and shareholders lost a bundle – a letdown across the board.  And the same could be said for shareholders of Sprint, Level 3, Nortel, and a laundry list of struggling tech companies.  If a company needs investor capital to survive, it is probably on someones death watch list as we speak.  A lot of companies took on a tremendous amount of debt in acquisitions, mergers, and development over the last several years – the bill has suddenly come due.

# 9  – Obama Nation – Barack Obama and a hoard of Democrats are elected in a November groundswell.  Overnight, the corporate climate begins to shift.  While this is likely to be a bigger story for 2009, it was a historic repudiation of an economic and business climate which increasingly favored mega-companies and corporate interests over competition and innovation.  Speculation on radical changes coming to the Federal Communications Commission, lobbying, and business regulations will make the next four years pivotal for the telecommunications industry.  While AT&T may see its power erode, conditions are favorable for upstart technology and service providers offering next generation telecommunications offerings.

# 10 -  Carriers Change the Rules – 2008 saw many of the largest carriers impose penalties on their business customers for incomplete calls and short duration calls, throwing some call centers and telemarketers into a panic.  Internet and mobile carriers also began capping Internet data and other types of usage.  The trickle down is now circulating through the entire industry with nearly everyone attempting some form or data or usage minimums, caps, and/or fees.  But simple greed does not appear to be behind these carrier rule changes.  Rather, carriers seem to be attempting to ration usage on their networks which might otherwise force them into spending precious capital on network expansion at the worst possible time for them.  By forcing lower revenue usage off of their networks, carriers are able to forestall the inevitable network upgrades and expansion which must come at some point.
~ ~ ~

And that was Old Man 2008.  The economy popped, people lost their jobs, the stock market crashed, conservatives battled progressives in an election that never seemed to end, and through all of the darkness there were a few brilliant rays of light.  Formerly untouchable pillars of industry are crumbling.  But a new foundation is being formed in the technology and communications world which favors new business models.

We feel sorry for the Baby New Year. She is inheriting a big mess.  But expectations for her are low and with any luck, she’ll prevent the zombies of 2008 from eating her brain.

-iTodd