I haven't written about the recent remarks by telecomm executives about Google "stealing" revenue that is rightfully theirs. It strikes me that this really a case of P/E envy but let's take a look at the comments and what they really reflect about the problems that the RBOCs face.
Despite the billions they raked in during the dot com boom, the problem is that telcos mostly sell (phone service) which is complete commodity. While they also sell leased lines and data centers, their profit margins are almost entirely found in their residential phone service. Consumers are paying too much for far too little service. Let's take my provider Qwest. We have two lines from Qwest - a line for my office and one for the house. Despite various bundling options our phone bill is regularly between $125~$150 per month. We don't have voice mail, or three way calling or a whole host of other features regularly pushed upon us by Qwest's telemarketing reps. I spent a whole lot of time on the phone with Qwest to figure out why my bill was so high. During that conversation one thing really struck me. My expectations of service and Qwest's were completely at odds. When I noted to the rep that my phone situation was hardly complex, her response was "Sir most people don't have two lines. You have more services than most of our customers. You have a pretty complex phone set up."
The strange thing I thought the number of services I derive from the phone company completely at odds with the actual cost. For example my high speed wireless connection is far more valuable to me than my phone and provides far more value. I regularly run Skype for phone calls. In fact I recently called London on Skype, to find out where a check was. When I queried about the call quality, the woman on the other end of the phone was surprised not only I wasn't in London, when she found out it was an internet telephony call she was downright incredulous. I would hesitate to guess the cost of making that phone call with Qwest. Certainly far too much as I found out when making calls to Canada. I have stopped using my phone for all international calling.
The problem of course is that telcos haven't kept up with customer's expectations. They are simply providing a connection to what people find really valuable, namely the Internet and the content contained therein.
Who provides that connection is completely inconseqential to the user. They want the content. The connection is a means to an end. This is why the current telco posturing is in it's own way too funny to believe. They are the tail trying to wag the dog. Their threats to degrade access or (even cut off access) to Google or Yahoo are laughable. Let's say (Telco A)degrades access to Google because they want a slice of Google's revenue. Google's response is simple. They can simple re-direct that telco's customers to page saying, "Telco A has decided to degrade your access to Google. This despite being paid by you for internet access. Please let them know you want full access to the Internet at 1800 Pissed Customers.Or simply try Telco B for internet access."
The problem is that telco's see the revenue generated by Google and Yahoo and figure they deserve a slice. They no more deserve a slice of revenue from Google than they do the revenue from a direct mail company that uses phone lines to take orders.
Telcos seem to think (quite mistakenly) that because they own the connection the customer uses to access the internet, they own the customer. This is false. If they were to provide degraded service to those customers on a per site basis, they would cease being their customers, fleeing to telephony provider who will provide the access that customers want. I cannot imagine what stick (other than regulatory) the RBOCs have to enforce a payment from Google or Yahoo. By hurting their customers (who will certainly view it that way), cannot they expect to have some leverage.
The problem with RBOCs is that they simply lack the ability to quickly innovate. Instead they really prefer to roll out new services slowly and bill them accordingly. For example, Google launched in 1998. Why wasn't there a phone company version of Google already out there? It's because they saw the scope of such endeavors is a far too limited fashion. The RBOC search engines (such as Athand) saw themselves as online Yellow pages and NOTHING more. With this sort of innovative thinking it's no surprise that Athand and telco attempts at seartch were complete flops.
The attempt of a telco to retroactively exert a toll on the internet is doomed in any free market environment. Indeed Google is poised to leap frog all that copper the telco has spent billions stuffing into the ground. I can easily imagine Google with all that dark fiber it has bought, and wireless access to simply start offering free internet telephony, along with internet access. It will be interesting to watch what will happen in San Franicisco's free wireless environment.
