The Mature Telco

Fiber CableAll businesses go through similar phases – start-up, growth and maturity, and it’s important to understand which stage your business is in. When I first got into the industry in the 70s many small telcos had reached maturity. They companies were 50 to 75 years old. They had copper networks that were in good shape and there was no technology on the horizon that was going to threaten or compete with copper. As monopolies they knew their customers and they rarely changed products or prices. Their businesses were predictable from day to day and even from year to year.

But like many industries the telco industry got swept up from all of the changes that came from the constant improvements in computer chips. This technology revolution that started around 1980 has produced chips that doubled in density every three years (Moore’s law). And that brought us the electronics revolution of computers, smartphones, the Internet and the cloud.

And telco technology improved just like other electronics. We saw the widespread introduction of fiber optics into the network. We saw competition spring up from the coaxial networks of the cable companies (that also were improving along with telcos). We saw the growth of customer demand for broadband and telecom networks have become data networks much more than they are voice networks. The technology changes means that the industry has been in turmoil since 1980. For every new technology we saw, we knew that a few years later something newer and better would come along. We saw most of the historic telco vendors like Nortel and AT&T disappear due to the turmoil in the industry. And most (but not all small telcos were swept up by these changes andwere not as predictable as before.

But we are now seeing a slowdown of the constant technology upgrades. Moore’s law is finally starting to slow a bit and experts say there will likely only be a few more doublings of computer chip technology. More importantly a lot of small telcos have built, or soon will build fiber networks to replace their copper. And it is these fiber networks that are starting to bring telcos back to the mature stage again. Companies that build fiber networks know that they are not facing another major technology upgrade for a long time. We don’t even know how long modern fiber will last, but I’ve talked to scientists that say they expect it to be functional for 75 or even 100 years. We’ve also seen that fiber electronics last for a lot longer than we once expected. I know companies that are still operating fiber electronics built in the early 2000s – and which are still not showing any signs of failure.

So companies with fiber networks can now feel secure that they won’t be facing major future capital spending. They can hunker down and pay off any debt incurred to build fiber. Future electronics upgrades are liable to be introduced gradually rather than with a forklift. We also see both cable TV and telephone services moving to the cloud and telcos can buy these services wholesale from the cloud rather than operating headends and switches.

The industry as a whole still has some turmoil. The whole regulatory scheme that has driven telco revenues is changing. Voice regulations are being phased out but we are now seeing some new regulations for broadband. The biggest change for small telcos is that they are losing subsidies and the cost-based settlements that helped to fund their companies.

But companies that have built fiber and that will be solvent after the shakeout of the changes in settlement revenues are going to become those mature companies again. Companies can remain in growth mode if they continue to expand geographically.But once growth stops, a fiber-based company will become a mature company.

As mature companies they need to change their focus from building and upgrading mode to instead putting more attention on customer service. Because as long as they can keep their customers happy these mature companies will likely have a long and profitable future in front of them. The transition can be hard if a company doesn’t recognize it. For instance, many companies will keep construction crews and other remnants of their expansion days on board even though they are likely to never need them. So it’s important for a company that is not likely to grow to take a hard look into the future and to make the changes necessary to take best advantage of again being a mature company.