Consolidation, competition, and cloud communications: Creative destruction or creative disruption?

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While large Communications Service Providers (CSPs) in the U.S. market continue to consolidate, now is a perfect time to understand why companies like Facebook, Google and Amazon are fiercely trying to beat CSPs at their own game: voice, messaging, video conferencing, collaboration and unified communications.

While these challengers have been making steady progress attracting billions of consumers, they’ve also convinced businesses to drop legacy services and opt for easy-to-use, less expensive and increasingly secure platforms enabling teams to get work done – smaller but fast-growing direct challengers like Twilio have been likewise eating into the revenues and relationships of some of our most well-known service provider brands.

Consolidating to gain market power and scale is not a bad idea. With the $85 billion merger between AT&T and Time Warner likely to happen, it makes sense that these companies join forces to increase their ability to evolve faster into the world of IT, software, XaaS, IoT and other growth markets, as landline usage continues to decline and internet access becomes more competitive and commoditised.

In addition to the terrestrial consolidation, mobile giants like T-Mobile and Sprint are also likely to merge, and again, the argument of size mattering really does play out in the economics associated with moving forward with 5G and other LTE investments, even as the cloud itself is changing to adapt to the requirement for edge computing, away from hub-and-spoke data centre models.

Cost efficiencies? Check.

Synergies through larger subscriber bases? Check.

Competitive applications? Not so sure. This is where the challengers have invested and are succeeding in “over-the-top” services, which are easy to buy, easy to use, and addictive, from social communications on the consumer side, to embedded real time collaboration and messaging, voice and video conferencing, and “everything from the browser” applications on the business side.

CSPs can do many, many things better than Facebook, Google and Amazon, and this is one: SIP networks that are more performant and secure than internet access, and more affordable than VPNs and MPLS, using new technologies that harness the public internet and take it into private networks with software overlays.

About this we are certain: Google continues to gain traction in competing with Microsoft, which clearly dominates the $15 billion market for business productivity tools, given that their longstanding products are very reliable, and IT managers have little incentive to gamble on something new.

Google is making moves, but Microsoft still owns the dance floor

Google has made steady progress, however, and the number of organisations paying for G Suite has doubled to more than 4 million. While most of those customers are small and medium-sized companies, large companies have signed on over the last year, bringing over 250,000 workers to G Suite.

Still, only a handful of the S&P 500 currently have Google’s business tools, and its $1.3 billion in G Suite sales ranked a distant No. 2 behind Office’s $13.8 billion, according to 2016 data from Gartner.

Amazon has been less active in the applications space, given their focus on the AWS cloud and desire to remain somewhat agnostic and non-competitive with the very companies they wish to provide cloud services to. I find this particularly interesting in that there are opportunities for CSPs to leverage their connectivity to and from AWS to develop and roll out competitive unified communications and web collaboration services to enterprises.

Twilio, as I briefly mentioned above, has parlayed their investment in new technologies such as WebRTC to get enterprises to switch from old phone and other communications systems to their less expensive alternatives.

As of March 2018, they reported that over 2 million developers around the world have used the platform to democratise communications channels like voice, text, chat and video and have made a huge amount of headway most recently in the contact centre domain.

What’s the message here for CSPs?

Choices. They can either accept their role as commoditised infrastructure providers, fighting each other out on the ground and in the air, or they can move up the stack to applications, and provide their own innovative embedded communications solutions to enterprises with higher fidelity and more secure and reliable virtualised cloud communications platforms.

In fact, “digital” is already deeply embedded into Tier One CSP's models - as much as we like to talk about "software telco" as a new thing, the telecom industry has always been at the forefront of developing and using computers and software to operate massive networks, both the PSTN and public Internet.

Given their existing investments in providing the world’s IP infrastructure, it would be a shame for CSPs to not maintain and deepen their relationships with enterprises, many with whom they’ve been providing mission critical services and support for years and even decades.

The good news? CSPs don’t need to become Google, Facebook or Twilio to compete with those companies. They don’t need to invent cloud-based communications applications with security and performance baked in, which have been built as “carrier-grade” services they can roll out connectivity to generate more revenues at higher margins, without massive upfront capex and long-time scales to roll out. They can take advantage of white-label capabilities that are designed specifically for them.

CSPs can embrace the web scale world with better features – more scalability – and importantly more security than can be found today amongst the challengers.

Whereas service providers’ legacy architecture is nearly 30 years old in some networks and, although highly reliable in many cases, it simply doesn’t have the apps and services today’s businesses are adopting in record numbers.

That is, unless those same service providers up their game by harnessing more value out of their infrastructure and go after enterprise business in new ways with their highly established brands, leveraging innovative tools such as white-label cloud communications platforms and get into the game quickly with advanced features large enterprises need now more than ever.

CSPs are adapting – by consolidating. But can they also adapt – by creating?

David A. Walsh, Founder of the Kandy Communications Cloud Solutions, Ribbon Communications
Image source: Shutterstock/violetkaipa