Gerd Leonnhard on The Future of Telcos: Content & Service Pipes

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Download the PDF: gerd_leonhard_future_stories_2_the_future_of_telcos.pdf

Traditionally, telecom companies simply offered various types of phone services and connectivity, and moved lots of data around – maintaining and constantly improving pipes & networks was the primary mission. Today, the basic connectivity offerings have become seriously commoditized: prices are dropping towards zero in a ‘feels like free’ way, and due to the ever-increasing P2P action the comfortable old position of being a ‘dump pipe’ is no longer a viable option, no matter which way you look at it. The bottom line is that there is no way that Content and Services will not end up packaged into those expensive pipes, cables and wireless networks. But take note of those keywords: PACKAGED and BUNDLED and Feels Like Free.

Increasingly, the Future of Telecoms is more in the com than in the tele; in facilitating communications based on, around and ‘lubricated’ with Content and Services. Voice traffic will only be a small and probably diminishing slice of the pie here – similar to how CDs and digital music ‘unit sales’ will make up only a fraction of the future revenues of record labels.

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In a networked ecosystem that wants to serve and empower those pesky ‘always-on’ digital natives, telcos and operators have no choice but to branch out into adjacent or even completely alien sectors – if they don’t, other players such as device & handset manufacturers, web portals, social networks and search engines will feel compelled to fill the gaps and push the pipe & network guys further and further down to the bottom of a digital ecosystem that has only just now begun to flourish (remember: only about 2% of the world is on broadband, today – there is a long way to go, yet). Imagine a Facebook Mobile Network, a Samsung Mobile Video Platform, and (of course) a Google eBook Reader?

Photo via Kevin Kelly

Clearly, those Web0.0 ‘dumb pipes & walled garden’ concepts are dead and gone – now it is all about what comes through those pipes, not where they come from. And crucially, content must now be defined much broader: not just as a piece of ‘professionally made’ and bona-fide copyrightable work that is being transmitted but also inclusive of all the surrounding user interactions, attention kernels and clickstreams (oooopps… sorry for the geek speak). Context becomes very valuable Content, too.

TwitterMusic, Google VidRead, Gone.MTV, Skype.TV, MotoTube…

For telcos, it’s about time to get into a new game, and it’s called Media2.0 – a vast and mind-boggling opportunity for (pro)aggressive networks to literally leapfrog over some of those incumbent and still future-shocked media companies, giving birth to or simply fueling new disruptors that could very well be the next Viacom, CBS, BBC or Warner Music. Deutsche Telekom, Orange or Telefonica should have bought, not CBS!

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Now, witness Nokia packaging UMG’s and SonyBMG’s music into their handsets, and sell it together. Witness Google trying to package ‘free music’ into their search engine in China; witness CBS’s API’ing ‘free interactive, on-demand music’ into social networks. Services such as Last.FM, Pandora, Flickr and Twitter (and there are many others) already make heavy use the telco’s networks to ship and distribute data at an ever increasing pace and volume. Now, many telecoms and network operators around the world are starting to realize where their future is taking them: Content + ConText+Communications+Services+ Ads2.0.




So let’s plot a few futuristic scenarios:

Twitter may just start to provide pre-loaded content-’links’; users would be able to receive messages with a hot medialink to a file that is pre-loaded somewhere, and instantly stream it via any flash-enabled mobile device. MicroMedia anyone?

A telco (Verizon? SingTel? TMobile?) will buy whatever is left of SonyBMG when Bertelsmann finally drops out of the joint venture; and SK Telecom may well end up buying a majority stake in Warner Music, globally  (they do already own 50% of their Korean JV with WMG). My take is that Music2.0 is likely to coincide with Telco2.0 if the large (but quickly shrinking) music conglomerates and the forever-at-snail-pace music rights organizations keep on playing hard-to get with anyone that has the audacity to want to actually use their music legally.

China Mobile will start ChinaSpace, a social network build around content that is generated entirely by the users (or shall we say Usators).

Within 18-24 months, a major telecom (Vodafone? Telefonica? NTT?) will announce that they are entering the music business. They will start from scratch, unencumbered with back-catalog, contracts and Music1.0  (;) people and concerns, working with new artists and with those well-known brand name acts that have finally left their labels for good, riffing off the various Music2.0 blue-prints that have been making their way around the Net (including my own humble Music2.0 book I hope;). This will be fueled by the fact many incumbent record labels (no, not just the major labels and the RIAA) have famously succeeded in being ubiquitously hated by the music fans i.e. the users, their artists, the general public, and – you guessed it – the telecom execs, themselves. 10 years of back-patting and spending 100s of Millions of $ to convince these guys to somehow give the consumers what they really want – no wonder there is serious thirst for revenge here. Telcos are fed up and will cut their slavish ties to the old major label system in the next 9-18 months.

Flat-rate music offerings will become a standard – and fuel the telcos of tomorrow. Smarter toll-booths for more traffic.

Skype will be sold by eBay to either a major social network (F….k?) or a major telecom, and will come back full circle to how it got started: a powerful network for sharing data the cheapest possible way, be it phone calls or other bits and bytes i.e. content (read: music, film, TV, books…). Skype is where legal P2P will happen, first.

Within 12-18 months, together with Google, one of the leading advertising and communication agencies will strike a deal with a major telco and jointly launch ad-supported and user-generated content services based on an Advertising2.0 approach, completely side-stepping traditional content production and licensing procedures and offering new artists (and out-of-contract acts) yet another way to go direct.

So, dear Telcos, Operators and ISPs, here are my 2 cents:

  • Stop worrying about pleasing the incumbent music & media industry players and ‘the studios’- either they will follow your lead and give 5 Billion users what they want, how they want it, or you need to leave them behind as quickly as possible
  • Play your hand now for it is strong: you have the network, you have the users, you have the billing relationships – you can get the content the way you need it, too!
  • Like the Radio and Broadcasting Industries before you, start by demanding a new, standardized blanket license for full-length, interactive music streaming followed by unlimited downloading of music on digital networks; and while this is being negotiated start making deals with Ad Agencies and Advertisers to prep the Advertising2.0 pipeline.
  • It’s music first and then Film, Video, TV…. $700 Billion of Advertising per year are ready to be traded in this battle for content in return for attention. Seize the day.