July 29, 2005

Buffett's comment on telecom industry

The other day i posted a link for a talk which buffett gave in omaha. One of the question was on his opinion of the telecom industry. He said that he cannot predict the future of industry ( said he does not even know the complete history) and the industry has too much change (which is bad for the investor)

This had me thinking and then i came across this article below in economist (link given , i have added on a portion of the article as it could have some copyright issues ). On reading this article, i think one would tend to agree with buffett. It is very difficult to really predict the long term business model of the telecom industry. Today VOIP is the killer app , tomorrow it could be something else ....


Established telecoms companies are fighting an increasingly bitter battle against innovative attackers

That is because IPTV forms part of a larger, and quite desperate, defensive strategy now being adopted by telecoms firms against fierce attacks on multiple fronts. On one front are cable giants, such as America's Comcast, which are luring customers with an enticing “triple-play bundle” of TV, broadband and telephony services. On a second front are mobile-phone operators, which young customers in particular are increasingly using to “cut the cord” from their fixed-line company.

But arguably most dangerous of all is the third front, where traditional telecoms firms are under attack from voice-over-internet-protocol (VOIP) providers, which use the internet to carry conversations that would previously have taken place via a conventional phone. TeleGeography, a research firm, estimates that the number of subscribers to VOIP services such as Vonage, which lets users plug their traditional phones into a gadget connected to the internet, will grow from 1.8m at the start of this year to 4m by the end of December in America alone; by 2010, it projects over 17m American subscribers. This does not count the world's largest VOIP provider, Skype, which uses a small and simple software application to let users make free calls between computers—so far, it has been downloaded 141m times.

Hanging on the telephone

Traditional telecoms firms are doing their best to respond to these threats by adopting internet technologies themselves. This week, VSNL, the top operator in India for international calls, said it would buy Teleglobe, the world's largest international wholesale VOIP carrier. Every big telecoms firm is investing to migrate from old, circuit-switched networks to new internet-based ones, with Britain's BT probably moving fastest. The threat from VOIP would then be neutralised, as the telecoms firms themselves would be providing it. Even so, VOIP makes already grim revenue forecasts for old-style telecoms firms look truly depressing (see chart).

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