Honey, my ISP ate the company
Interesting observation in the Financial Times today, which makes the case that the France Telecom buyout of Wanadoo minorities actually constitutes a reverse takeover of the parent company by the IP "young Turks." It certainly looks that way from where we sit. Deutsche Telekom announced plans recently to follow suit with T-Online, and today Swisscom has announced the reintegration of its ISP, Bluewin, into the Fixnet division (http://www.swisscom.com/GHQ/content/Media/Medienmitteilungen/2004/20041029_01_Bluewin_Fixnet_Fusion.htm).
We have always felt (see EuroTelcorama No. 5) that many of the telcos would try to adapt in the best way they could (clumsily), but would face many challenges and ugly choices, and would inevitably end up as companies with significantly smaller top lines and dramatically smaller workforces. It's interesting to see some of the European telcos circling the IP wagons relatively early, admitting that their ISP teams actually hold the key to the future, not just the key to cashing in on IPO mania back in 1999/2000 (as FT and DT did fairly unsuccessfully).
The transformational pains are going to be considerable, and the pressure to act is mounting, in our view. Yesterday France Telecom owned up to the fact that VoIP is taking a visible bite out of its French voice traffic, but as DSL unbundlers grow more aggressive in Spain, Italy, the Netherlands and the UK, we will see similar messages from others within a few quarters. One only need look at Om Malik's assessment of the recent AT&T and MCI asset write-offs to see where the asset sides of Eurotelco balance sheets are headed in the next couple of years (http://www.gigaom.com/2004/10/mci_att_write.php).