W(h)ither, IP Triple Play?

Today I chaired the first day of the Osney Media IPTV & Telco Triple Play Forum in London. What distinguishes the Osney events from others I have attended is that the organizers seat participants in small roundtable groups, careful to separate company/industry cliques, and are intent on throwing difficult questions and issues out to these "nodes" to digest and regurgitate back to the audience/presenters. This provides some immediate feedback to the presenters and stimulates various strands of discussion which are absent in the standard "one-to-many followed by questions from the floor" formula.

As someone who is a confirmed pessimist about EuroTelcoland's long term prospects, I found it refreshing, because the 60 or so people in attendance (mostly high-level strategy, business development and innovation people, about half of whom were from incumbents) seemed surprisingly open and willing to accept that they are in a very tenuous position, and that expectations are very low.

This echoes some of the franker messages coming from some management teams in this quarter in investor briefings, but also highlights the absurdity of broker absence from these sorts of events, in favor of other, higher profile industry hype events, or indeed their own "industry conference" propagandoramas. I was the only broker there today, and there were no buy-side people, and only one consultant. Everyone else was from the operating lines in industry (service provision/infrastructure/security) - not the kind of people we in the sell-side world (at least at my level) normally have access to - and the ones I met were open and straight-up in a way that we normally don't hear from top management or their IR avatars. Unsurprisingly, I came away from the event feeling like I got a greater sense of where these people/companies were emotionally, and that is a very, very difficult place. I felt impressed with the industry's growing willingness to challenge itself and to question its own assumptions about the recipe for long-term survival, though ultimately I was no more convinced that there is much which telcos can do about it.

Though the audience repeatedly expressed doubts as to whether the industry was smugly assuming that it knew what consumers want, this group appeared to be one of the better-informed to which I have spoken over the past two years. I normally like to start off these kinds of events by taking a straw poll of the audience on a number of issues, which has previously yielded some fairly appalling results, though today's group shaped up like this:

Broadband users - 90%
Household WiFi users - 80%
Skype users - 50% (why do the telcos continue to play down the Skype threat, when their own employees are repeatedly exposed as avid fans?!)
BitTorrent users - 5%
EDonkey users - 2%
Those who feel they understand what BitTorrent/EDonkey are - 20%
Those who feel they understand what KaZaA is - 40%
Online photo storage/sharing users - 2%
Blog readers - 5%
iPod owners - 20%
Owners of MP3 players of any description (including iPods) - 50%
Portable video player owners - 3%
PVR owners - 8%

Overall, I think these numbers are not bad, though whether this reflects how rapidly awareness has grown over the past year, or whether it is something to do with the individuals and their corporate roles/mandates, is impossible to answer.

I don't have the time or energy to relate the gist of each presentation, but the summary takeaway points collected from the various roundtables, as reported in the wrap-up session, were:

• It is refreshing to be brought down to earth, and have our assumptions challenged (as moderator, I tried to be moderate, despite my pessimism, but Nigel Walley from Decipher gave the audience a good dose of reality in his presentation, which they seemed to appreciate).
• Partnerships between suppliers/operators/content owners have to move beyond current master/slave relationships if we are all to stand a chance of survival.
• There is no clear path to defining future direction. We have not yet found a key differentiator for the kind of services we are considering. This is an area which the global internet players could end up owning entirely. (I mentioned in passing that a good illustration of this was the forays by Yahoogle [a la "Oxbridge" as a collective noun for Oxford and Cambridge] into local listings and search, a natural advantage the EuroTelcos should have, if only they hadn't sold their directories businesses under financial duress, wrongly believing them to be "old economy.")
• It is difficult to define the balance between IP Triple Play as defensive or opportunistic strategy, but we acknowledge that it is something we probably have to do in any event, even if there is no material contribution to earnings.
• There is a clear tension between corporate demands to deliver results/growth, cost restraints placed upon us in getting there, and the management of expectations in the public arena (both consumer and capital markets).
• Understanding the consumer experience is paramount, and a different corporate mindset is required to get there. (Personally, I think every day about Richard Stastny's recent observation - "You can compete with everyone, but you cannot compete with your customer." Many in the audience seemed to regard as novel, even startling, Nigel Walley's focus on using the consumer point of view as a strategic starting point [I agree with him entirely], which confirms my sense that there are still some bridges to cross in this regard.)

On balance, the presentation which seemed to resonate most with the audience, was the case study presented by Helmut Leopold of Telekom Austria. In it, he detailed the experience of the company in embracing the "long-tail" principle in the town of Engerwitzdorf, which independently produced over 70 videos in its first four months, ranging from dramas to documentary and public affairs content, and now constitutes a dedicated channel on the Telekom Austria TV platform.

The operational uplift for TA was a dramatic increase in local DSL penetration (the locals needed to buy in to the technology to be able to distribute and consume their own content) and the creation of an additional channel on the platform which is unique, yet which required no programming or production costs. I got the sense from listening to him that one prong of the TA TV strategy is to become a facilitator of locally produced, local interest programming, which differentiates the channel offering at limited cost, while driving stickiness on both the access and TV platforms. This struck me as, counterintuitively, both a crafty and proactive move in content creation/aggregation, and a partial capitulation to the "dumb pipe" principle. No wonder, then, that this particular section of the session ended with a number of delegates (overwhelmingly from Eastern/Central Europe, where I guess that local market content may be relatively under-represented in the broadband landscape) surrounding Mr. Leopold to learn more.

Asked what would prevent another player from doing the same, Mr. Leopold replied, "Nothing," but he noted that so far, voice competitors remain focused on killing each other in voice, and the cable content aggregators view the whole issue as too threatening. I found myself struggling to believe that what I was hearing was an incumbent telco actively embracing "decentralized media" principles (albeit for its own selfish ends), rather than focusing exclusively on delivering a me-too TV product based solely on prominent national and global brands. Perhaps the market particulars of Austria have engendered this to a large extent, but it was refreshing and thought-provoking, nevertheless. I asked about the cultural transformation required to get to this point, and issues cited were investment in OSS/BSS, changes in work practices (help desk calls are more intensive on the weekend now, versus weekdays previously), and a more complex customer management environment (troubleshooting is more complicated, which necessitates a lot of training for call center staff).

Overall, this was an interesting day, which afforded much more insight into true telco thinking than the entirety of Q1 conference calls I have listened to so far. Based on what I saw and heard today, it would be wrong to say that the industry (at least as represented by these strategy and business development people) is deluded about its prospects, though how representative across large organizations is the pragmatism I heard today, is something I question. The only disappointment for me (and many others, apparently) was the unexplained absence of BT Retail's head of Entertainment, Andrew Burke. BT apparently wasn't interested in sending a replacement for him, and this led to all sorts of speculation (not helped by the fact that BT is reporting full year results tomorrow).

My sense from today was that, collectively speaking, the EuroTelco beast has genuinely awakened to some significant extent, and is thirsting for new ideas and approaches for digging itself out of some deep caca. IP TV/triple play may be an admittedly half-hearted initial attempt to develop into something else, though I am skeptical as to whether the macro environment really lends itself to any self-help strategies, no matter how clever. Nevertheless, what is different, from what I observed today, is a sort of openness and (dare I say it?) humility, among strategy and bizdev people, to admit what they don't know, and to seek out the darker corners of some complex issues in a bid for some kind of survival.