Patrick Foulis, a former top-ranked analyst, and now the voice of reason at the FT's Lex column, writes an eloquent and spot-on piece today, on the theme of consolidation, which (in my view, overoptimistically) has driven the outperformance of the sector in the past month. My favorite quote is at the end:
"Europe's minnows will be swallowed up. But its big companies need to exhibit
some industrial logic, not just Powerpoint slide maps of Europe. If synergies
are unclear, then only nil-premium mergers are justifiable. Better still, they
could invent some new products or restructure their work forces. That is,
actually enhance value, not give it away."
New products indeed. A great idea, but not one the telcos are renowned for (I guess NTT is now the only telco anywhere doing technology R&D more or less for its own sake). Rather, it would appear that telcos are committed to doing what telcos do best when they have too much cash: buying more network, and apparently largely ignoring the hell that is breaking loose around them, while throwing the occasional embarrassing tantrum.
When I first started articulating my "Attack from Cyberspace" scenario to clients three years ago, I believe the exact phrase I wrote was that the impending entry of global internet players into the voice arena risked "...laying down a deadly crossfire from which the telcos would find escape difficult." Looking back on it, I'd say that was an understatement.
What Microsoft unveiled yesterday was not at all unexpected, but in my view it went further and faster than I could have hoped (considering that Teleo only happened 2.5 months ago), and from the telco perspective should be viewed as a neutron bomb. Messenger already has 185m active accounts, and the company has established momentum in the mobile space (my bet is that we see a Live Messenger lite for mobile by Q2 of next year). I guess all those stories of flying furniture inspired the company to pull its socks up, and you can bet that Google, Yahoo! and SkypeBay developers will not be going home early tonight.
The crossfire scenario now comes to fruition, let's call it Crossfire 2.0. I think it would be fair to say that, outside of furthering their own agendas, the Big Four's attitude towards the telcos is summed up in the Japanese phrase "屁とも思わない" (pronounced "heh to mo omowanai," and meaning "I don't even consider you a fart."). All this takes me back to my oft-cited anecdote about Bill Gates' apparent Freudian slip at the RTC launch back in the spring: asked if MSFT wasn't risking conflicts of interest with its conferencing and telecoms partners, he remarked, "No we very much need our partners because they can do lots of things that we can't do for ourselves, like............... network connectivity."
Make no mistake about it, however, what these guys do care very much about is what one another are working on. So, I guess Yahoo! now accelerates the switch-on for Dialpad-enhanced Messenger services, Google takes GTalk another step higher, and the impressive innovation train rolls on towards the horizon. My concern is that the telco train is meanwhile on a short spur line known as the Gravy Train, with Casey Jones as engineer, final stop Palookaville.
UPDATE: My traffic stats show that this piece is getting bounced around within telcos like a pinball. Was it something I said?