LOP-SIDED CONVERGENCE

The convergence of Technology, Media and Telecommunications is changing how we do stuff.  That, in part, is why Facebook was valued north of $100 billion this week.  The new shorthand for these converging industries is ‘TMT’.

PR and marketing agencies have put specialist TMT teams in place to offset the new breed of TMT correspondents that newspapers and broadcasters have installed.  But is ‘TMT’ as unified an industry as the label currently suggests, or a bit lop-sided in favour of the media?

The Hollywood movie industry (part of the media bit) is actively at war with the telecommunications bit. It aims to hold telcos to account for the habits of customers working as copyright pirates and watching the latest blockbusters without a ticket.  The music industry (another media bit) is on a similar path. The British Phonographic Institute is demanding that telcos block access to certain music sharing websites, threatening to go legal if the telcos resist.

The telcos are grumpy too, unhappy at shouldering the cost of maintaining and speeding up broadband networks so the growing libraries of content can be downloaded faster.  Meanwhile, the telcos that have launched IPTV services are underwhelmed with what the content owners charge them to distribute the content at a fee, plus profit margin.  The technology vendors generally stay quiet, unwilling to upset either side while selling to both.

Combined, Google, Facebook, iTunes, Instagram, Pinterest, iPlayer and a host of others depend on the teleco’s capital investment but make little, if any, cash contribution.  The telcos, with their real and significant revenue, profits and cashflow are in effect subsidising their digital lodgers who are largely without.

So imagine the envy spreading across telco boardrooms at Facebook’s ‘robust’ stock market valuation.  If you apply the same valuation multiples to telco stocks that was applied to Facebook, BT would be worth around £250bn, Vodafone £750bn and AT&T a cool $2 trillion.

Facebook started and ended its first day of trading on Nasdaq yesterday at $38 a share.  Is it overpriced?   The case for the prosecution would point to the company’s annual profits of $1bn and its easily replicated technology and business model and ask on which planet in which solar system such a valuation, at more than 100 times profits, could have been agreed.

The case for the defence would point to Facebook’s 900 million and rising active subscribers and the growth in online advertising which recently surpassed the number of dollars changing hands for traditional ads. The truth is no one really knows whether Facebook is over priced or not.  It’s a little bit religion.

What about the telcos?  In justifying the telcos’ relatively low market valuations, one could point out their declining revenue, the analogue mindset, conservative outlook and lack of comfort with either technology or business risk since the dot com bubble of the late 1990s and early noughties crashed.

What is undeniable is that Facebook and its peers would struggle were it not for the telcos’ investment in fixed and wireless broadband infrastructure that connects the punters to the platforms.  Because of this, telecoms IS a core element of the new converging world of TMT. But they need to see themselves as such and message it more strongly to their customers, employees, the market and other stakeholders.

Too many telcos still talk in the language of volume voice minutes and network speeds.  The financial analysts that value them speak the same language.  Compare a recent financial research report on any incumbent telco in the world with one from five years earlier – it’s as if the social media revolution had never occurred.

The convergence of Technology, Media and Telecoms means telecoms has never been more important to peoples’ lives or business.  It just needs the confidence, understanding and wisdom of age to say so, in a way that balances the exuberance of youth.

 

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