TECHnalysis Research Blog

October 4, 2016
Service Providers Still Act Like Utilities

By Bob O'Donnell

If you ever want to enliven a cocktail party filled with executives from the telecommunications or cable industry, just start talking about dumb pipes. As in, “your service doesn’t offer anything more than a simple connection from my devices to the internet content I want---it’s a dumb pipe.”

Of course, most of you will never have to worry about going through such an awkward social encounter, but if you do—that zinger is bound to get things going.

All kidding aside, the notion that telco carriers and other service providers have provided little more than basic connectivity has been an industry hot button for quite some time. Even now, despite a number of efforts to spice things up, most telcos and cable service providers are seen as companies that provide a very indistinct connectivity service that people only reluctantly pay for.

The primary differentiators for competitive players in this space are price, price and, oh yeah, price, with maybe a bit of coverage or service quality thrown in for good measure. It’s little wonder that many consumers hold these companies in such low esteem—they just don’t see the value in the services beyond basic connectivity. It’s also not surprising that so many people are looking at cord-cutting, cord replacement, or other options that attempt to cut these service providers out of the picture.

But it doesn’t have to be this way.

The amount of data that telco and cable service providers have access to should allow them to generate some very interesting, useful and valuable services that consumers should be happy to pay for. Now, admittedly, there are some serious privacy and regulatory concerns that have to be taken into consideration, but with appropriate anonymizing techniques, there are some very intriguing possibilities.

For example, by leveraging new machine learning or artificial intelligence algorithms, service providers should be able to aggregate data usage patterns to help determine everything from traffic patterns, to breaking news algorithms, program recommendation engines, and much more.

At a more basic level, who better to manage things like my contacts, or offer an intelligent, unified communications service that lets me see and manage all my various forms of communication, than the companies over whose network those messages travel?

Ironically, for those who are particularly privacy sensitive, the notion of paying for a highly secure, completely anonymized truly “dumb pipe” could also be an attractive option. While certain levels of privacy and security should be expected (nee demanded) from service providers, the notion of paying for extra security is something I believe most consumers will start to really appreciate.

More critically, there is a crying need to provide some kind of smart hub inside our homes so that we can easily see, connect and manage all the potential connected devices and services in our homes: from smartphones, PCs and tablets, to TVs, lights, HVAC controls and even smart cars. But instead of offering an intuitive, friendly device similar to something I wrote about a few weeks back (“Rethinking Smart Home Gateways”), service providers continue to offer non-descript black boxes whose very designs belie their archaic, impenetrable means of operation.

The fundamental problem is that service providers act more like utilities than companies that offer services people are happy to pay for, such as Netflix. There’s little sense of personalization or differentiation from service providers and the aforementioned router/gateway boxes they currently force into consumers’ homes are a classic example of that utility-style of thinking. Honestly, if your power company was to put a box into your home, do you think it would look much different?

In order to break this cycle, and avoid the risk of being cut straight out of people’s lives through various types of cord-cutting/replacement mechanisms, service providers need to start thinking very differently about the types of services they offer. They need to create, discover and deliver services that people actually value, and do so in a more personal, non-utility like way.

To their credit, a number of the major US telco and cable providers are making efforts to reach these goals, but they still primarily reflect a utility mindset. To break that means of thinking, they would be wise to look at how providers of services on the Internet—whether that be someone like Spotify, Uber, or Amazon—build and sell the kinds of services that consumers are more than happy to pay for. Only with that kind of out-of-the-box thinking can they truly move past their utility-driven focus and stop being little more than “dumb pipes.”

Bob O’Donnell is the president and chief analyst of TECHnalysis Research, LLC a market research firm that provides strategic consulting and market research services to the technology industry and professional financial community. You can follow him on Twitter @bobodtech.