Thursday, May 05, 2005

‘I just called to say . . . SBC?’

At this past January’s giant Consumer Electronics Show in Las Vegas SBC Chairman and CEO Edward E. Whitacre Jr. took the stage to unveil SBC’s newest bundle of services called U-verse: U for, well, you, and verse for universe which is now centered around U or me, or whatever. What Whitacre is talking about is the holy grail of the communications business, the triple threat: voice, data and video services to the home from a single provider. SBC wants to sell me a box to put on top my TV that will let me download movies on demand, organize my MP3 and digital photos, take phone calls from my Mom and select the best camera angle for watching my beloved LA Lakers lose yet another game.

Sounds great, right? SBC certainly would agree. The project is called Lightspeed. It’s a $4 billion upgrade to SBC’s existing network that includes 40,000 miles of fiber and access for 18 million homes over the next three years. SBC is already the largest provider of broadband services today with just over 5 million subscribers. It makes sense that they want to expand that reach and capacity for a healthy profit.

But let’s talk about strategy for a moment. The strategy as Randall Stephenson, SBC COO, put it, “the objective is to bundle services and to take the various SBC services and their customers who may be paying $20-$30 for broadband and $40-$50 for local service and $50 or so for wireless and offer them a $150 price point for all of the services.” Ah, I see, we going to charge less and make it up in volume. And why will volume increase? Well one stop shopping of course! Who wants to get all their services from a bunch of different people when they can get them all on the same bill? Anyone who wants a competitive product or service, that’s who.

I’ve never understood this argument. We’re going to offer what we think are the best individual services available in a discounted bundle. If each of these services were really the best in a competitive market, then we don’t need to offer them at a discount. We could charge a premium! So the fact that you have to discount them tells us that they aren’t that great. If they aren’t that great, then why would I want them, even if they are cheap? If you give people a few things they want and tie some garbage they don’t want to it, eventually they will find a way to by just what they want and leave out the garbage. That’s what competitive markets are all about.

What this strategy is really about is competitive response. Comcast, a major player (if not the biggest in the nation) started encroaching on SBC’s turf by offering voice service. This set off a panic at SBC. Comcast is now offering voice, video and data service. What are we going to do about it? SBC has decided to expand the capacity of their network with this billion dollar project ‘Lightspeed’ in an attempt to leapfrog Comcast’s capacity. The problem is no one seems to have asked the question, who needs all this capacity? Didn’t we do this already a few years ago during the bubble days? Telecom companies lost collectively 4 trillion dollars during the bubble deflating days of the early 2000’s betting on tons of usage that never materialized. Now they are claiming that the solution to their problem is again, more capacity. It’s like we learned nothing the last time around.

Don’t get me wrong. The idea of the being at the center of the digital universe that is my student apartment in Hyde Park excites the geek in me and SBC certainly has the know how to beef up the data pipes to my apartment (if they could only do something about the heat!). I just want them to realize the difference between a winning strategy and a panicked competitive response.

Paul Thomas
Allison Brown


Blogger 'Thought & Humor' said...

You have a riveting web log and undoubtedly
must have atypical & quiescent potential for
your intended readership. May I suggest that
you do everything in your power to honor
your Designer/Architect as well as your audience.
Please remember to never restrict anyone's
opportunities for ascertaining uninterrupted
existence for their quintessence.

There is a time for everything, a season for every
activity under heaven. A time to be born and a time
to die. A time to plant and a time to harvest. A time
to kill and a time to heal. A time to tear down and
a time to rebuild. A time to cry and a time to laugh.
A time to grieve and a time to dance. A time to
scatter stones and a time to gather stones. A time
to embrace and a time to turn away. A time to
search and a time to lose. A time to keep and
a time to throw away. A time to tear and a time
to mend. A time to be quiet and a time to speak
up. A time to love and a time to hate. A time for
war and a time for peace.

Best wishes for continued ascendancy,

'Thought & Humor'
Cyber-Humor & Cyber-Thought
Harvard Humor Club

7:59 PM  

Post a Comment

<< Home