The future of telecoms

Silicon Valley has upturned many industries in its time - now its 'creative destruction' is at work again. The telecom industry is currently undergoing a huge strategic shift:

• Landline phone companies merging with mobile companies
• Mobile companies merging with broadband companies
• The rise of Voice Over IP (VOIP), using data networks to efficiently transport phone calls

Where is all this heading?

The reason landline companies are merging with broadband and mobile companies is because it's vastly less expensive for landline companies to run voice over an IP data network than over a traditional circuit. And thanks to rapid technology advances, it will quickly become even less expensive (and higher quality).

And the mobile industry recognises that 3G is a failure - a massively expensive minor enhancement - but it can gain redemption by offering high speed mobile data access and internet services.

But once you've given your customers access to the internet, you can't make them use your content! This is the lesson all ISPs have learnt - think of the failed old AOL portal abandoned by customers in favour of Google, the 'free email addresses' abandoned in favour of Hotmail, and 'walled gardens' on the mobile web that have failed to attract customers.

Current phone companies - like AT&T or BT - will just sell access to the internet (fixed or mobile). No-one will have a phone number with them, just like no-one uses their ISP's provided email address, or visits their ISP's internet portal for news. People will use Google Talk or Skype for phone calls, and Hotmail or Yahoo mail for email addresses, and cnn.com or bbc.co.uk for news.

The reason? Skype (like its competitors Google Talk and Vonage) understands internet technology, moves at internet speed, and will have more customers than a broadband provider ever can, because it is open to anyone globally on the internet. So it can take advantage of massive efficiences of scale in providing voice services, and it can integrate them with other services like blogging or instant messaging.

The same will happen in the mobile world (albeit more slowly given lagging technology) - people will purchase mobile access to the internet. But they won't use the mobile phone number they were given; instead they will use their Skype or Google Talk account.

The industry will be split in three:

• Device manufacturers, selling mobile devices and PCs. Three or four globally, based in Far East.
• Broadband providers - offering fixed and mobile broadband internet access. Three or four based in each country.
• Internet Communications companies - websites offering email and phone services over the internet. Three or four globally, based in Silicon Valley.

Existing phone companies, landline and mobile, will become simply broadband providers. And they will remain utilities, despite all their attempts to break out of this market. Their best option is to receive commission from internet communications companies, by referring new customers. This is what happened this week in the UK, with BSkyB white labelling Google's products to its broadband customers.

And internet communications companies will offer an integrated suite including email, phone with voicemail, instant messaging, RSS reader, blogging, buddies, community features, personal web-pages as per MySpace, etc. These will be served to any device, with any screen size, whether fixed or mobile. And they will come in two flavours - free but advert supported for consumers, and subscription-based for enterprises. It's a whole lot more than just phone calls, and the telcos can't compete!

I'm sure we'll see many attempts at vertical integration across these industries. But the cultures and business models are so different that this will be an anomaly. Telcos will become utility internet access companies, and all 'content' - including phone calls - will be handled via separate communications companies.