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Telcos face competition for failure to innovate

Telcos face competition from Facebook, Google for failure to innovate, expert says

By Sophie Boot

July 21 (BusinessDesk) - Telecommunications companies such as Chorus risk being left out of innovation led by the likes of Facebook and Google because the internet companies are creating new services without having to work with network owners, a telecoms expert says.

Infrastructure owners play a minor, if any, part in the creation of new services, and there is a new generation of digital services companies who are innovating without any need to work with those owners, Richard Feasey, an associate at Frontier Economics, told the Commerce Commission's biennial competition and regulation conference in Wellington today.

Large internet services companies like Facebook and Google haven't been seeking to replace traditional infrastructure owners, but underlying network performance is vital for their strategic interests and so far they have relied on competition to deliver improvements, he said.

"My more speculative suggestion is that these companies will address that issue in the way that they generally address issues, which is through technological innovation," Feasey said. "The technological innovation we're concerned with is a process called network virtualisation.

"Today, most telecommunications networks have equipment installed in them that consists of hardware and is controlled by proprietary software, which manages and controls the intelligence of the network. Network virtualisation seeks to split hardware from network management - in future, the whole management and operation of the network can be hosted on standard IT server equipment."

Feasey said initially telecoms operators find this attractive because they can reduce costs and innovation doesn't depend on hardware anymore, but the issue is that they lose control of service creation.

"The industry is incubating something like in horror movies where you get a monster emerging, it is incubating the seeds of the separation of the hardware from the intelligence," he said. "It's no surprise to find that companies like Facebook and Google are leading participants in the industry standards bodies.

"It doesn't mean the end of the telecoms industry, but it changes the industry, and leaves firms like Chorus essentially as owners of physical assets. These firms will not be operators of the assets, they'll be owners, and then we'll get the creation of virtual networks - enabled by the physical assets and software - which will be optimised to the performance requirements of the companies running them. It doesn't mean if you use Netflix you'll only be able to use the Netflix network, but you'll likely have access to a whole range of networks."


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