Last time, when I wrote about the complete dissociation of mobile and fixed services, quite a few of my friends from the industry did not like the thought. And as most of us do not distinguish much between ‘like’ and ‘agree’, not many of them agreed with the observation. And remember, I thought it was one of my most obvious observations!

Well, you can, to some extent, blame it on my colleagues at the copy desk. They actually put one thought up-front as the introductory line—fixed lines will be more localized, incumbent-dominated—and that became the most contentious part.

However, as I discuss the subject of market recovery, technology directions, and technology industry consolidation with carrier equipment vendors, this thought of mine gets even more reaffirmed. In fact, in this aspect, there is really very thin dividing line between a thought and a prejudice. The more you reflect on it, the more it gets reaffirmed.

I will give my reasons why I think incumbents will lead the market recovery. No, they are not derived from last year’s trends. In the year 2002, the top nine spenders on capex were incumbents. While NTT led the list with a capex spending of close to $18 billion, Verizon followed at $12 billion. The rest seven companies who followed with more than $5 billion spending were SBC, France Telecom, Deutsche Telekom, AT&T, Telefonica, Telecom Italia, and BT Group. Yes, Worldcom at No 10 was the top non-incumbent capex spender.

My reasoning is simple. After the spring follows the telecom nuclear winter—analysts see that beginning this year—and the service providers will again start fighting for market share. Of all the strengths that are required to run a successful telecom services business—robust technology, innovative offerings, smart marketing, and good customer service—nobody would argue that the one at which the incumbents are most comfortable is technology. Couple this technology strength (and more importantly the belief that technology is the key competitive tool) with the cash reserve and/or the ability to raise money, and what you get is a strategy that is centered around technology deployment. In vendor parlance, that is capex spending.

And that is already happening. Apart from the 2002 data that I have given above, we see Asian incumbents playing a major role in market recovery. And operators like SingTel, Korea Telecom, China Telecom, and our own BSNL are likely to spend big money on expanding the network and building new services. Ironically, for the competitors, the same technologies that were supposed to help them in fighting the incumbents are now being deployed by the incumbents themselves to gain market share.

The second coming—if I can call it so—of most of the new disruptive, revolutionary technologies is being fuelled by the decision by the incumbents to deploy them. Whether it is broadband or VoIP, next-generation billing or optical transport equipment, it is the incumbents that are leading the purchase and deployment of these equipment. Even in India, whether it is MPLS-based network or next-generation OSS/BSS suite or broadband, it is BSNL that is taking the lead in deployment. India is still an emerging market and others like Bharti and Reliance are also spending. But in markets that have been exposed to competition for some time, and where both incumbents and challengers have been hit by the downturn, the recovery is likely to be led by the incumbents. In the US, it is the evolved RBOCs that are spending whatever money is being spent as capex. And remember, not long ago, quite a few vendors who were trying to get a footstep in the telecom equipment market, were backing the competitive local exchange carriers urging them to use these very technologies—VoIP, DSL etc—to neutralize competition?

However, one word of caution. While value-wise, most of the capex spending will be done by the incumbents, they will mostly spend on network and core infrastructure. The front-end technology spending like CRM and call center will still be led by the challengers.

Considering the fact that Asia (and especially India) is going to be the most happening market, the incumbents here—China Telecom, BSNL, Korea Telecom, Malaysis Telecom, Telstra, and of course NTT—will be the biggest spenders in telecom infrastructure. Some of the big projects like BSNL’s integrated OSS/BSS (commonly called CDR-based billing) has caught the fancy of all major OSS/BSS vendors and integrators. As one integrator puts it, it has single-handedly promised to take the global OSS vendor community out of recession.

In 2003, I expect more such promises and their fulfillments subsequently. Throughout the world, but most definitively in Asia.