Speaker key
 
DR  David Riley
JS   Jim Sloane
 
 
DR Hello and welcome to this series of podcasts produced by the technology, media and telecommunications industry group at Deloitte.  These programmes are based on the predictions reports, which you can download from deloitte.co.uk/predictions.  The reports are based on thousands of different inputs, ranging from conversations with clients to ideas provided by Deloitte's 6,000 strong global technology, media and telecommunications teams.  Some of the predictions have been tested in a regular Financial Times column called Drowning in Numbers, written by Deloitte.  In this podcast, I'll be looking in more detail at the telecoms industry, with the help of Jim Sloane, vice chairman of Deloitte.  So Jim, it seems to me that many of the issues facing the telecoms industry at the moment are financial, and especially concerned with the global credit crunch.  Is this true?

JS Well, I think there's certainly a worry out there.  I'm not sure that, you know, it's top of their agenda, frankly.  You know, they've got a pretty strong market already.  I think they see larger areas of demand still being out there.  I think they are particularly worried around the impact on financial services, you know, for those telecommunication companies in particular, or even technology companies, that service financial services industry, there must be a concern about, you know, are they going to slow down on spending and things like that.  so, you know, there is that sort of concern out there, but I think the more forward-looking companies are saying, actually is this not an opportunity for us, because while we've talked about video conferencing and all these other things, you know, and they've been around for many years, nobody's really taken them up very significantly.  There's certainly not been any substitution of scale there.  So I think most of the forward-looking guys are saying, this is a time to get out and start really pushing some of our technology.  And I know, even at Deloitte, we are looking very hard at video conferencing now as a means of avoiding travel, and just being more real-time in some of the things that we do, rather than waiting for the next meeting.  So I think there's a big opportunity out there.

DR And if there's more saturation in the more developed markets, are the emerging markets likely to provide some impetus?

JS Yes, I think so.  I mean, I think there is enough latent demand for some of these things inside the developed markets, you know, and I think they may well be the earlier companies to take up on this.  I think, in terms of where there's an opportunity to sell more, it could well be in some of those developing markets which are behind the pace, certainly.  And you will certainly see the technology companies in particular really targeting that area pretty aggressively, I think, because this is a fairly, you know, these developed markets are fairly mature.  So you've got, you know, selling to telcos and those types of companies and other corporates will certainly be happening in the developing areas, exploiting and substituting some of the things that we presently do through travel or high cost options, there's an opportunity there for the telco, certainly in developed markets.

DR Telecommunications and disruption are often mentioned in the same sentence, aren't they?  There are always new technologies, new business models that are going to herald the end of the sector as we know it, so, in your view, what's actually happened?

JS Well, I think it is very interesting.  I mean, if you read the headlines it's all about, you know, lots of new technologies arriving on the doorstep every day, and just as you said, you know, basically destabilising or closing down whole other areas.  My own experience is that it's not really happening, you know, a) because I'm not sure we've necessarily got the benefit of those technologies that we have had for a number of years, and I think sometimes the technology is sometimes ahead of the demand, so you find particularly, you know, some of the more established players, who might have been threatened by some of these emerging technologies, actually exploiting them better than some of the inventors or the innovators.  Because they've got management capability, they've got capital and they've got various other things.  So there's a lot of hype around this, I think there are some solid technologies that have been around for a long time, that are still to be properly exploited, and there are some new technologies which I think are very, they may come out of incubator-type organisations, but are actually commercialised inside the big companies.  So in that sense, it's not destabilising the sort of, the enterprise structure.  They are certainly new technologies creating new opportunities, and I think that is always a challenge to any business.  My own personal opinion is that it's not so much about disruptive technologies; I think it's about people using technology disruptively, which I think is a really subtle but important difference.  Because there is lots of disruptive technology but you couldn't dream of how you're going to use it, but there is a lot of technology which would, with bright people and with aggression and with foresight, you know, you can absolutely see how you could disrupt your competitors by using that technology differently.  And there are lots of great examples of that, obviously.

DR Such as?

JS Well, I mean, I think just the iPod, you know, the technology inside the iPod is 20 years old, you know.  It's just been put together in a different way with a different brand and a different piece of pricing around it, and some extra functionality.  That makes all the difference.  But you know, ultimately it's no different to the technology we've had for a long time; it's just done in a different way, disruptively.

DR Yeah.  There's been a lot of buzz about social networks, hasn't there, over the past couple of years.  What do you think the role, sort of, of communications has played there, with social networks?

JS Well, it's obviously been the carrier of it, and it's a bit like, you know, the internet.  The internet really happened without the big telcos actually understanding what it was, you know.  It just appeared and they made a lot of money from it, which was great.  I think, with social networks, they've obviously been, they've enjoyed the revenue that comes from people's increased usage of it.  And I think that is very, very important.  I think the opportunity for the more established telecommunications companies and maybe even technology and media companies as well, is to turn this into something that actually makes money, other than for a very few, limited number of people.  And I think, you know, it's interesting to see the way people are starting to use second life in the corporate world, people are using MySpace or whatever in the corporate world.  And using that technology, but in a completely different way to the way that it was originally intended.  And I think also there's an opportunity to make it, you know, more resilient, more robust, more complete than it presently is, and again, telecommunications companies, as they've shown over the last five years, with managed services and things like that, are well positioned to do that.  So I think there's a big opportunity there that they can certainly leverage, both for their own use and for their customers.

DR Well, technology in telecommunications often feel, don't they, quite young products.  Whenever you look at an advert, they're particularly aimed at the youth market.  Do you think there's an opportunity to tap into the older, more say visually challenged market, something like that?

JS Well, as I put my glasses on, yes, I suppose it does, I mean, I go to so many conferences where you hear people talking about the 18 year-olds, and I mean, I'm really interested in what the 18 year-olds are doing, because, but mainly because I couldn't have done it.  You know, and I never had the opportunity to do what they do with technology.  So I'm sort of interested, but I don't think it's necessarily a good indication of how technology's going to develop over the next few years and stuff like that.  and there is a whole raft of people like myself, who, frankly, because, you know, I need my glasses and everything else, but I am almost put off, you know, I am almost scared by some of this stuff.  And I think what's really encouraging in the last year or two is I think you've started to see some of the providers, be it at the technology level or at the telecommunications level, realising there is a market out there that has some real opportunity, but also is a wealthy market.

DR Yes, so it could be good for the bottom line as well.

JS Good for the bottom line because, you know, 18 year-olds only spend so much, and if they can get it cheap, you know, they'll get it cheap, or free.  Whereas we might be more discerning.  And it's quite interesting, you know, if you look at some of the social websites, there was something I read this morning in fact that said that, you know, 18% of the European over-55s now visit a social networking site, which is only 10% behind the 18 year-olds.  So these things are coming to their fore, and I think, again, people are looking for more than just the sort of cool technology.  They're looking for much more.  And that's where people like me will pay for that, I mean, I pay my broadband provider a monthly charge, I could get it for free, but I don't necessarily want to because I get other things if I pay – I get service and other things, it is alleged.  So, you know, I think we need to be clear about that.  And I think there are lots of good lessons from financial services in other areas, where people have absolutely seen the grey market, as it's called, rather unfairly, as you know, a very, very good market to go after, you know, financial services, travel, people like that, they've recognised it.  I think this industry needs to wake up to it.

DR Let's move on to mergers and acquisitions activity.  It seems to have focused mainly on developed markets.  But particularly in the past year, there's been strong focus on emerging markets.  What's happening here?

JS Well, I think it's really, really interesting, this whole area, because I'm not sure which way the flow of traffic is actually going to be in a few years time.  I mean, of course there are a lot of people in developed countries buying into developing markets, because it gets them a foothold, it gets them a presence, it gets them brand, it may get them market, or whatever it may be.  That's very interesting no doubt, but the flow the other way, you know, how long before, you know, a large telecommunications company in say China or India buys into Europe or into the US, I think is really only a matter of, well, I wouldn't say days, but you know, weeks or months.  It's certainly not years, would be my point.  So I think there's a lot there.  I think also that, I think what you're going to start to see is also the movement of people in quite a different way, and this is the way, I know we're talking about acquisitions of companies, but the movement of people, typically you know, people from the developing world come to the developed world to work, to study and whatever.  Now I'm absolutely convinced that that trend is going to go the other way, with many more people looking to further their careers or their education in China, in India, wherever it may be.  So I think that that's going to be interesting.  I think the other interesting aspect of this whole area is, there've been very few acquisitions across segments, in other words, technology is tendered by technology companies, media's tendered by media, telecom telecom.  There is a very small percentage, and I think it's under 10%, of acquisitions cross-sector, telco buying media, media buy technology.  That is definitely going to be a trend as convergence takes place.  So it's not just going to be consolidation, but it is going to be about convergence and it is going to be about a reversal of the flow of capital, I think.

DR As we just wrap up, any sort of points that you can draw out of the reports, the sort of common themes that emerge?

JS I think it is very hard to predict this market at the moment.  I mean, I think anybody who's talking about a 10 year view is completely wrong, and there is a very strong school of thought which I think certainly applies to TMT, which is that you're really on a year's view or whatever it may be, because things are moving so fast.  I think the key message for any corporate in any of these sectors at the moment is being very careful and very thoughtful about where you compete not how you compete.  You know, what sectors are you going to be in, what countries are you going to be in?  If you're in the right place at the right time, you will be successful.  And so we, companies in this sector, spend a lot of time thinking about the how we're going to compete, and the unique selling point or competitive advantage or whatever it may be.  It's all about where, and it's making sure you're absolutely in the right place.  And not, more importantly, not in the wrong place.

DR Yeah.  Well Jim Sloane, many thanks. And that's it for this programme.  If you'd like to read the reports in more detail, you can download them from deloitte.co.uk/predictions.  Please join me as I discuss the other reports in the other podcasts.  Thanks for listening and goodbye.