For several years I have been speaking openly about the coming bloodbath in the telecoms sector.  I have argued that this will be brought about by the inevitable collision between the disruptive digital technologies of abundance and the obsolete business model of the telecoms sector, based as it is, on 'allocation of scarcity'.  Only decades of special interest pleading and lobbying by the massive and powerful vested interests in the telecoms sector have managed artifically to extend the life of a sector which, in a free and open market, would have been transformed years ago.

Well, last week marked a milestone!   "Blood from a Phone" was the headline in the respected LEX Column in the Financial Times on August 11th.  The story of course, was the news from Deutsche Telekom that it was significantly downgrading its forecast - profits down by 10 per cent for the current year and earnings 'stagnant' in 2007.   The shares immediately traded 7 per cent lower.  One of the 'sweet' side-stories here was the fact that back in April 2006, the private equity giant, The Blackstone Group, had splashed out €2.7bn (£1.9bn) on a 4.5 per cent slice of DT.  At the time, DT's CEO, Kai-Uwe Ricke had commented, "We are very pleased to have gained in Blackstone a shareholder with demonstrated expertise in the telecommunications sector".   Some espertise!  By August 11th, Blackstone's 'demonstrated expertise' in telecoms had delivered a €550m loss - and worse than that, when Blackstone acquired the stock, they undertook to hold onto the shares for at least two years.  Maybe I should not single out Blackstone as most of the major private equity groups are loaded to the gunnels with conventional telecoms and cable stocks which I remain confident in predicting, are facing a bloodbath of biblical proportions.  We ain't seen nothing yet!

But the irony was enhanced last Friday by the fact that on the same day, the UK communications sector regulator, Ofcom published the results of an extensive survey in a report entitled, "The Communications Market 2006".  While the likes of Deutsche, British and France Telecom are all busily buried in trying to cobble together triple or quadruple-play packages or capture 'content' which can be downloaded by the world for a pretty penny, reading between the lines of the Ofcom report, you can see that there is a new generation in the real world which is in quite a different space.  The report's summary states, "2005 saw rapid growth in the reach and usage of social networking websites (such as MySpace, Friends Reunited and Bebo), which allow users to create online profiles and connect with friends or others with similar interests. Our research shows that over 40% of adults with internet access have used these sites; that figure rises to seventy per cent among 16-24 year-olds, with over half in this age group using them at least weekly."  Moreover, the research found that under 24 year olds are watching seven hours less TV a week than the average viewer and 1.5hrs less than they did in 2004 and nearly twenty per cent are prolific bloggers!

What this tells you is that human beings are relational beings and as such, thrive on  'conversing' - interacting, chatting and communicating with other people, whether by voice alone, or by sharing video and other creative output which can enhance a relationship with other people despite physical spatial separation.  That's why the telephone was such a success!   Alexander Graham Bell did not invent a world of 'audio content download' - indeed, in the world of telephony, there is no differentiation between content 'consumers' and content 'creators' - we all just converse.  Now, thanks to the low cost availability of technology which for ages was the exlcusive domain of Hollywood, Fleet Street, Abbey Road and the BBC, we can now have our conversations enriched and enhanced in new ways which make conventional 'broadcast' models look old hat.

This human thirst for 'conversation' rather than 'content' will prove unquenchable and despite all the cries of pain and special pleading from the likes of Deutsche Telekom, public policy makers and governments would be wise not to try and put the digital genie back in the bottle.  About three years ago I was meeting with Rt Hon Patricia Hewett, MP, the then UK Minister responsible for telecoms (now Secretary of State for Health).  I made what must have been a provocative statement.  "Tony Blair's dream of a broadband Britain and all it heralds is incompatible with the well being of the telecoms sector as currently structured and operated - you can have one or the other.  Trying to achieve both will result in Britain losing both".

What the next generation appears to be craving is an 'open access' deployment of commuications infrastructure - an open INTERnet reached from an open LOCALnet (OPLAN) - and leave the rest to them.  I have no doubt that the creative genius of humans, liberated from being subserviant to the broadcast pinch-points of the past (film,TV, radio, press), will discover new ways of generating 'conversational' material which is the creative match of anything around today.

...and don't forget to sell those telecom shares - you won't again get the price that you can today!   And if you think I am just following the latest conventional wisdom - take a look at this earlier forecast of mine - that could have made you money too!
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