The satellite communication was expensive and beyond the reach of many. Moreover, the entry to barrier was in the industry was huge as the entrant had to deal with stringent regulations and had to invest in the huge infrastructure required by the telecom operator. The suppliers were fragmented and the buyers were individuals/un-unionized to pose negotiation power. In the telecom industry, the rivalry was high but not intense as in any other commodity market. The telecom companies were kind of monopolies in their respective competitive markets. As the investment in infrastructure was huge, the a few telecoms existed in any geographical area. These companies were inclined towards gaining ubiquity by acquiring other firms or expanding their network reach. Moreover, taking advantage of network externalities these telecom providers tried to bundle their services such that they can have increase the customer loyalty and thus the switching cost for a customer to the other platform. Because of this monopolistic nature of these companies, there major incentive was to retain customer than to innovative on the services that they have been providing.
In the early days, the telecom operators didn’t see Apple, Google or Facebook as their competitor; rather these companies were more of complementors who added to the revenues of the telecom operators. Moreover, telecoms tied up with these companies in the early phases of lifecycle to gain ubiquity and mode customer and higher cost of them to switch to other network.
The telecom industry had no real incentive to compete with either of these companies. Firstly, telecom companies never saw them as a real threat at that point in time. The other reason for the telecom industry to challenge the growing prominence of Apple, Google or Facebook were:
- Causal ambiguity: It was hard for telecoms to decipher the combination of factors that led to the success of these companies
- Path Dependency: The telecoms had tower of capabilities in their respective industry, which made it easier for them to compete in their industry but not scale up the tower of capabilities that Apple, Google or Facebook had build
- Time compression diseconomies: It would have taken the same time and effort for telecoms to replicate the platform of these companies and there was no guarantee that they would have succeeded
If we see the porter model again as given in Figure 3, the economic landscape had transformed. The OTT services posed a challenge to the telecom companies. The threat of substitute was fairly high and the entry to barrier was low as Facebook, Google and Apple already had a huge customer base lock in on their platform.
The telecom companies had opportunity early on to acquire these companies or find some synergies to offer improved product to their customers. But treating these companies as threats, telecoms tried to lobby to impose higher tariff for these service providers. Facebook, Apple and Google saw value in these services and invested and help grow these start-ups to pose as a real challenge for the telecoms. These companies have now started to eat away the from the core revenue source of communication and texting services.
Google, Facebook and Facebook who didn’t seem threat at a point in time where the new found competitors for the telecom companies. There was disruptive innovation happening but the telecom companies didn’t see it coming their way. This trend clearly falls in line with the theory put forward for disruptive innovation as shown in Figure 5.
Since, the telecom identified the new found threat in Google, Facebook and Apple, they have responded in number of ways. The concept of net neutrality has been a real challenge for them to tackle. They tried to lobby in but failed at several occasions. The telecom operators tried to partner with the media companies to diversify their portfolio and add advertisement revenue to their dwindling revenue source. Moreover, there have been instances where telecom tried to block the advertisement at the network level to force these companies pay for the infrastructure that they use. Moreover, the internet.org initiative is a new frontier which can see a new collaboration emerging between Google, Facebook and Apple with the telecom providers.