Blinded by Orthodoxy – Why the telephone companies don’t run the Internet

Blog, Disruption, Roland Renner

Why didn’t AT&T or the Yellow Pages develop a dominant browser instead of Yahoo, Google, or Bing (Microsoft)?  How did Skype make a success of videoconferencing when the telcos couldn’t do it?  Why don’t the telephone companies run the Internet?

A recent article in the Report on Business raised the issue of orthodoxies in corporate cultures that block the ability of successful organizations from recognizing disruptive threats and opportunities that can turn their business models upside down.

The two examples cited are Xerox losing its dominant share in the copier market and Southwest Airlines carving out a profitable business when other airlines were going broke.  Both have been widely used in business school case studies for years.

Two big orthodoxies in the telephone company corporate culture got in their way.  The first orthodoxy was that the telecom network is a highly sensitive, complex thing that only the telephone company can run.  For too long the telephone companies saw the Internet as a small part of “their” network.  They didn’t see the opportunity to jump in and invest in a better browser let alone a Facebook or Twitter type of service.  Today, the telcos no longer control “the” network within”their” territory.  We have an interconnected network of networks, with pieces owned by long distance competitors, cable companies and other players as well as telephone companies.

The second orthodoxy that got in the way was high margin usage based billing for most services other than local telephone service.  The telephone companies had been conducting field trials and market trials for their own versions of email, and access to information through a special computer-like terminal.  The first was called Envoy in Canada; the second was called Videotex.

Both service trials were offered and assessed on the basis of usage based billing, such as number of characters sent or received.  The trials failed because the price was too high, the information available on the service was limited and, because of usage based billing, it was difficult for consumers to predict or control their monthly bill.

Ideas for new business models such as free access supported by advertising and premium offerings escaped the telephone companies completely because they were dealing with services that were not priced that way in their orthodoxy.  This left the field open for Yahoo, Google, Skype and many others.

Today, telcos and cable companies still have dominant market power in one remaining part of the network – the last mile connecting to residential households.  Considering how badly they missed big Internet opportunities in the past, is there any reason that we should follow their lead in building the next generation last mile?