Not Chicken Little Time…Yet!

This week saw what’s become the usual push and pull of supply- and demand-side issues, and perhaps a bit more than the usual confusion in the markets (financial, enterprise, and consumer) about the net outcome.  It’s not been the wild week of stock swings that could have happened had economic news been bad, but at the same time there wasn’t much that could be called a big upside of hope either.  In all—tepid probably says it best.

I’ve commented several times this week on broadband issues, many arising out of what’s increasingly clear are misleading or bad numbers about broadband deployment.  It’s not surprising that broadband would become a political football in this most political of all recent election years, but it’s bad for the industry because it’s pulling everyone’s eye off the real ball.  Despite continuous evidence that economic density is the most decisive factor in broadband market effectiveness, we continue to ignore it.  Despite the fact that there’s no clear indication that broadband has any societal value whatsoever, we continue to assert that it does.  A real plan, based on exploiting what we know and studying objectively that which we don’t know, could get the market moving.

Meanwhile, the mobile space is showing us the shape of the future.  4G is going to bring usage pricing to mobile, and it will leak back into 3G and into wireline eventually, at least in markets where economic density is low and access profits are likewise.  Smartphones are reported by one analyst firm to be creating a mobile market owned by the handset giants like Apple and Google and not the operators.  While that’s clearly an exaggeration, it’s true that smartphones are disintermediating operators in mobile just as the OTT players disintermediated them in wireline.  Operators fled wireline into mobile to flee low ROI.  If mobile gives them the same low ROI, can they then flee to telepathy or something?  Hardly likely; they’ll simply have to accept a tailing off of revenues, which means tailing off of capex.  Big telco Verizon and the cable industry overall both showed us that the Street will punish those who let capex rise as a percent of sales.

Enterprises have had their own challenges.  We’ve seen that spending on some hardware and software has been strong through the year, but that strength has been created in large part by the suppression of orderly upgrades of baseline IT infrastructure by the past economic crisis.  You can only catch up for so long; after that, growth will depend on exploiting new productivity paradigms, and the market hasn’t been very good at doing that since 2001.

I’m not playing Chicken Little here; the industry isn’t going to crash.  In fact, it’s likely that by 2012 it’s going to prosper, because any time demand overwhelms the insight of the sellers, there’s going to be a new crop of leaders created.  Incumbents in all areas of tech have gotten too comfortable with old paradigms, and new players are the ones agile enough to seize the opportunities.  Those “new players” aren’t likely to be startups, VCs having fled the equipment space to social networking and other areas with more potential for bubble-creation economics.  Instead they’ll be smaller vendors, often public companies.  Watch F5 and some of the deep-packet-inspection companies; they are looking to skim the networking cream.  In IT, watch Oracle; software has the most direct link to productivity and so software companies can transform to build new cost/benefit paradigms most easily.

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