What Now: For AT&T and for the Cloud

AT&T has decided to drop its attempt to acquire T-Mobile, citing regulatory opposition.  Some on the Street are putting a good face on the deal’s breakup, saying that it will encourage AT&T to spend more on infrastructure and help vendors.  Alcatel-Lucent is up in early trading in Europe as an expected recipient of all this extra spending.  I’m not sure about this one across the board.

There’s not much question that conditions in the mobile industry favor consolidation.  ARPUs are expected to peak late next year, for example.  Generally, a reduction in the number of competitors improves overall economics.  But on the other hand, it does appear true that the second-tier players in US wireless have been more competitive in price, and AT&T’s customer satisfaction ratings have been on the bottom for several survey seasons now.

What DT is going to do now with T-Mobile is unknown, and that creates my uncertainty with the prediction of vendors sitting under the money tree.  If T-Mobile is going to have to be buffed up cost-wise in order to be dealt away, their capex could drop and offset any gains AT&T might have (which are speculative).  It seems pretty likely to me that DT would try to arrange another US deal, but a merger with Sprint is about all that would be left on the table.  Regulators would like a Verizon merger perhaps even less than one with AT&T.

It would be helpful for mobile evolution if we could get all of this out of the way, though.  Carriers in an industry tend to be more conservative with capex during periods of M&A and consolidation; they want to see how the deals will shake out and also to hold back some cash just in case.  Management is also preoccupied, which tends to delay projects that are driven at the executive committee level, including all of the monetization stuff.  Hopefully that doesn’t happen this year with the US operators and they may be immune because their own projects have advanced more than the global average.

Savvis is reporting that cloud customers are getting more demanding, according to Light Reading.  That fits with our survey results from the fall, and can be attributed to the fact that as cloud projects progress the buyers are finding more things they didn’t expect and demanding more information and clarification.  In our surveys, buyers own measure of their “cloud literacy” has followed an interesting pattern.  At the start of the process they say that they’re cloud-qualified in over 80% of cases.  By the middle of their pilot testing they rate their current cloud literacy at half the level they started, and they also say that they “knew nearly nothing” when they started, reducing their score in retrospect.

I really think that the numbers haven’t changed a whit.  Users have consistently told me that about 24% of their current IT spending could be cloudsourced.  Their battle now is first to figure out just how to accomplish that, but increasingly a second-place goal is whether it’s even true.  Cloud prospects have disqualified more applications than they’ve qualified so far, and of course they started with the application demographics that were most favorable.  They’re not throwing rose petals as much these days, which is probably a good thing.  Reality always sells better in the board room.



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