A Dumb Pipe What-If?

We always keep saying here at ThirdPipe that dump pipe is the ‘thing’. We usually get slapped for it by our peers. Everyone thinks that content is critical. No doubt it is, because our second rule is nobody buys dumb pipe just for pipe. But there is a rational consideration for our position. We find it interesting if our detractors were to consider the automotive model then they would be entirely upset that GM does not own Exxon. Like gas is THE content item for a car right? Yet the market sees an efficiency in that separation of the industry. We think it valid for the wire and wireless world as well.

Case in point is a guest article over at RCR that poses that very question. It also provides some very interesting back-of-napkin analysis to the concept. –

For the entirety of my career in the wireless space, I have always worked for a small company selling something to or through wireless network operators. As such, I have made a good number of friends who work at these various carriers. I have observed that the most reliable way to get their dander up is to casually insert into the middle of any conversation, “Well, it doesn’t really matter because you are eventually just going to be a dumb pipe anyway.” Then I sit back, sip my mojito and watch the ensuing rant. Fun times.

Last week I tried this with a friend of mine who works at a carrier, and he said, “I prefer to think of it as ‘an open marketplace of ideas and innovation.” This got me thinking. First off, my friend is absolutely correct: When cast in a slightly different light and without the derogatory descriptor, a “dumb pipe” has the potential to be a very good thing. Could a major wireless carrier flip a switch to full “dumb pipe” mode and in so doing, take massive operational cost out of their equation and increase their value overnight?

Now the EBITA bottom line difference is only $6m. But I think Mr. Conahan understates the case. Specifically I would rethink the G&A expense lines. Quite honestly it could be cut much further, like down to half. That would translate to another $500-600 flowing to the bottom. Done right the massive streamlining effect could be massive. If all you provide is transport your focus shifts to prevention of outages. In that mindset you can reduce staff even further as you get ahead of the top recurring problems.

Highly recommended reading to those who are employed in the belly of the beasts called telecom. Linky.