Telcos doomed by dumb pipes? Don’t be so sure.

The death of telcos, starved of revenues and relegated to being providers of dumb pipes while over the top providers cream off all the revenues, has been predicted for far longer than the likes of Google have been around.

In the wake of both Telstra and SingTel Optus releasing annual results last week the issue has once again come to the fore, in a lengthy article in the Australian Financial Review last Saturday. It painted a graphic picture of "a future in which humans are making more phone calls, sending more messages and downloading more content than ever before. And yet the big phone companies, such as Telstra, that for more than 100 years have made it happen are reduced to utilities providing little more than a network of 'dumb pipes'."

The message was reinforced a couple of days later with the release by IDC of its Australia Mobile Services 2014–2018 Forecast and Analysis report, accompanied by a press release quoting senior market analyst, Amy Cheah, saying that connectivity is no longer enough to provide revenue growth. "While operators must continue to invest in network capabilities to protect their core revenue they must adapt their strategy to become more like OTTs [overt the top service providers]; to create new streams of revenue growth by creating new business and deliver new customer experiences."

That's another piece of advice that has been repeated ad nauseam for several years. It was accompanied by some more, from IDC research manager, Siow-Meng Soh, who said: "Mobile operators need to form the right partnerships and train their sales force to be able to sell mobile solutions to different verticals instead of just selling connectivity — which is increasingly being commoditised."

He added: "Some of these applications are machine-to-machine (M2M) applications targeted at specific verticals (eg, utilities, manufacturing, and transportation)."

Both these articles, and I have seen many over the years, start from the premise that the pipes are dumb, that value can be added only through what they carry and the issue for the owners and operators of those pipes is that they get some of that value instead of letting the OTT providers have it all.

But what happens when that network ceases to be dumb and becomes smart, very smart indeed? Last week when Telstra and Optus were announcing their results, over in the US, in Las Vegas TMC was staging a conference on software defined networking (SDN) and network functions virtualisation (NFV). On its web site there's a Q&A with conference chairman and TMC CEO, Rich Tehrani. It's well worth a read, here are a few snippets.

He's asked how the specifications for NFV will impact the market. "These specifications describe how carriers can grow their revenue by providing virtualised services to their enterprise customers by placing solutions in the customer's cloud. By providing virtualised customer equipment, carriers will be able to cost-effectively compete with OTT cloud-communications vendors more effectively."

He's asked what the opportunity will be for telcos. "Massive – huge – incredible – I haven't seen an opportunity in the telco ecosystem space this big since 1998 when I launched Internet Telephony Magazine and subsequently watched circuit switched products become legacy thanks to packet-switched. This exact sort of transformation is going to happen again. ... The OTT providers and other competitors know this and are certainly not slowing down their assault."

It's less that two years since a bunch of telcos, including Telstra, presented the first white paper on NFV. Since then progress has been astonishingly rapid. Telstra is already trialing virtualised CPE functionality with Ericsson and yesterday Ericsson announced that would continue to supply optical transmission equipment to Telstra, along with gear from its partner, Ciena. All their press release could talk about - albeit very vaguely - was how the technology would enable Telstra to implement SDN and NFV.

In other words those dumb pipes are about to become very smart indeed, and the telcos will be the brains. Reports of their death are, in all likelihood, greatly exaggerated.