The best response is to adapt: to try to understand the situation, invent new business models, and create new activities. That’s why the traditional media providers are a little bit afraid. The publishing people are transferring their activity to electronic books, but they’re not sure they can continue to conduct the same kind of business. The same is true for motion picture producers. And companies in our industry as well. My outlook on this is optimistic. If you take steps now to move, you can be very successful.
S+B: What other sectors besides media will have to transform?
LOMBARD: Healthcare is one. Healthcare expenses are increasing every year because the population is living longer. But the insurance system, which in our country is managed by the public sector, can no longer afford to pay all the healthcare costs of elderly people. Developing powerful IT systems for medical information saves a lot of expense and leads to better healthcare. For the time being, people think this healthcare IT business is marginal. But it will not be marginal forever. In the end, telecom revenues from healthcare will be higher than those from video.
Having Internet access to government services and documents is another example. Still another is retail. Already, the success of electronic commerce is very high. In Europe, more than 10 percent of the turnover of goods and services is realized through e-commerce, and almost 5 percent of all the purchases made by French households take place on the Internet.
S+B: The majority of the new traffic is video, isn’t it?
LOMBARD: So far, yes, but not just the type of video we’ve carried in the past on cable TV. Two or three years ago, the quality and accessibility of amateur-produced videos changed; they are now downloaded or viewed as much as professional videos. This was observed first in California, but now it’s valid almost everywhere. People video their lives and broadcast the videos to their friends. Meanwhile, they have access to all the professional videos produced worldwide — and to college courses, concerts, sports events, and everything else. The demand for this is growing exponentially, and the interconnections among mobile devices, TV screens, and computers introduce more and more possibilities.
In Shanghai, for example, a customer can have one service, delivered by the telcos, with videos plus games plus cable channels plus the Internet, all on the same screen, with a flexible way to navigate among them. In Europe, the growth of connected TV services will explode in 2011. In this world of abundance, someone will create a search engine applicable to videos, and that will change everything further — and create a very good situation for the company that does it.
A Balanced Business Model
S+B: How do you pay for the bandwidth investment?
LOMBARD: The costs, for the territories we serve, are more than €3 billion [$4 billion] annually. And of course we need to find the appropriate revenues to fund it. If we don’t invest, the quality will decline.
In the past, telecom economics were based on voice. The subscriber paid for each hour of voice traffic, and the data traffic — including the Internet and video — was considered marginal. We offered it more or less free of charge. Now it represents a much larger percentage of our total traffic. One of the problems we have with Skype or Google Voice is that it is billed as free, but the subsidy is artificial. We cannot go on with this version when voice becomes a minority of the traffic and data costs and usage are no longer marginal. We have to reshape the tariff; data cannot continue to be marginal in price.