Of Dinosaurs, Evolution and Suicides…

6 Oct

If there is one telecom story that made the worldwide press front pages over the last few weeks, it's that of suicides amongst France Telecom personnel. In case you're an ostritch and have been living with your head deeply buried in the sand, 24 France Telecom employees have commited suicide over the last 18 months, several of them at their place of work and while France Telecom management points out that not all of these were necessarily work related, that's the way the press and the unions are presenting the story.

To some of my non-French counterparts, this seems like a whole lot of hot air; this is also the point of view of Telecom TV's Martyn Warwick in the above article. An esteemed reader and friend pointed out to me that even were all these suicides work related that was still significantly below French average suicide rates. He's absolutely right, and yet it's a story. It's a big story, that has reached well outside of the French borders. It is also a story that has taken a political turn.

A few weeks back, France Telecom's CEO was summoned to the office of the Minister of Labour and given a talking to. The government promptly pointed out that France Telecom was still a private company and that the minister was not acting as a representative of the majority shareholder of FT but rather as a minister preoccupied with a deep problem amongst the workforce of one of France's leading companies.

Yesterday, France Telecom's #2 man Louis-Pierre Wenes offered his resignation; it was accepted. He was the architect of France Telecom's restructuring plan, largely considered to be the spark for intense employee malaise that led some to extreme measures. Some will call him a victim, others are aready calling him an executioner.

It's hard to write about this stuff without getting political. Hell, it's hard to write about it without being overwhelmed by the idea of people who find themselves cornered into taking their own lives and making a statement about their employer along the way. I will try though, because I think that understanding what is happening at France Telecom is vitally important to grasp the challenges facing the telecom sector (and other large businesses) and more widely our economies and societies.

The issue is well known. I've talked about it a few weeks ago. Traditional telcos are no longer suited to facing the challenges of tomorrow's market. Their legacy network is a single-application infrastructure upon which layers and layers of fixes and add-ons have been cobbled together to try and make it more flexible. This technology smorgesbord must be run by people, the equipment installed needs service revenues to justify its cost; this in turn means marketing people to design said services, etc. Traditional telcos allowed themselves to be caught in a death spiral of technology and personnel.

They have become Dinosaurs.

While the issue is universal, the way it has played out in each market has varied. In many countries, the degree of competition is mild enough that none of the existing players want to get into a price war. As a consequence, incumbents and competitors generate considerable revenues and can afford their own "lifestyle". Some of these competitors have even grown over the years from lean mean machines to more ponderous beasts. Baby Dinosaurs.

We are told that Dinosaurs were at an evolutionary dead-end and that it was a comet that finally made them extinct. Are the modern high-tech dinosaurs capable of evolving? Or will the internet comet destroy them like their long-lost biological cousins?

Internet, indeed, is the comet. Internet has flattened the network. It has allowed for a rich variety of services to run over this magical thing called IP, making the cluttered legacy network of traditional telcos largely obsolete in one fell swoop. David Isenberg theorised this impact over a decade ago in his essay on the Rise of the Stupid Network but few listened.

Unfortunately for France Telecom, it faces a competitor in France who may not have heard of David Isenberg but certainly came up with its own version of the Stupid Network. Going full IP has allowed Free to take a considerable chunk of the broadband market by positioning itself as a clever broadband utility. With roughly 3,000 employees in France and 2000 in their North African call center, Free serves 25% of the French broadband market. It has the highest margins and the lowest churn rates.

Free has set up the market price for broadband and is now setting the market price for FTTH. Unfortunately, this market price makes the lumbering dinosaurs facing it unsustainable in the long run. Now Free is poised to get a mobile licence and France Telecom, SFR and Bouygues Telecom, the mobile triumvirat of the French market are really worried. They know what Free plans to do: just what they did on the broadband market.

In other words, run a fully converged all-IP network from day one, as flat as a pancake, slash prices and make what CEO Niel would call a "reasonable" gross margin of around 30% when established players are living on 70%+. And thus conquer a huge chunk of the market.

France Telecom is well aware of the danger. They have had time to reflect on how to evolve from a government PTT into an agile telecom revolutionary. Unfortunately, they haven't gone far enough down that path. In part, I suspect because the "Free" model is anathema to their management culture and they would certainly not recognise it at a model to pursue, but also in part because the French employee protection is such that you simply cannot shed half or more of your workforce by snapping your fingers.

Getting rid of even small portions of your workforce is complicated in France, especially when you're partly publicly owned. This is how most people in France interpret the events within France Telecom: since they can't easily get rid of people, they devised plans for people to leave of their own free will. They shifted them to jobs hundreds of miles from where they have lived their whole life. They shifted tech people into marketing or sales jobs that they knew full well they won't perform well in. They made them so stressed out and disgusted that they would leave.

Or commit suicide.

Things have now become so tense around this issue here in France that, as I mentioned before, it's become a political hot potato. There's a lot of social discontent right now and the government can't afford to have an emblematic company like FT become the epitome of its social policies. The "transformation" plan of FT is now on hold until the end of the year.

Meanwhile, president Sarkozy has publicly stated that he wasn't convinced that a 4th mobile licence was necessary. That's the result of months of "employment" blackmailing from Orange and Bouygues Telecom mostly. In a (perverse) way, the suicide wave reinforces that side of the debate. The government no longer supports the only candidate capable of sparking a more competitive mobile market.

Hard to predict where all this will go in France, but here's one thing I can predict: in many countries this fight will soon come to a head and will subtly shift from being "old dinosaurs vs young tech" to being "employment vs social unrest". And that's a battle that the newcomers will have a much harder time winning…

And yet the Dinosaurs have the most to lo

se. If they don't underg
o the transformation they will ultimately become extinct. If the next wave of innovation doesn't kill them it'll be the one after.

I don't know where I stand in this equation, to be honest. I value the level of employee protection and the social net we have in France, but I also recognise it makes people (myself included) more risk averse and less adaptable. And therefore all the more vulnerable when pushed around professionally. On the other hand, I can't seem to subscribe to a form of institutionalised waste where employment is its own justification. And yet I fear the social consequences of this transformation and suspect few governments will silently accept them.

So there you have it. I want to hope that the old telcos can gradually evolve and grab the opportunities that exist for them in a new and flatter world. It will have a short to mid-term social cost, just like the shift from our industrial economies to service oriented ones didd 20 years ago. Yet I see that the cultural and political resistance will be fierce, and I suspect that a good few Dinosaurs won't make it. I worry that the disruptive models that technology allows will also be hindered at every turn.

This is not just a story about France. It's a story about Dinosaurs, which ones evolve and which ones commit suicide (with their governments' help.)

Edit: Cross-posted to http://blogs.yankeegroup.com/

Edit2: It was pointed out to me that my numbers for Free's workforce were out of date. It's been fixed.

One Response to “Of Dinosaurs, Evolution and Suicides…”

  1. mike kiely October 14, 2009 at 9:24 am #

    It is not just IP, you need to be able to pick and choose where you go, avoid any UNiversal service obligations, avoid being overly tied to set definitions of services like PSTN, and get lucky with the regulatory system. And then run a sharp outfit.
    All of this is just the first steps in moving from a industry run on call conveyance, to an industry based on bits transfer.
    So how would France or EU go about creating a world class data transport fabric, where the unit of currency is bits and not call conveyance. I would switch to interconnect based on bit carried, and put the incentive in place that the more bits carried the more money the data transport carriers could make. Any operational cost savings can go to the pension funds. Split bit transport from services carried as a first step, and forget the split between fixed and mobile.

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