IP Carrier: Business Imperative: Replace 1/2 of Revenue Every 10 Years

Tuesday, July 26, 2016

Business Imperative: Replace 1/2 of Revenue Every 10 Years

“Over the last 16 years we have grown from approximately 25 million customers using wireless almost exclusively for voice services to more than 110 million customers using wireless for mostly data services,” said Lowell McAdam, Verizon Communications CEO, during the firm’s second quarter 2016 earnings call.

It is an illustrative comment for several reasons. It illustrates Verizon’s transformation from a fixed network services company to a mobile company. But the comment also illustrates an important business model trend, notably that of firms in telecom needing to replace about half their current revenues every 10 years or so.

In the U.S. telecom business, for example, we already have seen that roughly half of all present revenue sources disappear, and must be replaced, about every decade.

According to the Federal Communications Commission data on end-user revenues earned by telephone companies, that certainly is the case.

In 1997 about 16 percent of revenues came from mobility services. In 2007, more than 49 percent of end user revenue came from mobility services, according to Federal Communications Commission data.

Likewise, in 1997 more than 47 percent of revenue came from long distance services. In 2007 just 18 percent of end user revenues came from long distance.

That change in revenue sources is going to continue. Mobile voice and messaging already is declining, and in its place mobile Internet access is growing. For fixed network operators, video revenues are growing, while voice is shrinking, and high speed access has become the anchor service.

The point is that there is a very good reason for all service providers to assume they will have to replace half their current revenue in 10 years, and possibly for every decade thereafter. It now appears the auto industry is about to experience that same sort of change.

That is why so much of the content at the upcoming Spectrum Futures conference will focus on app development and app partnerships. Venture capitalists Wish Ronquillo and Jay Fajardo, as well as app development consultant and VC V. Shrinath will be speaking at the event.