Why 'Apps' Will Not be a Major Opportunity for Telcos

To give you some idea of how hard it actually is for a large communications carrier to create a new line of business that has a meaningful impact on revenue, consider an analysis Tristan Louis at TNL.net recently conducted.

He took a look at valuations and implied average revenue per user for some of the leading Internet companies, including Pandora, LinkedIn, Groupon, LivingSocial and Zynga.

His analysis suggests it is possible to generate between $3.57 and $4.58 per user per year. By the same token, it could be possible that a user is worth between $106.46 and $126.24 over the user’s lifetime to a publicly traded web 2.0 company.

But assuming such deals were contemplated, you can see the problem. Even if a telco could somehow create enough value for any of these services to create a role in the revenue stream, the net result is that the effort is more trouble than it really is worth.

Assume an average of $4.25 annual revenue per user. Assume a telco could create enough value to warrant a revenue share of five percent of gross revenue. That would imply annual incremental revenue of 21 cents a year, or less than two cents a month, per subscriber.

If one assumes a large telco has to see a top-line revenue opportunity of roughly $1 billion to bother chasing the opportunity, one typically has to assume revenue potential in the dollars a month per subscriber range, ranging in many cases from $10 to $20 per user, per month, to be reach that level of significance.

Why 'Apps' Will Not be a Major Opportunity for Telcos