Monday, October 29, 2012

How Much New Revenue Must U.S. Telcos Generate, Over the Next 5 Years?

How much incremental revenue might the U.S. telecom business need to generate over about the next decade to replace lost revenues from landline voice, mobile voice, mobile messaging and other revenues related to voice?

Perhaps $33 billion, one might argue. That is the amount of voice revenue U.S. service providers (fixed and mobile) will lose between 2010 and 2015, Verizon says. And the good news is that it probably won’t be a problem, at least for the leading mobile service providers.

The precedent in the U.S. market was long distance revenue. Over about a decade, service providers moved from earning about half of their total revenue from long distance, to earning about half their revenue from mobile services.

In North America, some believe voice connections should shrink by about half between 2007 and 2016, a period of nine years, according to Pyramid Research.

As a rough illustration, look only at the U.S. market, where some have forecast annual six percent declines in fixed network voice revenue.

If that proves to be accurate, then U.S. fixed network voice providers might have to replace about $33 billion in annual revenues between 2010 and  about 2017, while mobile service providers might have to replace about $5 billion in voice revenues.

To be sure, much of the immediate answer already is in place, namely video entertainment, fixed broadband access, mobile data and possibly other contributors such as hosting and data center revenues.

And most would say that level of revenue replacement clearly is “doable.”

Insight Research, an aggressive optimist,  predicts U.S. service provider revenue could double in just the next five years. The firm predicts that, between 2011 and 2016, North American carrier revenue will  rise from $287 billion to $662 billion, representing 11 percent compound annual revenue growth.

That rapid growth, on a compound basis, would lead to a doubling of industry revenue in five years. That doesn't mean providers in every segment will benefit equally. But overall revenue growth will happen mostly at the largest service provider entities.

The forecast explicitly assumes that U.S. service providers successfully will grow new revenues at a rate fast enough to compensate for weakening voice revenues, Insight Research believes.

In one sense, it therefore is possible to suggest that U.S. service providers will, once again, succeed in transforming their businesses, as they did when long distance revenue shriveled and was replaced by mobile revenues. 

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