Though it was not always the case, today’s communications service providers face a business that genuinely requires continual innovation. It matters not whether service providers are especially good at innovation, quick to move or have a clear glide path.
What matters is that we now know the global communications business lives or dies by lead revenue generators that clearly are products with a life cycle. And the industry already has seen enough to understand that from now on, the revenue underpinnings of the business must be recreated about every decade or so.
To be clear, that means something like a need to replace perhaps half of existing revenue every 10 years or so, as first, one, then the succeeding revenue model matures. Fixed network voice is being displaced by Internet access as the foundational revenue driver.
Mobile voice displaced fixed network revenues as the global revenue driver. Then text messaging began to drive revenue growth. Now mobile Internet access is driving growth.
And the only certainty is that more transitions are coming. The issue is to identify, as soon as possible, what those replacement products are, and bring them to market, in a scalable way, as soon as possible.
In 2018, for the first time ever, global mobile service provider revenue will drop, declining from 2017 levels by one percent or US$7.8 billion, according to analysts at Ovum, though the number of connections will continue to grow. That suggests 2017 could be the “peak” year for mobile revenues, unless big new sources can be found to both replace lost revenues and then ignite a new round of industry growth.
As has proven to be the case in the past, the issue is whether new revenues can be added fast enough to cover the declines in legacy products.
Global mobile connections will grow from 6.5 billion in 2012 to reach 8.1 billion by 2018, while annual mobile service revenues will rise from US$968 billion to US$1.1 trillion.
Decline already is happening in Western Europe, with total revenue dropping 1.5 percent on a compound annual rate and connections growing less than one percent, Ovum predicts.
The U.S. market, robust and growing, will slow. Global connections still will grow, at a less than four percent compound annual growth rate between 2012 and 2018, while global revenues will grow at less than half that rate.
Africa, on the other hand, presents the largest growth opportunity, revenues expected to grow at a compound annual growth rate of 4.2 percent.
Since mobility services have driven global service provider revenue growth for at least a decade, current efforts to discover new sources of revenue obviously are required. The forecast assumes that the current growth driver, mobile Internet access, will saturate by about 2018.
“What drives revenue next?” is a question with no accepted answer, which is why so many initiatives are underway, ranging from mobile commerce and mobile payments to connected car, mobile video, home security, home automation, mobile advertising and other potential new sources of revenue.
One reason you are hearing so much about the Internet of Things, or machine-to-machine services, is that selling mobile connections to enterprises selling services using sensor networks is one obvious way to tap new customers and activate millions of new accounts.
According to Ovum, operators in developed markets face particularly challenging times. Aside from troubles in Western Europe, several other developed markets will see year-on-year revenue declines in 2018, including the United States, Ovum maintains.
Much of the revenue decline will be driven by falling average revenue per user, which will continue to decline across all markets by a 2.7 percent global CAGR between 2012 and 2018.
If you want to know why tier one service providers are so focused on new revenue sources, the Ovum data is one compelling reason.
The greatest average revenue per user decline will be in the Middle East, where ARPU will fall by a 2.5 percent CAGR.
Despite the global trend, some growth opportunities will still exist, particularly in Africa, where revenues are expected to grow at a CAGR of 4.2 percent throughout the forecast, Ovum says.
No other region in the world will see revenue growth at a CAGR above three percent during the forecast period.
Select markets in Asia-Pacific and South & Central America will also drive growth over the next five years.
Africa will also have the fastest-growing connections, increasing at a CAGR of 5.6 percent between 2012 and 2018, and ending the period with just over one billion connections.
Growth in Asia-Pacific will slow, but this region will remain the biggest contributor of new connections, driven largely by China, India and Indonesia.
Connections in the Asia-Pacific region will total 4.2 billion in 2018 and will account for 57 percent of net additions globally through the forecast period.
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