Does Product Reinvention in Telecom Work, Long Term?

Frontier Communications Corporation is launching a text messaging feature for business voice accounts that allows  business fixed network numbers to support text messaging. That is a primary example of one way service providers try to prop up the fortunes of a declining product.

That itself often is one part of a two-pronged effort to maintain revenue growth. Adding value to an existing product hopefully enhances a particular product enough to slow or arrest rates of decline.

The other challenge is to create new lines of  business and sources of revenue to displace declining lines of business.

Some are more sanguine about ways to change the value of voice services than are others.

When confronted with a sustained drop in average revenue per minute of long distance usage, AT&T essentially decided to harvest the revenue stream rather than reinvent the product, turning its attention instead to measures that would create new lines of business.

In 1991 AT&T bought NCR in an effort to enter the computing business. NCR eventually was spun out as a separate company.

In 1993 AT&T entered the mobile business by buying McCaw Cellular.

AT&T bought the largest U.S. cable TV company in 1998, and MediaOne, in 2000, becoming the largest provider of cable TV services in the U.S. market, only to dismantle the strategy and sell those assets in 2001.

In 2005, AT&T was acquired by SBC Corp. The point is that, in essence, AT&T never was able to create new lines of business big enough to displace the older revenue sources.

Still, “harvesting” legacy revenues while creating new lines of business is the fundamental strategy for any service provider facing challenges in its original lines of business. History also suggests the task is fraught with uncertainty.

Arguably, most such efforts essentially fail, in the sense that the firms simply are acquired by other firms, and cease to exist.

But there is a difference between transforming a whole industry, or a whole firm, and changing key revenue sources and product lines. Whole industries and firms can manage big transitions more easily than they can manage to reverse the fortunes of a declining and key line of business.

Frontier Communications hopes, at the very least, to slow the rate of decline of its business voice lines.

So far, it has not found any solution for arresting the decline of the consumer voice business, even if bundling arguably has proven the most-successful tactic so far, in the consumer business.

Frontier Texting and high-definition voice are both examples of efforts to reinvigorate voice services by “adding more value,” enhancing the core functionality in some customer-significant way.

Whether such techniques can do much more than slow the rate of decline is the issue. At the moment, there is virtually no evidence that this sort of product revamping actually can reverse a product line’s decline, though one might argue such measures slow rates of decline.

That is worth doing, so long as other growth initiatives also are underway.

What the industry has yet to prove, though,  is that it actually can enhance legacy products enough to reverse losses.

In other words, there is a strategy challenge: should capital be invested in revamping legacy products, and if so, how much? The alternative is to harvest revenues, deploying available capital into creating new lines of business.

Though industries sometimes can reinvent themselves, the issue is whether specific products can be reinvented, and if so, how often that actually happens. At a high level, the global telecom business has managed to replace declining revenue sources with new sources.

Mobile revenues have supplanted long distance revenues, while video and high speed access revenues have replaced voice revenues. Some firms have shifted from a reliance on consumer customers to business customers.

But that really does not address the specific challenge of adding enough value to a declining product to stem losses long term, or possibly reignite growth.