We can disagree about how much new revenue some communications service providers will have to create over a decade’s time, to replace lost legacy revenues.
If global telecom revenue is about $1.6 trillion to $2 trillion, and assuming about half the revenue is earned in mature markets, then the revenue subject to disruption ranges from $800 billion to $1 trillion.
Half of that represents $400 billion to $500 billion. That, hypothetically, is the potential amount of global revenue that might be lost, and would have to be replaced.
What is more certain is that a huge amount of revenue from new services will be necessary, even if consumer purchases of Internet access continue to grow.
One fundamental rule of thumb is that, in mature markets, service providers must plan for a loss of about half of current revenue every decade or so. That might seem shocking, but simply reflects historical developments.
Nor is that rate of change unusual. In the digital consumer electronics business, it might not be unusual for an executive to predict that half the products that drive sales volume in 10 years “have not been invented yet.”
What is new for the telecommunication business is that product replacement now is a fundamental issue, even if for 150 years the only product was voice.
In 2001, in the U.S. market, for example, about 65 percent of total consumer end user spending for all things related to communications and video services went to "voice."
By 2011, voice represented only about 28 percent of total consumer end user spending.
Over that same period, mobile spending grew from about 25 percent to about 48 percent. Again, you see the pattern: growth of about 100 percent (losses of 50 percent require gains of 100 percent, to return to an original level, as equity traders will tell you).
Video entertainment spending likewise doubled.
In the U.S. market, one can note roughly the same pattern for long distance and mobile services revenue. Basically,mobile replaced long distance revenue over roughly a decade.
At one time, international long distance was the highest-margin product, followed by domestic long distance.
That changed fundamentally between 1997 and 2007.
Over that 10-year period, long distance, which represented nearly half of all revenue, was displaced by mobile voice services.
In the next displacement, broadband is going to displace voice.
That is not yet an issue in some regions that still are adding mobile and fixed network subscribers, but already is an issue in most developed regions, where voice and messaging revenues already are declining.
|source: STL Partners|
Though some might continue to hope that higher Internet access revenues will offset voice and messaging revenue dips, the magnitude of voice revenue declines will be so sharp that in many markets, even additional Internet access revenues will be insufficient in that regard.
In fact, rates of revenue growth have been dropping in all regions since at least 2005, according to IBM.
At least so far, ability to fuel growth by extending service to customers with low average revenue per user will continue to drive revenue growth, even for legacy services, for a while. The only issue is when saturation is reached in each particular market.
When that happens, the same pressure on voice and messaging revenue already seen in mature markets will be seen in presently-growing markets.