Exhaustion of Business Models is the Key Strategic Problem Faced by Telecom

“Exhaustion of business models” has been a key--perhaps the key--issue for the global telecom industry for at least three decades.

It might seem odd today, but several decades ago, global telecom profits were driven by long distance calling. For a variety of reasons predating VoIP, prices per minute of use plummeted globally between the 1970s and 2010.

That the business did not collapse was due to product substitution. Essentially, mobile services displaced the lost long distance revenues. Then text messaging became the first important “data” service, before mobile Internet access took the lead.

In the fixed networks part of the business, a similar displacement, or product life cycle, can be seen. Where voice once dominated revenue, revenue growth now is lead by high speed access or video entertainment services.

Now mobile voice and texting are losing their salience. In some markets, overall usage is declining, as is average revenue per user or average revenue per account.

That is the reason you hear so much about Internet of Things, connected cars, mobile payments or machine-to-machine services, mobile advertising or e-commerce.

Service providers know they must find big new revenue sources to replace lost legacy revenues.

In fact, there is relatively wide agreement that the historic business model--end users paying mobile operators for connectivity services--is itself exhausted.

That is why the search is one for services provided to devices, sensors, monitors beyond “people.”

That could include any number of new niche markets (vertical markets and apps). The 5G network will need to support a wide range of industry verticals but also a wide range of operator business models, including mobile virtual network operators (horizontal business models).

For fifth generation networks, there also will be a move to compete directly with fixed networks for high speed access.