Friday, April 24, 2015

Will Triple Play Service Revenue Drop 50% Over the Next Decade?

People who aren’t in the telecom business rarely understand just how much change, and how many challenges, service providers and their suppliers have had to face over the last several decades.

Since the 1980s the global industry has survived a fundamental shift from monopoly to competition; state-owned enterprises to private entities; the end of all communication monopolies; the rise of the Internet as an increasingly full-fledged competitor or enabler of full competition; steadily-decreasing profit margins and yet a huge extension of teledensity to embrace nearly everyone on the planet.

And yet the next decade will bring additional challenges of a profound nature. To point to the obvious growing tension today’s foundation strategy for fixed network services--the triple play--is itself coming under attack, because there are substitutes.

Google says a fixed network must sell both high speed access and linear video to be viable. Telcos and cable TV companies rely on the triple play.

But it will not last.

For more than a decade, the triple play has been the key retail strategy in the fixed network access market.

But every constituent service fundamental for the triple play now faces growing substitute products.

In other words, the fixed network revenue business model is going to face additional and fundamental challenges to the bulk of its current revenue.

Voice already is challenged by over the top messaging, VoIP, and mostly mobile substitution. Linear video faces disruption from Netflix and many other streaming video services.

And though high speed access is the newest service in the bundle, and arguably has proven most resistant to substitution, fifth generation mobile networks promise bandwidth available to every user or device of 1 Gbps to 10 Gbps, with latency of one millisecond.

As a rule of thumb, access providers since about 1977 have had to replace about half their present revenue streams every 10 years. It doesn’t seem as though that is about to change.

Voice already has been cannibalized; video certainly will face major substitution within five years, and then 5G will hit sometime after 2020.

It’s going to be another challenging and exciting decade, as access providers create or discover revenues equal to about half all their present revenue.

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