Friday, May 22, 2015

Fact It: Dumb Pipe Often is the Fastest Growing Revenue Source

As much as service providers might dislike the idea, consumer Internet access mostly is a “dumb pipe” service.

And since Internet access already is, or soon will be, the revenue growth driver for most service providers, there is no way any service provider can fully avoid being a major “dumb pipe” access provider.

So discussions about the need to avoid “becoming a dumb pipe” are largely pointless. To the extent any service provider supplies Internet access service, it is, by definition, a dumb pipe supplier.

That does not mean the “only” service provided is “dumb pipe” access, but it is a large part of the total revenue stream, and with the exception of entertainment video, is in many markets the only service whose revenue is growing.

By definition, the “access” is to the Internet-based third-party apps people want to use, not access to a managed service created by the access provider.

So even if consumer desire to use third party Internet apps now is--or soon will be--the most-important driver of service provider revenue (all service providers now are Internet service providers), Internet access directly reduces demand for the key managed services provided by incumbents.

“Adoption in wireless data on most occasions globally has resulted in cannibalization of voice and SMS,” says Rajiv Sharma, HSBC Securities and Capital Markets analyst.

That is a direct result of success selling mobile Internet access, one might say.

Airtel, for example,  has seen its revenue from data surge from four percent of mobile services revenue in March 2012 to 17.6 percent in March 2015.

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