How important will Internet of Things revenue be for many tier-one service providers, and how soon “must” those revenues be generated? Rather sooner than you might expect.
Verizon’s traditional business models are disrupted. A case in point: Verizon CEO Lowell McAdam says Verizon’s full-year 2016 earnings may plateau at 2015 levels.
Among the reasons: a change in the mobile commercial model as device sales shift, disposition of fixed network assets to Frontier Communications and investments to build new , year-over-year wireline financial comparisons following the expected first-half 2016 sale of operations to Frontier Communications as well as investments in mobile video and Internet of Things.
In other words, with less revenue expected in mobile and fixed network legacy businesses, new revenue sources, including mobile video and IoT are necessary.
There is one wild card, though. As Verizon concentrates on maximizing revenue wrung from its fixed network assets in the Washington to Boston corridor, it is possible Verizon could extend its presently on hold expansion of FiOS to new metro areas.
“If you can get the right relationships between what the local governments are looking for, what we're looking for and cooperation from our unions, I would not rule out some further expansion of FiOS, but you have to figure out the right formula," McAdam said.
A big piece of Verizon's fixed network focus going forward will be on enhancing FiOS Internet access speeds.
By increasing broadband speeds to enable access to over the top services, Verizon hopes to address a growing cord cutting trend in entertainment video.
Verizon estimates that 40 percent of potential Millennial customers do not own a TV while another 20 percent have a TV but are thinking of getting rid of them, or terminating linear video service.
That makes nearly impossible the effort to sell them linear video subscriptions.
Instead, those potential customers are watching video on a mobile handset or digital media inside their home on a tablet or an OTT service. That actually improves the value proposition for high speed access.
So McAdam said he does not anticipate a sale of additional fixed network assets. "When people ask me, and I know there's some speculation that we might be interested in selling the wireline properties, I don't see it in the near-term," McAdam said.
So it appears three potential revenue sources might--or must--be part of Verizon’s strategy: FiOS in new cities; mobile video and IoT.