Friday, December 4, 2015

When Will New Competitors Lead the Enterprise Services Market?

Verizon enterprise revenues, and to a lesser extent, AT&T enterprise segment earnings suggest how U.S. and other telecom markets have changed.

It might once have been illogical to believe that new providers--not the largest telcos--would eventually claim the majority of enterprise customer revenues.

Enterprise, after all, “always” had been a tier-one service provider area of strength, in terms of capabilities. But the Internet and competition have changed the landscape.

To the extent one can argue that tier-one telcos ever had been leading contenders in the broader information technology business, new providers such as Amazon Web Services, IBM, Microsoft, Google and others are challenging that notion.

On the transport side of the business, Level 3 Communications, Zayo  and many others are siphoning off long haul, high capacity business, while many major enterprises--especially those in the Internet app businesses, now operate their own data center and long haul networks.

Newer specialists long have been influential providers in the metro fiber network business, with competitive providers--lead now by cable TV companies--very important actors in the small and mid-size business customer segment.

That is not to say every tier-one service provider, across the globe, will have similar fortunes. Even in the U.S. market, AT&T seems to be doing better than Verizon in the enterprise customer segment.
AT&T “Business Solutions” revenues were up 1.2 percent year over year in the third quarter of 2015.

AT&T fixed network business data revenues also grew for the fourth consecutive quarter. Strategic business services revenues of $2.8 billion were up 12.6 percent and up 15.2 percent when adjusted for foreign exchange.

Verizon arguable did not fare as well, perhaps in part because 69 percent of Verizon revenue now is generated by mobility services. Consumer fixed network services now generate 12 percent of total revenue. So 81 percent of total revenues were earned from mobility and consumer services. Everything else amounted to 19 percent of total revenue.

In the third quarter of 2015, Verizon “Global Enterprise” revenue was down 4.9 percent year over year, while “Global Wholesale” revenue was down 5.1 percent year over year.

In other words, though AT&T arguably still is growing its enterprise revenues, Verizon is slipping.

For a firm with operations in key Northeast U.S. markets including business-rich New York city and Boston, as well as Washington, D.C., that might come as a bit of a shock.

Over time, it might be easy enough to predict, Verizon is going to lose more share to its competition. That is one reason why many contestants no longer fear competing against the tier one former incumbents.

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