Wednesday, March 23, 2016

"Dumb Pipe" Will Anchor Access Provider Value, and Execs Know That

It has been clear for some time that as app development has moved to open and third party sources, economic value and firm revenues in the “Internet” ecosystem have shifted to those third parties, and away from traditional access providers.

In the European Community, for example, access providers in 2013 earned between 30 percent and 46 percent of ecosystem revenues. App provider revenues ranged from about 20 percent of ecosystem revenues up to about 51 percent of revenues, according to BCG.

In 2015, the equity value of the leading app providers grew much faster than the equity value of leading telcos, for example. In 2015, Amazon’s equity value was higher by 118 percent. Google’s equity value grew “just” 44 percent. Facebook’s equity value was higher by 32 percent over the last year.

By way of contrast, Verizon was lower by one percent, AT&T up just two percent, Sprint down 13 percent, and just T-Mobile US up by 45 percent. CenturyLink dropped by 36 percent; Frontier Communications dipped 30 percent.

In a 2012 survey, many U.S. mobile industry executives believed that app providers will “dominate” the industry “within five years,” a survey by Deloitte found at the time. And for all the talk about avoiding “dumb pipe” status, 89 percent of surveyed mobile industry executives believe carriers will be limited to that role.

Nearly half (49 percent) of respondents say app providers, rather than access providers or handset makers, will dominate mobile in five years.

Moreover, 89 percent believes the role of carriers will be limited to delivering data access anywhere, anytime.

Fully 70 percent agreed that firms such as Google and Apple would dominate the business.

Some 31 percent of the service provider executives thought “commoditization of carriers” would increase, while 90 percent agree that “walled gardens” would not work in the future.

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