Why IoT Funds Rural Internet Access

source: Strategy and Business

In the telecom business, some things do not change: not every customer segment or geography is equally profitable.

In fact, some customer segments and locations are highly profitable, some are profitable and some lose money.

That always is true for mobile networks, which make most profit from a small number of towers. In a typical pattern, half of total revenue is generated by as few as 10 percent of tower sites.

That is why customer segmentation is an increasingly-important part of service provider strategy.

There are some obvious implications.

If, in a country such as India, 75 percent of new mobile Internet customers come from rural areas, then it is possible to say that service providers will likely lose money on almost every account.

The same will be true in Indonesia, the Philippines or other nations with significant rural populations.

That is why it is vital to create access platforms that deliver reasonable quality service at much lower prices, or create new funding mechanisms such as advertising, to defray some of the end user direct spending.

Some argue that programs such as Free Basics are important precisely for such reasons.

But even that will not be enough. Historically, telecom services virtually always have been subsidized in rural areas. They are subsidized for a reason: few services actually are profitable in rural areas.

Several decades ago, profits from voice services sold to enterprise customers were used to support such services in rural areas. More recently, mobile revenues have propped up fixed network services.

That will not change as the new goal is Internet access for rural residents. One way or the other, profits from urban customers and segments will be used to support money-losing services in rural areas.

That is why Internet of Things, smart cities, machine-to-machine services, connected health, connected cars and other new potential revenue sources are so important.

Those potentially big new revenue sources will provide the profits to fund Internet access for rural customers. The connection--if direct--often is missed.

That is why app and service development, Internet of Things and smart cities will be part of the discussion at Spectrum Futures. Unless ISPs make lots of money someplace else, they will not be able to afford to provide rural customers Internet access.