Nobody can yet tell how well big new revenue streams might develop on 5G platforms, from internet of things apps running over those networks or from telco movement into the applications space. But it is not incorrect to forecast dire financial repercussions for most access providers if such big new sources are not identified, then created and owned. Avoiding dumb pipe status rightly is the chief strategic problem for most telcos.
As analysts at STL Partners (Telco 2.0 Research) note, between 2009 and 2016, though revenues grew at 68 public telcos, growth rates now are close to zero. Others, such as J.P. Morgan Chase analyst James Sullivan, say telco revenue growth now happens at a slower rate than gross domestic product growth, an insight that tracks the observed linear change rate quite well.
Also, 5G might well intensify the pressure, in large part because the network architecture will require lots of small cells (creating a denser network with more backhaul), though possibly less spending on spectrum (as unlicensed and more-affordable shared spectrum is used, and as huge blocks of lower-cost millimeter wave capacity is licensed).
The basic problem some see is that usage, revenue and infrastructure investment are non-linear, compared to the voice era. Back then, higher usage meant higher revenue, with incremental investment in network resources. In the internet era, and especially so in the coming gigabit era of the internet, usage skyrockets, while revenue grows at slower and non-linear rates, while network investment grows disproportionately as well.
Some might also note that supply will exceed demand in some cases, putting pressure on business models.
The fundamental problem, one might argue, is that no matter how fast, or how cheap internet access gets, revenues do not necessarily grow to match usage. That has been an issue for a couple of decades already, so there is little reason to believe matters will change.
Many argue that virtualized networks, able to provide bandwidth on demand, or network features on demand, will help. That might well be true. Still, some will argue, revenues beyond “access” must be created, to avoid a “death spiral” based on “skinny margin” or “no margin” access services.
68 major telecoms groups – aggregate revenue, 2009-2016
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