One fundamental rule I use when analyzing telecom service provider business models is to assume that half of current revenue has to be replaced every decade. One example is the change in composition of Verizon revenue between 1999 and 2013. In 1999, 82 percent of revenue was earned from the fixed network.
By 2013, 68 percent of revenue was earned by the mobile network. The same sort of change happened with cash flow (“earnings”). In 1999, the fixed network produced 82 percent of cash flow. By 2013, mobility was producing 89 percent of cash flow. The fixed network was creating only 11 percent of cash flow.
The picture at AT&T was similar. In 2000, AT&T earned 81 percent of revenue from fixed network services. By 2013, AT&T was earning 54 percent of total revenue from mobility services.
Also, consider CenturyLink. In 2017 (assuming the acquisition of Level 3 Communications is approved), CenturyLink will earn at least 76 percent of revenue from business customers. In the past, CenturyLink, like other rural carriers, earned most of its money from consumer accounts.
The point is that CenturyLink now is unusually positioned with respect to business revenue, earning a far greater percentage of total revenue from enterprise, small or mid-sized businesses and wholesale services, compared to other major providers.
After the combination with Level 3, CenturyLink will earn no more than 24 percent of total revenue from all consumer sources, and that contribution is likely to keep shrinking.
The big strategic issue is how revenue drivers will change over the next decade. As impossible as it seems, today’s mobility services are not likely to produce half of total revenues in a decade.
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