New S&P 500 "Communications Services" Segment Shows You Where We Are, Where We are Going

Though impressionistic, a coming September 2018 change in industry categories--combining telecom, tech, media, and entertainment companies--tells you something about fundamental changes in the internet and telecom ecosystems. To wit, the changes show--in part--that connectivity and apps now are becoming parts of a single market.

The new S&P 500 sector called Communication Services also is being created because the former “telecom” sector now includes too few firms. The new Communications Services sector will replace the former “Telecommunication Services” category.

But the rationale is important for larger reasons. S&P Dow Jones argues that tech and content and app companies have become a lot more integrated.

Verizon, AT&T and Comcast,  for example, have made acquisitions to become content, mobile and internet services providers. Google now makes devices and provides mobile and internet access service, not just key internet apps. Facebook and Amazon have made smaller moves into either internet access and network infrastructure, or into devices.

The other important change is that both Netflix and Amazon also will be part of the single Communications Services category. Google and Facebook are moving into e-commerce or content, or both.

The larger point is that 30 years ago, the global telecom business was the center of its own industry and ecosystem. It created its own apps, built its own devices, conducted its own research and built its own network equipment.

These days, research and development primarily is conducted by third parties. Devices are supplied by other third parties. And most apps are created--”over the top”--by third parties.

And as all legacy revenue streams atrophy, the telecom industry has become--essentially--a tail on an internet dog.

At the same time, large app providers increasingly are integrating functions once provided by service providers. From owned undersea cables to hyperscale data centers; from devices and mobile services to local internet access services; from voice to messaging; other firms with business models based on advertising or commerce are competing both with telecom service providers and consumer electronics manufacturers.

In principle, that is why firms such as Comcast, AT&T, Verizon, NTT and others are moving into new lines of business other than “access or transport” services.

So, though impressionistic, the new S&P 500 Communications Services category tells you quite a lot about where the business is, right now, and where it  is going.