If you run a consumer fixed line communications business, flat video entertainment revenues are not the best of all possible outcomes. But compare that sort of performance to the fixed line voice business, or to mobile segment revenues, which have driven revenue growth at most telcos for the past two decades.
Flat video entertainment revenues have to be evaluated against what is happening in other lines of business, as well. In the U.K. market, telecom revenue has dropped 1.7 percent per year since 2012. Globally, we might be nearing an absolute industry peak revenue situation, after which it is possible global connectivity revenue could start to gradually decline.
The trend to price retail services at marginal cost, a trend I refer to as near-zero pricing, is part of the backdrop, leading to declining average revenue per user.
Consider that AT&T’s fixed network voice revenues are dropping about 18 percent annually, costing that firm about $1 billion a year in lost revenues that need to be replaced.
And what is happening in the mobile category? Revenue arguably is declining there as well, for both AT&T and Verizon. And that raises the biggest strategic issue for most communications service providers: what must be done if connectivity revenues have reached their historic peak?
In other words, what if communications connectivity has already, or will soon, reach the top of its life cycle, with a period of decline to follow?
That arguably is the case for most communications categories, ranging from linear video to voice to mobile service. Only internet access revenues have continued to grow, driven by growth in emerging markets and by a shift to higher-speed tiers of service in some developed markets.
That is why some believe big changes are coming. A massive wave of consolidation will help surviving service providers sustain revenue growth by acquisition. There will be some benefits on the cost side as well, as additional scale is gained. That might account for the biggest single change in firm economics over the next decade.
But eventually, when that trend as run its course, there will be no alternative to adding additional lines of business “up the stack” or elsewhere in the communications, app, platform, device and content ecosystems, still the era of communications growth will have ended.
Though mobile services have been the global revenue driver, we are approaching a time when every human who wants to use mobile service does so, and eventually we will be at a point where every human who wants to use internet access will do so.
That is not to say all firms are in the same position. Smaller firms can take share from larger firms. Mobile substitution will shift additional share from fixed to mobile networks. Specialist firms of all types might continue to grow in their niches, up to a point.
And the same growth by acquisition dynamics that will apply for tier-one telcos will hold for all specialist firms as well, for some time.
Still, eventually, if the “connectivity” business continues to shrink, growth will have to be sought elsewhere. And that probably has to happen with acquisitions, rather than internal growth, for reasons of scale.
By definition, communications firms with flat to declining revenue cannot generate growth organically. It will have to be bought. Even T-Mobile US, which continues to take market share from its competitors, sees acquisition (Sprint) as the best way to achieve much more scale.
Subscribers (millions)
|
Net Adds (thousands)
|
Postpaid Adds (thousands)
|
Postpaid Churn
| |
Verizon
|
152.65
|
37
|
199
|
0.97%
|
AT&T
|
147.26
|
499
|
46
|
1.02%
|
T-Mobile
|
75.62
|
777
|
686
|
1.08%
|
Sprint
|
53.79
|
92
|
87
|
1.63%
|
U.S. Cellular
|
5.05
|
-
|
-
|
-
|
Since most of its competitors have churn rates similar to its own (the exception is Sprint), T-Mobile US gains on its larger competitors simply because one percent losses at a firm the size of Verizon or AT&T represent a larger number that at any smaller firm.
That means T-Mobile US arguably stands to gain share, even at the same churn rates as its larger foes. Still, eventually, all U.S. mobile service providers have to deal with saturated markets and declining average revenue per account.
Though Comcast and now AT&T are criticized by some for expanding into content ownership, those are prudent moves (some argue) to reposition revenues away from an exclusive reliance on communications products and sources.
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