Thursday, August 2, 2018

Telecom is Going to Resemble the Grocery or Retail Industry, in Key Respects

It appears retail communications services increasingly will resemble the retail business in becoming a place where customers buy a number of different types of services, with varying gross revenue and profit margin profiles. That is not a new trend, but will become much more the case in the 5G era.

The reason is that 5G is key to incremental revenue growth opportunities that, almost by definition, include services with very-low revenue profiles, some with moderate revenue implications ($10 to $40 a month per service) and some with high revenue per service.

Matching that growing gross revenue and profit margin picture is a more-complicated channel (distribution) picture. Many of the truly-new services have platform implications and requirements, vertical market distribution and product functionality profiles. By definition, that also means the marketing strategies must match the vertical use cases and customer bases.

That is going to make the grocery store a relevant analogy for perhaps the first time. For a mass market grocery, apparel or other consumer goods distributor, each category of products has a distinct gross revenue and ARPU profile, which is one reason grocers are adding products in the “ready to eat” category (delicatessen, for example, or in-store meals). That also is the thinking behind “store brands,” which tend to produce higher profit per unit than external brands.

At convenience stores, margins can range from a low of one percent up to 35 percent for various products.

So though it might seem far fetched, profit margins for various products sold by telecom firms and internet service providers are going to show more divergence. Also, many of the new revenue opportunities will be “enterprise” sales, not the consumer distribution pattern relying on mass media advertising and retail stores.

Some of the sales will go “direct to consumer,” using internal resources. In many other cases, partner retail sales entities or even asset ownership will be needed to sell products to businesses or consumers. In many other cases original equipment manufacturer (OEM) strategies wil make sense.

Overall, sales channels and methods are going to become far more complicated.

As that diversification happens, each product line, and products within a line, will tend to develop more-unique gross margin profiles, but also varying cost structures.

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