How will U.S. service providers grow revenues over the next three years? A clue: watch what company executives do, and what they have done, not what they say.
Mergers and acquisitions, partnerships and organic growth is what U.S. executives tell KPMG will drive revenue growth. KPMG’s 2018 U.S. Telecom CEO Outlook provides insights from 82 telecom industry CEOs in the United States on their expectations for revenue growth.
But with organic growth so slow in telecom, neither organic growth nor growth generated by channel partners is going to move the revenue needle too much.
Consider only the matter of price increases between 2011 and 2017. The consumer price index has grown slowly over that period, up about nine percent. Over the same period, telecom business service provider prices have not grown at all, declining a bit less than one percent.
One reason for that flatness in business services is product substitution. Though the products might not always be full substitutes, best effort cable modem service is much more affordable than other business data access alternatives. Where a T1, supporting 1.544 Mbps, might cost $145 a month, a 100 Mbps to 200 Mbps cable service might cost only $70 a month.
Where a 45-Mbps special access connection might cost $720 a month, a 300 Mbps to 500 Mbps cable access service might cost $100 a month.
So, in practice, mergers and acquisitions are likely to lead any measurable amount of revenue growth for most companies, no matter what respondents say, simply because it is the fastest way to make a meaningful pivot in business strategy or fill a strategic gap.
Organic growth simply is too low to make a meaningful difference in growth rates. In North America, according to recent work by Strategy &, between 2010 and 2016 the bulk of revenue growth recorded by service providers globally came from horizontal acquisitions.
In other words, firms acquired similar assets in the same lines of business from other telecom firms. That noted, there has been somewhat more acquisition of vertical assets since about 2012.
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