Need for Global Scale Will Limit Telco IoT, Edge Computing Success

Among other reasons, lack of global scale is likely to prevent most telcos or mobile operators from becoming leading providers of internet of things or edge computing solutions or platforms. Generally, scale economics work against most telcos, no matter how large. 

That is not to say large telcos cannot significantly diversify revenue streams. AT&T has managed to shift its revenue sources enough that perhaps 43 percent of total revenue comes from something other than connectivity services. Softbank (at least until recently) had managed to generate perhaps 33 percent of total revenue from non-connectivity sources, while KT had reached about the same level. 

source: GSMA 

Many other tier-one telcos have managed to add between 10 percent and 25 percent of total revenue from sources other than connectivity. The need for scale seems to apply for those operations as much as it matters for the core connectivity business. But there are issues beyond scale. 

To be sure, new services such as the internet of things and edge computing will make some contribution to service provider revenues. Still, most of the value and revenue from IoT will be created elsewhere in the value chain (semiconductors, devices, platforms, integration, application software), not in connectivity. 

Perhaps edge computing will show the same dynamics, as edge computing still is about computing. That means the leading suppliers of computing--especially cloud computing--have a reasonable chance of emerging as the leading suppliers of workload as a service at the edge. 

Simply, if it is logical to purchase compute cycles from a major cloud or premises computing supplier, it will likely make just as much sense to purchase edge compute the same way. 

In other words, customers tend to have clear preferences about the logical suppliers of various products, beyond scale. The phrase “best of breed” captures the thinking. If an enterprise or other entity is looking at premises computing, it looks to certain brands. If a company is looking for cloud computing, it looks to other brands. 

Almost never is a telco among the logical five potential choices for buying compute cycles or computing platforms. 

That noted, tier-one telcos have made important strides diversifying beyond core connectivity. Among the issues are the extent to which that can happen in the edge computing or IoT realms.