Business strategy for larger tier-one service providers arguably differs from what is possible and prudent for smaller providers and specialists in the connectivity business. Arguably, in a business that increasingly is saturated and growing slowly (perhaps less than one percent per year, globally), revenue growth has to come from something other than legacy and traditional communications services.
As this chart suggests, tier-one service providers are betting on growth outside their legacy communications core, and many have made substantial progress.
It has not been easy. Historically, it has been difficult for tier-one telecom providers to grow revenue in products and services outside core connectivity.
That entails higher risk than traditionally might exist, but arguably is necessary as the traditional growth engines sputter. It always is difficult for any firm or industry to move away from its perceived core competency, but it arguably is easier for a firm or industry higher in the stack to move downwards than it is for any provider in the value chain to move upwards.
In other words, it should be “easier” for Google, Alibaba, Facebook, Microsoft or Apple to move “down the stack” than it is for China Telecom, NTT or AT&T to move up the stack.
That said, it can be argued that some firms have been more successful than others, and perhaps the adage that “having too much money” is dangerous for any startup or big established provider is apt. It might be the case that Comcast and T-Mobile have been more successful with their acquisition strategies than others because they were relatively capital starved.
Some might argue those sorts of firms also benefit because they are less bureaucratic, and therefore more likely to make decisions less encumbered by internal political concerns, and to make those decisions faster.
Specialist providers and smaller firms rarely have the human or financial capital to do much other than concentrate on core connectivity services, so the advice to “move up the stack” towards applications is unwise.
Similar advice to “move into adjacent areas of the value chain” likewise is unwise, and for the same reasons: small firms do not have the human or financial capital to do so, and could not achieve scale even if those other issues were not constraints.
The point is that the oft heard advice to move up the stack or across the ecosystem is mostly applicable only to large tier-one firms. Smaller firms and small firms generally have to choice but to find a niche and stick to connectivity services.
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