80/20 Rule for Telecom Revenue Sources

This is a good illustration of both the Pareto theorem, which states that 80 percent of instances or outcomes in business or nature come from 20 percent of the cases or effort. The Pareto theorem is popularly known as the 80/20 rule.

The graph shows the percentage of total mobile service revenue generated by cell sites, if one apportions the mobile subscription fee to the sites that actually are used by any customer. 

Pareto accurately describes the actual use of mobile cell sites and radios, as well as the generation of revenue. 

Half of mobile revenue is driven from traffic on about 10 percent of sites. Fully 80 percent of revenue is driven by activity on just 30 percent of cell sites. 

source: Medium 

The theorem also explains why 80 percent of revenue generated by challengers in the telecom business come from about 20 percent of firms. 

In organizational terms, Pareto implies that 80 percent of results are driven by 20 percent of the actions or people. 

A perhaps-obvious question should arise: if 80 percent of results are generated by 30 percent of the instances, sites or actions, why bother with the other 70 percent? In part, the answer is network effect. A mobile operator whose network only covers 30 percent of the land mass where people actually live and work would not be able to compete with a supplier whose network covers nearly all the places people live and work. 

The traditional rule of thumb for a fixed network is that it makes money in urban areas, breaks even in suburban areas and loses money in rural areas. Profit is a Pareto distribution, but what mass market telco could survive if it refused to sell to rural or suburban customers?

What social, voice, messaging or other network would do as well if it connected just 30 percent of people you wanted to reach? In other words, a network often must connect “most” potential nodes to drive value. 

Universal service requirements for public telecom networks exist for that reason.

Pareto also exists because value for any single user depends on the number of other people or entities that specific person might ever wish to connect with. The actual set will be different for each person. But the network has to enable connections in unlimited fashion, so that any specific set can be created.