Connectivity Provider Growth Outside the Core Races Loss of Core Value

Few executives in the connectivity business would quarrel with the argument that--if possible--moves into new lines of business beyond core or traditional connectivity are desirable, if not mandatory. The same sort of logic appeals to executives in software, content, infrastructure, devices or commerce industries as well. 

​Rakuten was an e-commerce company before it began offering mobile service. Softbank was a software conglomerate before it launched Softbank Mobile. 

Reliance Industries was a huge Indian conglomerate before it launched Reliance Jio and became the leading mobile operator in just a few years. 

Jio Fiber, the fixed network business, launched in 2019. Some might expect similar disruption there as well. 

Application provider competition in the core communications service space likewise has become significant since 2005, according to Mckinsey estimates. By 2018, over the top alternatives had cannibalized 40 percent of mobile messaging revenue, 25 percent of fixed network voice revenues and seven percent of mobile voice revenues. 

source: GSMA Intelligence 

In the internet era, the walls between industries are more porous than they used to be. It is easier for firms to launch attacks in adjacent parts of the content, information, infrastructure or  applications ecosystem with less effort. 

So far, the evidence seems to suggest that it is easier for well-capitalized firms outside the traditional telecom industry to make inroads into communications than for connectivity providers to grab significant positions in adjacent ecosystem roles. 

The well-deserved argument will often be made that the relative lack of telecom services provider success has to do with industry culture, innovation skill, bureaucratic decision-making processes or regulatory constraints. 

Others might say a key impediment is the shareholder base of public telecom companies, particularly those stakeholders who see telcos as dividend-producing value assets. Such expectations mean that significant cash flow must be diverted to dividend payments, and for that reason are not available to be used to support growth initiatives.

All of the above likely operate to constrain the ability of retail connectivity providers selling to consumers and most businesses to deploy their capital for growth outside the core business. 

For such reasons it might always be easier for “outsiders” to take market share and create value in communications services, than for telcos to become value creators and market share leaders outside the core communications function. 

But some telecom industry executives would be well pleased if it were possible to grow non-core revenues to as much as half of total revenues.