"The End of Communications Services as We Know Them?"

“The end of communications services as we know them”  is the way analysts at the IBM Institute for Business Value talk about 5G and edge computing. 

One of the realities of the internet era is that although end user data consumption keeps climbing, monetization of that usage by communications service providers is problematic. Higher usage might lead to incremental revenue growth, but at a rate far less than the consumption rate of growth.

That is the opposite of the relationship between consumption and revenue in the voice era, when linear consumption growth automatically entailed linear revenue growth. Though there was some flat-rate charging, most of the revenue was generated by usage of long-distance calling services. 

“On the surface, exponential increases in scale would seem like a good thing for CSPs, but only if pricing keeps pace with the rate of expansion,” the institute says. “History and data suggest it will not.”

“Ericsson predicts that by 2030, ICTs (app, platform, content and service providers) will net a staggering $31 trillion in 5G-related consumer revenues,” the institute argues. “But, only 12 percent of this market is expected to be addressable by CSPs.”

“CSP consumer revenue growth is projected at less than an anemic one percent annually,”s ays the institute. “Despite optimism that consumers may be willing to pay a premium for at least some 5G services—for example, low-latency gaming—initial attempts by operators to charge one have failed,” the institute says. 

Analysis by Nokia and Bell Labs Consulting projects that only 13 percent of the $4.5 trillion spent by enterprises with ICTs in 2030 will come from basic connectivity. 

In substantial part, all that is a result of deliberate choices. When the global connectivity industry decided on use of TCP/IP as its next-generation platform, it also agreed to a formal separation of apps and content from connectivity. 

In other words, where app availability and network ownership were unified, in the IP era, there is a fundamental separation of apps and connectivity. Any lawful app can be used by any customer on any compliant network. 

The networks are open, not closed. That being the case, no connectivity services provider can bar lawful use of the access network to use any public IP platform, app or content provider. 

Nothing bars a connectivity provider from owning and supplying applications, content or platforms. But neither is a connectivity supplier logically required to approve use of the access network by any lawful IP app, content or platform supplier. 

So there was some early frustration about the fact that “anybody can use my network without paying me.” 

But that is precisely what TCP/IP networks allow and support. It is the fundamental logical architecture of the whole ecosystem. 

It is realistic and correct to state that “communications service providers (CSPs) are projected to miss out on most growth unless they adapt to add differentiated value into cloud native digital services, applications, and solutions,” as the institute says. 

But that was always an understood outcome of using IP and the internet as the fundamental architecture for customer and user access to platforms, apps, content and services. The whole point of TCP/IP is to allow “anybody to connect to anybody” no matter which network they use. 

That is a logical outcome of an architecture that separates the physical “access” function from all apps, content, marketplaces or services using such networks. There are logical conclusions for growth as well. 

Connectivity spending tends to grow in line with gross domestic product, especially when take rates approach 100 percent. At that point, every potential customer already is one. 

To be sure, new connectivity products are created from time to time, and some of them have mass market implications for connectivity providers. But most of those innovations are replacements for existing services. 

5G is an example, even if it mostly replaces existing 4G accounts in mass markets. Secure access service edge is an enterprise app that replaces virtual private networks. Software-defined wide area networks replace MPLS (multiprotocol label service). 

Relatively rarely does an entirely new category of connectivity services arise which does not cannibalize an existing service. Of course, there are other growth strategies. 

“If CSPs are to thrive, most will need to develop new competencies and assert themselves in new roles in value chains,” the institute argues. “CSPs should seek new ways to make money,

beyond metering connectivity and access to data, as these traditional mainstays of CSP business models are likely to commoditize.”

It is reasonable advice. Still, the observations and advice are well within the bounds of what has  been talked about for decades: namely  move beyond connectivity and into platforms, applications, solutions. 

In other words, take on new roles in the value chain. It is reasonable but difficult advice, not because executives are unwilling to do so, but because the obstacles to such strategies are so daunting. As the old adage goes, “telcos are lousy at innovation.”

“Strategic and operational decisions being made by CSPs today are critical to their ability to compete long-term against cloud native competitors,” the institute argues. Many would argue that the fight was lost long ago. 

It is reasonable enough to argue that connectivity providers should, if they can, become platforms. The stark reality is that this is going to be exceedingly difficult. 

Huge amounts of new value have to be discovered and created, no doubt. That value creation leads to revenue generation. It is reasonable to argue that much of that value will be found in new roles within the ecosystem. All are sound observations. Execution has been the issue, historically.