Connectivity provider revenue growth mostly comes from acquisitions and mergers, despite some thinking that organic growth is the key.
As fast as T-Mobile has been growing in the U.S. market, its merger with Sprint has driven the biggest change in revenue and market share over the last decade.
As important as operational excellence might be, mobile operator executives, for example, believe mergers, acquisitions and alliances will drive most of the growth gains.
Historically, tier-one service providers have arguably obtained most of their growth from acquisitions, not organic growth. That makes sense in a business where organic growth is one to two percent per year.
Increasing scale is one way European telcos see revenue growth, notes McKinsey. Still, organic growth is propelled by changes in buyer demand (shift to internet access, for example) and operating performance. Shifts of market share are less likely to drive growth.
Organic growth is tougher when markets are saturated, and most connectivity markets are reaching saturation.
The point is that focusing on the core connectivity business makes sense, as that drives the bulk of total revenues. The problem is that no matter how well a competent connectivity provider does, connectivity services alone will not drive much revenue growth, which happens at about the rate of inflation.
Market share shifts sometimes are possible, but mergers to boost scale have been significant drivers of revenue growth. In some cases, they have provided most of the revenue growth.
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