S&P 500 Longevity Mirrors Connectivity Provider Revenue Pattern

What is true of connectivity provider revenue also is true of firms. My general rule of thumb is that service providers must replace half of all present revenue every 10 years. As it turns out, about half of all Standard & Poors 500 companies are replaced every decade. 

The typical S&P 500 firm remains on the index less than 20 years, and is predicted to drop to about 14 years by 2026, says Innosight. 

Shrinking lifespans are in part driven by a complex combination of technology shifts and economic shocks. “But frequently, companies miss opportunities to adapt or take advantage of change,” Innosight says. 

“For example, they continue to apply existing business models to new markets, fail to respond to disruptive competitors in low-profit segments, or fail to adequately envision and invest in new growth areas, which in some cases can take a decade to pay off,” Innosight notes. 

The point is that “no business survives over the long-term without reinventing itself,” Innosight says. That seems also true of connectivity firms. 

The next era of telecommunications might be a stretch for most firms, in the sense that revenue growth might have to come from application creation and development that never have been core competencies. 

But some seem to have unrealistically high hopes for 5G.  

To be sure, edge computing, internet of things use cases and a few consumer use cases involving artificial reality or virtual reality seem promising. The larger point is that revenues in any of those new growth areas will not likely be enough to offset stagnating revenues in the core connectivity business. They will help, but the magnitude of new revenue growth will be staggering. 

If we assume that past patterns hold, and that most telcos will have to replace half of current revenue each decade, then any new revenue sources have to be big. And that is the issue. 

Edge computing, internet of things or private networks will help. But are they big enough new revenue sources to replace literally half of current revenue? Some might argue that is unlikely. 

Incremental gains are not going to be enough. Telcos are looking at generating new revenues to the tune of $400 billion in the next 10 years. If IoT or edge computing generate $10 billion to $20 billion in incremental new revenues, that helps. But it does not come close to solving the bigger revenue problem.

Whether at the firm level or the product level, change is a constant. Half of what revenue drives a connectivity business in a decade does not yet exist, or is not yet tangible. Up to half of the product drivers of that revenue do not exist or have not yet been mass deployed.