Ecosystem Adjacencies are Valuable But Debt-Inducing for Telcos

Verizon’s collaboration to develop a 5G, smartphone-based immerse game Helios, and Microsoft’s acquisition of Activision Blizzard illustrate the issues connectivity providers face in creating new value and revenue. 

In part, Verizon believes 5G and a robust edge computing platform will encourage partners, users and customers to prefer its network. Microsoft, for its part, becomes the owner of the third-largest gaming planet globally. 

Verizon will spend a bit to demonstrate the value of its network, though the financial upside will be nearly impossible to measure. Microsoft spent $69 billion to own an asset producing nearly $9 billion in annual revenues. 

The financial upside for Verizon is more likely to be measured in net account additions, churn reduction or average revenue per account than emergence as an equity owner of gaming assets. 

In fact, Verizon is likely to earn measurable revenue from fixed wireless than it will from advanced gaming. Fixed wireless revenue already is measurable, in fact. 

On the other hand, “metaverse,” now touted by Verizon as a growth opportunity, seems likely to produce revenue value--in consumer or business segments--mostly indirectly. 

Verizon is unlikely to be a major asset owner of metaverse properties. Verizon is more likely to create value as a connectivity or edge computing partner for firms that do own metaverse apps and services, with some direct but mostly indirect revenue upside. 

In other words, metaverse is important mostly as it affects account acquisition, account retention or average revenue per account in its consumer mobility business, or as a supplier of edge computing real estate services for companies that offer metaverse platforms, gaming services and apps. 

source: Verizon 

All of that, in turn, illustrates the difficulty of adding new roles, beyond connectivity, to grow revenue. Both Verizon and AT&T have had recent experience amassing content assets, for example, at the cost of high debt burdens. And both have unwound those strategies in large part to reduce leverage. 

Domain expertise is an issue, but probably not as great an issue as the sheer amount of debt a telco has to incur in order to acquire a significant position in any adjacent ecosystem role.