Diversify or Not? Sometimes it Works; Sometimes Not

Analysts and advisors often disagree sharply about what telcos ought to do about their “growth” initiatives. Some favor “sticking to core connectivity” while others emphasize “diversifying beyond connectivity.” Service providers have tried both approaches, sometimes alternating between them, as competitive opportunities and threats come and go. 

Some service providers are fortunate to operate in markets with high profit margins. In such markets the advice to “stick to connectivity” can make sense. Others have fewer chances to grow if they stick to connectivity. In those cases diversification makes sense. 

But almost every service provider explores some growth oportunities outside the core connectivity business. How to do so remains the challenge. Growth initiatives are risky, expensive and often do not move the revenue needle very much. That applies as much to edge computing as to internet of things or private networks, for example.     

Back in 2011, KT said it hoped to generate as much as 45 percent of its revenues from non-telecom sources by about 2015. It did not reach that goal, but all the South Korean mobile operators have significant non-telecom revenues, in the 25-percent range. 

source: Korea Herald 

But KT is still investing to diversify its revenue, as are rivals  SKT and U+.

At one point, AT&T earned as much as 40 percent of total revenues from non-telco sources, before reversing course and shedding its content operations to reduce debt. 

source: GSMA 

But most connectivity providers seem interested in growing non-connectivity revenues in some way. 

source: Twimbit 

As always, strategies that work for some service providers in some markets will not work for all service providers in all markets. Still, long term, if revenue growth in core connectivity services remains anemic (flat to negative growth) it is hard to see how most service providers will survive, much less prosper, without getting into new businesses of some kind.