How Much More Can Service Provider Strategies Diverge?

Once upon a time, connectivity provider strategies were quite homogenous. Then came privatization, mobility, deregulation, competition and the internet. These days, service provider streategies continue to diverge.

Some things do not change: connectivity providers are in a business that is capital intensive, slow growing and subject to lots of regulation and competition. Connectivity is a “utility” type business that can have defensive moats and predictable cash flows, but carries lower price-equity ratios than many other businesses, based on the low growth rate. 

So, fundamentally, every connectivity provider has to decide to make the best of possibilities in a slow-growing business, or attempt to boost growth in some way, inside the current business or by moving outside it. 

source: McKinsey 

Many have looked at, and will move to, some form of structural separation, either voluntarily or by government policy action. Co-investment schemes are growing and some of the ownership is shifting away from public to various private forms, including institutional ownership. 

All strategy hinges on those choices. In some markets, organic growth might be possible, especially where gross revenues and profit margins are higher than average. In other markets growth by acquisition is the only feasible path. 

In yet other markets, movement into new business adjacencies might be possible. The net result will be more diversity of business models globally and between industry segments.