Telco AI Monetization on the Revenue Front Will be Difficult

Mobile executives these days are talking about ways to monetize artificial intelligence beyond using AI to streamline internal operations. Generally speaking, these fall into three buckets:

• Personalizing existing services to drive higher revenue, acquisition and retention (quality of service tiers of service, for example)

• Creating enterprise or business services (private 5G networks with AI-optimized performance,, for example)

• AI edge computing services for autonomous vehicles, for example

Obviously, those are AI-enhanced extensions of ideas already in currency. But some of us might be quite skeptical that such “AI services” owned by telcos will get much traction. History suggests the difficulty of doing so. How many “at scale” new products beyond voice have telcos managed to create? Text messaging comes to mind. Mobile phone service also was a big success. So is home broadband. 

All those share a common characteristic: they are network services owned directly by the service providers. Generally speaking, other application efforts have not scaled well. 

Mobile service providers have been hoping and proclaiming such new revenue opportunities since at least the time of 3G. But many observers might agree there has been a disconnect between the technical leaps (faster speeds, lower latency, better efficiency) and the ability to turn those into new revenue streams beyond the basic "sell more data" model. 

That is not to say that service providers have had no other ways to add value. Bundling devices, content and other measures have helped increase perceived value beyond the core network features. 

But the core network as a driver of new products and revenue is challenging for a few reasons. 

• Open networks mostly have replaced closed networks (IP versus PSTN) 

• Applications are logically separate from network transport (layers)

• Permissionless app development is the norm (internet is the assumed network transport)

• Vertical control of the value replaced by horizontal functions (telcos had full-stack control of voice, but only horizontal transport functions for IP-based apps)

As I have argued in the past, modern telcos have a hybrid revenue model. They are full-stack “service” providers for voice and text messaging. But they are horizontal transport providers for most IP apps and services, and sometimes are app providers (owned entertainment video services, for example). 

The point is that most new apps and revenue cases can be built by third parties without telco or mobile operator permission, which also takes transport providers out of the direct revenue chain. 

So I’d argue there is a structural reason why telcos and mobile service providers do not directly benefit from most of the innovation that happens with apps. Think about all the customer engagement with internet-delivered apps and services, compared to service provider voice and messaging. 

In their role as voice and text messaging providers, telcos are “service providers” (they own and control the full stack). For the rest of their business, they are transport or access providers (capacity or internet access such as home broadband), a horizontal value and revenue stream. ISPs get paid to provide “internet access,” not the actual end user apps. 

And that has proven a business challenge for now-obvious reasons. Once upon a time, voice services were partly flat-rate and partly usage-based. In other words, telcos earned money by charging a flat fee for access to the network, and then variable usage based on number, length or distance of voice calls. 

In other words, greater usage meant greater revenue. But flat-rate voice and texting usage subverts the business model, as  most of the revenue-generating services become usage-insensitive. That is the real revolution or disruption for voice and texting. 

In their roles as internet access providers, some efforts have been made to sustain usage-based pricing. Customers can buy “buckets of usage” where there is some relationship between revenue and usage. 

Likewise, fixed network providers have used “speed-based” tiers of service, where higher speeds carry  higher prices. Still, those are largely flat-rate approaches to packaging and pricing. And the long-term issue with flat-rate pricing is that it complicates investment, as potential usage of the network is capped but usage is not.  

So as much as ISPs hate the notion that they are “dumb pipes,” that is precisely what home or business broadband access is. So internet access take rates, subscription volumes and prices are going to drive overall business results, not text messaging, voice or IoT revenues. 

To be sure, we can say that 5G is the first mobile generation that was specifically designed to support internet of things applications, devices and use cases. But that only means the capability to act as a platform for open development and ownership of IoT apps, services and value. And even if some mobile service providers have created app businesses such as auto-related services, that remains a small revenue stream for mobile service providers.  

Recall that IoT services are primarily driven by enterprises and businesses, not consumers. Also, the bulk of enterprise IoT revenue arguably comes from wholesale access connections made available to third-party app or service providers, and does not represent telco-owned apps and services (full stack rather than “access services”). 

Optimistic estimates of telco enterprise IoT revenues might range up to 18 percent, in some cases, though most would consider those ranges too high. 

Region/Group	Total Mobile Services Revenue	IoT Connectivity Revenue (Enterprises)	Automotive IoT Apps Share of IoT Revenue	% of Total Revenue from Automotive IoT Apps
Global Average	$1.5 trillion (2025 est.)	10-15% (2025, growing to 20% by 2027)	25-35%	2.5-5.25%
North America (e.g., Verizon)	$468 billion (U.S., 2023, growing 6.6% CAGR)	12-18% (2025 est.)	30-40% (high 5G adoption)	3.6-7.2%
Asia-Pacific (e.g., China Mobile)	$600 billion (2025 est.)	15-20% (strong automotive industry)	35-45% (leader in connected cars)	5.25-9%
Europe (e.g., Deutsche Telekom)	$400 billion (2025 est.)	10-15% (CEE high IoT reliance)	25-35%	2.5-5.25%
Top 10 Mobile Operators	$1 trillion (2025 est.)	12-18% (based on 2.9B IoT connections)	30-40%	3.6-7.2%

Though automotive IoT revenues (again mostly driven by access services) arguably are higher for the largest service providers, their contribution to  total business revenues is arguably close to three percent or so, and so arguably contributing no more than 1.5 percent of total revenues, as consumer services range from 44 percent to 65 percent of total mobile service provider revenues. 

Category	Percentage of Total Revenue	Example products
Services to Consumers	55-65%	Driven by mobile data (33.5% in 2023), voice, and equipment sales; 58% in 2023
Services to Businesses	35-45%	Includes enterprise, public sector, and SMBs; growing at 7.1% CAGR
Business Voice	5-10%	Declining due to VoIP adoption and mobile data preference
Business Internet Access	15-25%	Rising with 5G, IoT (e.g., automotive apps at 2.5-9%), and enterprise demand

The point is that the ability to monetize AI beyond its use for internal automation is likely limited. Changes in the main revenue drivers (consumer and business mobile phone subscriptions and prices) are going to have more impact on revenue and profit outcomes than IoT as a category or automotive IoT in particular.

The Coming Age of Streaming "Super Bundles"

"Super bundles" are coming in the video streaming business.

If there is anything we can “know” about consumer preferences for buying video content, it is that convenience, price and simplicity are desirable. In either linear or “streaming” eras, consumption therefore always has involved some amount of bundling.

Content was aggregated into broadcast channels; then cable TV channels and now streaming service brands. 

What consumers never have had, in the video format, is a la carte access to individual shows. That has remained a staple for the theatrical exhibition business (movies shown at movie theaters), but the video business always has involved bundling. 

And that means the next era of streaming evolution will involve the creation of “bigger” or “broader” bundles that essentially replicate the value of the older linear format: pay one price, get lots of content, at one place. 

Whether the packing is “channels” or “streaming services,” some form of bundling always is required, as the cost of distribution of single shows or episodes is too difficult a business model, either for suppliers or consumers. Simply, the cost of selling or buying a single episode is too high, at the volumes most consumers will prefer. 

Cost element	Description
Content acquisition	The cost of acquiring the rights to distribute the content. This can be a significant cost, especially for popular content.
Content preparation	The cost of preparing the content for distribution. This includes tasks such as encoding, transcoding, and packaging.
Content delivery	The cost of delivering the content to consumers. This includes the cost of bandwidth, content delivery networks (CDNs), and other infrastructure.
Payment processing	The cost of processing payments from consumers. This includes the cost of credit card fees, fraud prevention, and other services.
Marketing and promotion	The cost of marketing and promoting the content. This can be a significant cost, especially for new or niche content.
Customer support	The cost of providing customer support to consumers. This includes the cost of staffing call centers, providing online support, and handling customer inquiries.

In addition, there are indirect costs:

• The cost of maintaining and updating the underlying technology infrastructure.

• The cost of managing and protecting intellectual property rights.

• The cost of complying with regulations.

• The cost of managing and resolving disputes with content creators and distributors.

Of course, on-demand distribution costs can be quite different depending on the delivery platform: retail stores renting DVDs or CDs; retail delivery by mail or internet delivery. 

Delivery Method	Direct Costs	Sample Cost (Per Episode or Movie)
Rental in Retail Stores	Manufacturing and duplication of discs, physical distribution to stores, store overhead, inventory management, disc replacement	$2.00 - $5.00
Postal Delivery	Disc manufacturing and duplication, postage costs, packaging materials, return postage or prepaid return envelopes	$3.00 - $6.00
On-demand Delivery (Per Episode)	Content acquisition, content preparation, content delivery infrastructure, payment processing, customer support	$0.50 - $1.50
Streaming Service	Content acquisition, content preparation, content delivery infrastructure, payment processing, customer support, marketing and promotion	$0.20 - $0.50

As a rule, bundled delivery using internet mechanisms offers the lowest overall delivery costs, compared to physical media. 

The point is that full a la carte access to individual titles is  impractical for many reasons. No single firm can afford to amass the full available catalog of created video content. Given the typical amount of video content people watch, 

By age group, people watch somewhere between three hours and 4.5 hours of content daily. 

18-24: 4 hours, 37 minutes

25-34: 3 hours, 54 minutes

35-44: 3 hours, 47 minutes

45-54: 3 hours, 31 minutes

55-64: 3 hours, 10 minutes

65+: 2 hours, 50 minutes

Assume the “typical” item is a 20-minute episode. That implies delivery of between nine and 14 episodes daily. Using a full on-demand model, that implies a cost of at least $3 to $9 daily, or about $90 to $270 per month. 

If you think about the pricing of streaming and on-demand services, it seems clear that consumers will not willingly pay such amounts for full a la carte access, even if it were possible. 

At the moment, declining take rates for linear video suggest that format is not preferred, even at typical costs of between $80 and $100 a month. The ultimate amount of spending for streaming alternatives is still developing, but many households already buy multiple subscriptions. 

The average U.S. household subscribes to 4.2 streaming services, up from 3.4 subscriptions in 2022, according to a 2023 survey by Leichtman Research Group. The survey also found that the average household spends $67 per month on streaming services, up from $55 in 2022.

Obviously, in an a la carte environment (were it possible), consumers would pay more than they presently do to watch video content delivered using the internet, the most-affordable platform. 

All of which explains why full a la carte buying (anything you want, when you want it) never happens. 

Instead, the business terrain centers on amalgamating enough content, at a low-enough monthly price, to satisfy enough customers so the business can survive. So far, most streaming services offering on-demand viewing have prices ranging from $5 to to $15 a month.

Streaming Service	Monthly Price (USD)
Netflix	9.99-19.99
Prime Video	8.99
Apple TV+	4.99
Hulu	7.99-14.99
HBO Max	14.99
Disney+	7.99
Paramount+	4.99-9.99
Peacock	4.99-9.99

Such prices do not seem sustainable, at such levels, financial reports suggest, as only Netflix actually seems to earn profits. 

The full issue is that the older linear TV model also is shrinking at a time when streaming investments are being made, so it actually is a combination of lower revenue and higher costs that are the problem for streaming providers. 

In other words, content producers are losing scale in a business where scale matters. Note especially the loss of advertising revenue for streaming models, compared to linear models. 

Element	Video streaming (%)	Linear video (%)
Revenue
Subscription fees	50-60	10-20
Advertising	20-30	70-80
TVOD (episode sales)	5-10	0
PPV (live event sales)	0-5	0
Merchandising	0-5	0
Cost
Content licensing	30-40	40-50
Production	10-20	0-10
Marketing	10-20	10-20
Technology	10-20	10-20

The point is that cost, convenience and simplicity have always driven the video business towards bundling, and that is unlikely to change in the streaming era of video delivery. 

To prosper, streaming services will have to gain greater scale, and that also means fewer but larger suppliers. It likely also means a reconstitution of the older cable TV bundled model of one flat price for lots of content. 

At first rather informally, then likely later formally, bundles of popular streaming services--”super bundles”--will be offered to consumers, where paying one price gives access to a few or several top services. 

In the early days, this will take the form of a “super bundler” aggregating two or more services into a package, often with other services such as mobile or internet access (home broadband) service. 

It’s coming. Consumer demand and supplier necessity will drive it.