Global Telecom Business Might be Nearing its Absolute Historic Peak

Annual global operator-billed revenues from voice and data services will fall by over $50 billion (about six percent) over the next five years, from $837 billion in 2017 to $785 billion in 2022, according to Juniper Research.

Other analysts think a global peak revenue might not be reached until perhaps 2021. Predictions for 2018 revenue range from flat to negative two percent.

On a global basis, the dollar value of operator-billed monthly average revenue per user fell by 62 percent between 2005 and 2017, to $9.20, Juniper Research estimates.

That decline is structural, and not caused by temporary issues such as economic slowdown.

source: Juniper Research

That really should come as no surprise. Every telecom product has a product life cycle. Eventually, every potential prospect already has become a customer. Product substitution is happening, there is substantial new competition and mobile adoption in developing countries, which has driven global growth for more than a decade, is slowing.

In 2013, the dollar value of global operator-billed revenues fell for the first time.

In both West Europe and Central & East Europe, the dollar value of revenues peaked in 2008.

In 2017, three regions (Latin America, Central & East Europe and rest of Asia Pacific) saw year-over-year growth, but revenues were below peak levels, Juniper Research argues.

In 2017, operator-billed revenues had fallen to 86 percent of their 2013 peak levels; in West Europe, revenues are now just 58 percent of their 2008 high point.

New revenue sources such as internet of things apps and connectivity will help, but will not replace the lost voice and internet access revenues. Internet of Things revenues might generate some $8 billion by 2022.

Why Do Communication Services Always Get Such Low Satisfaction Scores?

It often baffles me why airline travel gets higher customer satisfaction scores than subscription TV, video on demand, internet access or fixed line telecom service.

Some will glibly argue it is because of poor customer service or prices too high in relationship to value. Many of us would argue the former is not much of a problem these days, though the latter is an issue.

But lots of products tracked by the American Customer Satisfaction Index arguably have troublesome customer service issues or price-value issues and yet get higher scores.

I might enjoy my smartphones. I do not enjoy the prices. Hospitals have high value, but also very high prices. Insurance products also score higher than other subscription products, but how many of you do not believe there are huge value-price problems there?

The value-price relationship for streaming should therefore fix that problem. And perhaps that is partly true.

The new video streaming service category rates a “75” score, on par with privately-owned utilities, but above scores for internet access, fixed network voice, linear TV subscriptions or even mobile service. One might have thought streaming would score even better than it did.

I do not personally find customer service provided by almost any communications service provider to be much of an issue these days, though the value-price relationship of linear services is a question.

Internet access service continues to be the absolute lowest-rated industry, in terms of ACSI satisfaction scores, and I cannot explain why that should be the case. Internet access providers score as low as do linear video providers.

source: ACSI

Maybe people attribute Wi-Fi flakiness to be a property of their ISP's service. Maybe, even for a foundational service, internet access is deemed too expensive for the price paid.

Any subscription service has the problem of reminding customers every month how much they are paying. Perhaps unhappiness therefore gets a monthly reminder.

Truth Matters, for B2B Sales, Study Finds

Some 85 percent of business-to-business product vendors believe they are open and honest about their product’s limitations. Only 37 percent of buyers agree, according to a survey conducted by TrustRadius has found.

Vendors focus on providing material that buyers don’t find very useful or trustworthy, the survey indicates.  

According to buyers, the vendor’s website and representatives are less trustworthy and less influential than the other sources.

The typical B2B buyer uses about five sources of information. At least, that is what buyers claim. The top resources used were product demos, user reviews, vendor website, free trial, and vendor representatives.

Buyers don’t trust all vendor claims, nor do they expect to, the survey suggests. Buyers also want hands-on experience with the product and insights from existing customers.

Most of the Time, Wideband--Not Broadband--Satisfies Consumer Needs

Internet access matters. Wideband internet access also matters. But “broadband” sometimes does--and sometimes does not--really matter to end users. The easiest example is mobile internet access, which often runs at far less than the 25 Mbps U.S. minimum to be called “broadband.”

One rarely hears anybody complain about their mobile internet access preventing them from actually doing something. Sure, there are dead spots. But wideband mobile internet access is sufficient for consumer smartphone use cases.

Think about the ways people use their smartphones. Do most users of 4G networks in the United States routinely get 25 Mbps downstream speeds? No. Does that prevent them from using all the apps they want, with satisfactory experience? In nearly all cases, yes.

For most users, access speed no longer is an issue preventing them from using the apps they want.

That might be less true for fixed connections supporting multiple users, to be sure. And many U.S. connections actually purchased by consumers are wideband, not broadband.

By definition, U.S. satellite internet, many fixed wireless offers and mobile connections are “not broadband.”

But 10 Mbps to 20 Mbps for mobile users seems to work just fine for consumers. And while more speed arguably is needed for any multi-user household, the actual end user experience often hinges on how many users or devices are using the shared connection at any single point in time. Obviously, the types of apps make a difference as well.

People often confuse internet access “availability” with “buying choices.” And there is a lot of nuance to be sorted through.

One hears it said that some number of people do not have access to broadband, using the 25 Mbps definition. Fair enough.

Since the U.S. Federal Communications Commission defines broadband as a “minimum of 25 Mbps downstream, some 24 million U.S. residents (though not that many locations) do not have the ability to buy “broadband” internet access.

That is not the same as claiming those consumers and citizens do not have access to internet access. They do. But it now is defined as wideband (less than 25 Mbps), not broadband.

Over time, as we keep redefining the minimum for “broadband,” some of those consumers will still be disadvantaged, compared to urban dwellers. Still, you get the point. When, in the future, broadband is defined as 50 Mbps, and then 100 Mbps, some of those people might still not be able to buy broadband internet access.

Will it matter? Will wideband be enough? For most people, probably. At some point, for any single user, additional speed does not actually improve experience. For most people, the minimum practical standard is enough bandwidth to watch Netflix. And that only requires wideband speeds.

Can Any Tier-One Service Provider Survive on Connectivity Revenues Alone?

Virtually all analysis of the telecommunications industry includes key challenges to the business model. Chief among those issues are declining prices and migration of value elsewhere in the ecosystem.

The issue is what can be done about that threat, and for at least some tier-one service providers, the answer is to “move up the stack” into platforms, apps and content.

For smaller providers, that may not be an option. In fact, some service providers might well find themselves acquired by a tier-one content, app or platform provider. In the U.S. market, an example could be Google, Apple or some other firm acquiring Sprint or T-Mobile US.

Some observers would argue that an eventual acquisition of either or both of those firms by a major app, content or platform provider would make better strategic sense than simply creating a bigger mobile service provider operation, as useful as that might be in the near term.

Eventually, all surviving tier-one service providers are likely to have moved “up the stack” in some way, as it will be nearly impossible to survive on the strength of connectivity services alone.

“By 2020, it is likely that one or more major telecom companies will be acquired by a content company,” argues Christopher Surdak, JD, Global Subject Matter Expert, Analytics, Governance, and eDiscovery, HP Software.

“Being connected continues to become cheaper and cheaper, adhering rather slavishly to Moore’s Law of diminishing costs,” says Surdak. “The cost of providing such a service keeps falling, and competition means that the price keeps getting smaller and smaller in a strong, negative feedback loop.”

One aspect of that trend is that average revenue per account or user keeps falling. Another element is the ability to substitute other products for legacy communications.

“Connectivity is capturing an ever-smaller proportion of the information value chain, while content, service, and product deliverers capture ever-more,” Surdak says.

Competition is an issue, but arguably not the principal challenge. The bigger problem is that virtually all legacy telecom products have reached product maturity and are going to decline. In addition, there is great uncertainty about  proposed new revenue sources.  

5G Might Lift Thai Mobile Revenue 22% by 2026

Thai telecom operators can add US$2.6 billion (83.3 billion baht) or 22 percent in revenue by 2026, above and beyond existing revenues, on new 5G networks supporting the internet of things, media services and digital transformation in such verticals as energy, manufacturing and utilities, argues Nadine Allen, president and country manager of Ericsson Thailand.

You would expect that from Ericsson, but the important angle, if it proves correct, is that 5G services would be incremental revenues on top of existing 4G revenues, and not based on cannibalizing 4G revenue streams, even if there is some substitution of consumer 4G access that simply shifts to 5G.

source: Ericsson, AD Little

That is a key prediction. Even now, it is clear that most of the 5G upside from new use cases and revenue streams will come from services beyond consumer use of smartphones.

source: Ericsson

source: Ericsson

Where are "Up the Stack" IoT Opportunities for Mobile Operators?

No matter how many billions of  internet of things sensors you believe will be in service by 2025, a great proportion are likely to generate zero direct revenue, as they will use Wi-Fi or some other short-range communications network.

That suggests the business model for most mobile service providers, though including connections revenue, is likely to spur thinking about other roles in the IoT ecosystem. Many of those roles require global scale, and so will not be realistic possibilities for smaller mobile operators and their retail distribution partners.

That means the roles of device supplier, vertical market platform or solution provider are unlikely roles for most, if possibilities for some tier-one global operators.

That is going to leave system integration and installation as the most-logical way to enter other segments of the business.

Those of you with long memories know just how hard that is going to be. Simply put, most telcos have struggled to develop system integration businesses and scale them, for many decades. System integration, almost by definition, is a fragmented business.

And fragmented businesses are hard to scale.

Obviously, the greatest area of use case suitability for mobile operators are those applications where sensors must communicate from moving vehicles.

Where connections to mobile or other IoT-specific networks are used, the annual revenue could be as little as US$1 a year. Even in volume, that will not drive a lot of incremental service provider revenue.

source: Ericsson

Also, note that early and perhaps wild estimates of IoT revenues now are being pulled back down, as often is the case for brand new and big markets.

Although IoT connectivity revenue will grow, it will only account for five percent of the total IoT revenue opportunity by 2025, GSMA has said.

Platforms, applications and services segment will represent 68 percent of total revenue by 2025.

This category spans multiple IoT layers such as platforms; application services; cloud; data analytics; and security. IoT professional services such as system integration also are included in that 68 percent.  

Managed services and consulting will account for the remaining 27 per cent share of total IoT revenue by 2025.

Keep in mind that much of that spending will come in the form of IoT devices and installation services, as well.

So even if the global Internet of Things (IoT) market is  worth $1.1 trillion in revenue by 2025, most of the money will be made elsewhere, when there are more than 25 billion IoT connections (connected using mobile and other networks). The GSMA forecast, unlike some others, is based on growth lead by industrial IoT apps.