Global Telecom Revenue Flat (Not Adjusting for Inflation) Through 2022

On a non-inflation-adjusted basis, global telecom services revenue will grow at a compound annual growth rate (CAGR) of 0.8 percent, IDC researchers now predict. In any market with inflation rates of at least 0.8 percent, actual revenue will decline.

Product segments within the industry can have faster or slower growth rates. In fact, revenue earned in the fixed network segment generated by data services will grow 22 percent in 2018 and at a four-percent CAGR through 2022, IDC predicts, driven by uptake of internet access services.

Mobile revenue will grow at 1.2 percent through 2022, but fixed network voice revenues will decline at five percent annually to 2022.

"Developed and mature markets will only show marginal gains now, driven by technology migration and bandwidth needs," said Eric Owen, IDC group vice president, EMEA Telecommunications & Networking. South Asia and Africa are the two regions that will see the fastest revenue growth, IDC predicts.

source: IDC

Watch What Telecom Execs Do, Not What They Say

How will U.S. service providers grow revenues over the next three years? A clue: watch what company executives do, and what they have done, not what they say.

Mergers and acquisitions, partnerships and organic growth is what U.S. executives tell KPMG will drive revenue growth.  KPMG’s 2018 U.S. Telecom CEO Outlook provides insights from 82 telecom industry CEOs in the United States on their expectations for revenue growth.

But with organic growth so slow in telecom, neither organic growth nor growth generated by channel partners is going to move the revenue needle too much.

source: KPMG

source: KPMG

Consider only the matter of price increases between 2011 and 2017. The consumer price index has grown slowly over that period, up about nine percent. Over the same period, telecom business service provider prices have not grown at all, declining a bit less than one percent.

source: USTelecom

One reason for that flatness in business services is product substitution. Though the products might not always be full substitutes, best effort cable modem service is much more affordable than other business data access alternatives. Where a T1, supporting 1.544 Mbps, might cost $145 a month, a 100 Mbps to 200 Mbps cable service might cost only $70 a month.

Where a 45-Mbps special access connection might cost  $720 a month, a 300 Mbps to 500 Mbps cable access service might cost $100 a month.

source: USTelecom

So, in practice, mergers and acquisitions are likely to lead any measurable amount of revenue growth for most companies,  no matter what respondents say, simply because it is the fastest way to make a meaningful pivot in business strategy or fill a strategic gap.

Organic growth simply is too low to make a meaningful difference in growth rates. In North America, according to recent work by Strategy &, between 2010 and 2016 the bulk of revenue growth recorded by service providers globally came from horizontal acquisitions.

In other words, firms acquired similar assets in the same lines of business from other telecom firms. That noted, there has been somewhat more acquisition of vertical assets since about 2012.

source: Strategy &

source: Strategy &

Someday, "Connectivity" Will Not be Your Value Proposition

With the caveat that any attempt at predicting the future is inherently hazardous, Nokia Bell Laboratories is creating a Future X Lab to illustrate its thinking about how networks will supply value in coming decades.  

That effort supports a vision of the future centered on the FutureX network that dramatically reshapes understanding of the purpose and function of a next generation network that will have moved beyond connectivity as its source of value.

“Creating time” is one way of illustrating the difference between “we connect you” and “we create time” as the core value proposition. By “creating time,” Bell Labs means greater productivity, in both personal and work spheres.

source: Nokia Bell Labs  

In this illustration, note the base of the “analog needs” pyramid: “free Wi-Fi.” That illustrates the connectivity conundrum, which is that revenue per bit keeps falling, while value shifts to other areas higher on the stack.

In the coming era, the value proposition will have to be recreated, in ways that transcend “connectivity.” And it has to be said, such proposals will seem ethereal and “academic” for people who work in commercial enterprises.

There are other obvious issues. Few people, few executives and few firms will be able to invest sufficiently in efforts to create solutions for “new needs.” It is commonplace in the tier-one portion of the business to note that new revenue streams smaller than $1 billion cannot get investment because the financial return is too small to “move the needle” on overall revenues.

Smaller firms, in niche areas of the market, are even more constrained, as there generally is little free capital or cash flow to invest in “broader” initiatives not central to the core business model.

For reasons of scale, the “normal” or “typical” way tier-one firms grow is by acquisition. That is unlikely to change, no matter how great the imperatives for industry transition.

On the other hand, observers often decry the “cultural” issues that “prevent” firms from changing. That, too, is likely correct, but largely irrelevant. If the strategic direction is to reinvent the whole business by participation at higher levels within the value ecosystem, then it is almost pointless to worry about changing culture in the legacy areas.

The people who work in the new areas will run those parts of the business. In other words, efforts to “change culture” at the lower levels of the business stack probably are largely wasted effort.

If and when service providers become relevant at supplying solutions at higher levels of the value stack, different people--with different skills required for those parts of the business--will be supplying those solutions.

The point is that connectivity providers eventually will find new roles (larger or smaller) within the value ecosystem. Many firms will lack scale to do much other than supply local connectivity, and will be acquired or sold. Firms with scale will gain scale, but vertically within the stack, rather than simply horizontally.

If Bell Labs is correct, the key value proposition for the “communications” business will shift from “we connect you” to something else, related to solving big human or business problems. It might seem quite ethereal. Someday it will be seen as eminently practical.

New OTT Video Streaming Services Face Tough Battle to Gain Share

Netflix, Amazon, and Hulu lead the U.S. subscription streaming video market, a fact of some importance as Disney and others prepare their own entries into the market. The main observation is that it is going to be quite hard for any of the new entrants to displace Netflix or Amazon. For most, the issue is to catch Hulu.

source: Parks Associates

One possibly highly-significant data point is that the market structure of the subscription video streaming market is highly congruent with what one would expect in a stable market. The reason is that there generally is a direct relationship between market share and profitability.  

Some note there is a similar return on sales and market share relationship.

source: Marketing Science Institute

The “classic” stable pattern would have market shares  where the market leader had twice the share of number two, which in turn has twice the share of provider three. Some might refer to that as a “rule of three.”

Note that online advertising market share has roughly this pattern as well. By some estimates, mobile device brand market share has roughly that pattern as well.  

source: Marketing Science Institute

The point is that it is reasonable to expect that profits are directly related to market share, with a pattern where the leading three firms have something like a 40-20-10 share pattern, or perhaps 35-17-8 pattern.

Source: Reperio Capital

source: Comscore

Verizon Fixed Wireless in Los Angeles Likely Aimed at Charter

Frontier Communications says it has seen no impact from the Verizon 5G fixed wireless launch in the Frontier Los Angeles market. That might well be because Verizon is not initially targeting the Frontier service area, but rather Charter Communications, which serves an arguably greater portion of the city.

One might guess that Cox Communications officials likewise see little impact so far, as well, as Cox serves a small portion of the market. As this map indicates, Charter (which owns the former TWC properties), is the dominant service provider in Los Angeles.

source: Consumerist

Loveland, Colo. to Build Municipal Broadband Network

The Loveland, Colo. City Council decided to proceed with building a municipal broadband network, offering symmetrical gigabit services, without a public vote planned for the spring of 2019.

The City of Loveland has an estimated population of 76,701, 32,097 residential premises and 4,600 business premises. Comcast is the leading provider of internet access service in Loveland, at nearly 69 percent residential share and 64 percent of business accounts.

As often happens, would-be attackers find their would-be competitors react to new market entry by changing their value propositions. So where Comcast once offered service at speeds up to 150 Mbps, it now appears Comcast offers speeds up to 1 Gbps.

CenturyLink also appears to have upgraded to about 900 Mbps as well. The point is that the initial market research occurred at a time when Comcast’s top speeds might have been in the 150 Mbps range, while CenturyLink’s speed was 140 Mbps or less.

source: City of Loveland

In addition to speed, the incumbents logically will try to bundle other elements of value (discounts for multi-product accounts), hotspot access and bundled service pricing to cope with new competition from the city.

Loveland originally estimated that 42 percent of residents and 27 percent of businesses would choose to sign up for the city-offered service. Since the network upgrades by Comcast and CenturyLink, that might well be questioned.

The city’s original thinking was that, in addition to gigabit speeds, lower-speed tiers might be offered, ranging in price from $20 per month to $80 per month for residents, and from $50 per month to the highest rate of $800 per month for a dedicated line for businesses.

In some cases, a municipal broadband network might take so much market share that one of the two incumbent providers (telco or cable) is forced from the market. In the case of Loveland, it appears the incumbents already have moved to preempt much of the demand by increasing speeds and adjusting prices.

Access Networks: Where Diversity Really Makes a Difference

Facilities-based competition brings some clear benefits, namely the chance to dramatically change the realm of possibility.

The best examples in the fixed networks business are cable TV hybrid fiber coax and fixed wireless, which have cost and performance profiles distinct from either all-copper, fiber-to-curb or fiber-to-home networks. Many would add to that list satellite delivery of content and internet access services.

The next change will be the emergence of mobile and fixed wireless networks using millimeter wave spectrum representing as much as 10 GHz of new capacity, in a mobile business that uses less than 1 GHz of spectrum.

10 Gbps internet access is the promise of the DOCSIS 3.1 specification for cable TV hybrid fiber coax networks. To reach such levels will require outside plant upgrades that are feasible but non-trivial, requiring a shift to “full duplex” operation.

source: Technology Futures

The larger point is that facilities-based competition offers chances to provide service where some platforms struggle, especially in tougher deployment scenarios where cost per passing, cost per customer and revenue per account are issues. Satellite, fixed wireless and mobile networks offer good examples.

In other cases different platforms can offer some amount of differentiated experience. Mobile substitution for fixed services provides the best example. But cable operators believe they can create different experiences using public hotspots and greater quality of service for indoor Wi-Fi.