By some estimates, larger mobile and fixed network connectivity service providers earn substantial percentages of revenue from sources beyond their core connectivity services for consumers and businesses, often in the form of services for business customers, but with some contributions from video entertainment revenues bought by consumers.
All that matters for service providers as they hope to create more value from their products and services, beyond “dumb pipe” connectivity, though that is the point of home broadband or business data connections.
Though the role within the internet ecosystem is that of “connectivity” provider, internet service providers often (telcos always) earn significant revenue from applications such as carrier voice and text messaging, device sales and rentals. In many cases, telcos also own and operate application businesses, most often aimed at business customers.
So when forecasters suggest that the bulk of “new service revenues” from 5G will come from business customers, that is a logical extrapolation from the fact that most non-connectivity revenue already earned by connectivity service providers is earned from services sold to business customers, not consumers.
All that matters when trying to forecast the importance of any proposed new service provider revenue source, whether data centers, internet of things, edge computing, private networks, security, AI as a service or other products.
Few, if any, service providers provide any detailed breakout of what we might call “ancillary” revenues earned by providing services or products other than “connectivity.”
But many would estimate that many larger telcos earn as much as 22 percent to 27 percent of total revenue in such ways. Consider Verizon, which might earn as much as 20 percent of its total revenue from Verizon Business operations, which primarily sells non-connectivity information technology solutions and services for businesses.
Verizon Connect, the unit providing fleet management and telematics solutions, might generate two percent to three percent of Verizon's overall revenue, perhaps in the same range as Verizon supplied cloud services.
Of course, many telcos also earn revenue from consumer services including subscription entertainment video services. -/*
The point is that larger internet service providers with voice, messaging and other operations (telcos, cable operators and others) operate both “dumb pipe” internet access as well as applications businesses (voice services, text messaging, business applications, systems integration, data center services).
Focusing on the “core business” therefore is a complicated, double-edged sword. Focusing strictly on “internet access, voice and text messaging” might be quite limiting in an environment where growth is slow and profit margins are thin.
But moving into different roles within the ecosystem is always challenging, and telcos often have met with limited success when attempting to do so.
So execution risk is always significant. And some telcos arguably have done a better job of diversifying.
Telco failures also are common.
As a general rule, telcos have had better success with business-focused services than consumer-focused services. That possibly explains the higher expectations mobile service provider executives have for business revenue upside from 5G, for example,.compared to consumer services.
