Who Needs to Know What?

It can be a humbling experience to realize how few people in any industry actually need to know the actual business dynamics that drive results in that industry. Even fewer need any serious knowledge of what drives outcomes in other industry segments than their own.

For example, multi-site enterprises are essential for providers of SD-WAN products and services, but irrelevant for internet service providers who only sell to consumers and businesses in local markets.

Likewise retail mobility revenues are mostly irrelevant (in a direct sense) for sellers of wide area network services. For channel partners, business customers matter, generally not consumers.

Hyperscalers do not need to bother with "local access." What matters is connectivity between data centers and points of presence. 

The point is that what drives the whole market can be quite different from what drives each submarket.

In today’s world, up to 85 percent (by some estimates) of total connectivity service provider revenues are generated by mobile services. In most markets, consumers provide up to 60 percent of revenue while business customers supply perhaps 40 percent of total revenue. 

Product	Revenue Percentage	Comments
Consumer Mobile Subscriptions	40%	Subscriptions are the key product. According to a 2022 report by the GSMA, mobile subscriptions generated 40% of global telecom revenue.
Business Mobile Subscriptions	20%	Subscriptions are the key product
Home Broadband	15%	Consumer internet access now is the core product for a fixed network
Voice Services	10%	Declining legacy service on both fixed and mobile networks
Mobile Internet Access	5%	Mobile internet access drives the next wave of mobile segment growth, once subscriptions saturate
Data Transport Services	5%	Data transport services including SD-WAN, MPLS, dedicated internet access are an important niche contributor

Looking only at business customer revenues, mobile services also are the biggest single revenue source, with local data access (internet access, private network access) being the second biggest contributor. 

Product	Revenue %
Wide Area Network Data Transport Services	15
Mobile Services	40
Fixed Network Voice Services	20
Local Network Access Services	25

None to little of that matters, in a functional sense, for suppliers of non-mobile services, ranging from home broadband (with the exception of mobile substitution) to SD-WAN or capacity services. 

The point is that very few people in the broader connectivity business actually care very much about top-line industry revenue trends, nor perhaps do they need to do so. CxOs, equity analysts and market analysts almost always need to have some knowledge of those trends. 

What Drives 5G Revenue Gains, Really

As important as internet of things, edge computing or private networks might be for mobile operators, revenue gains from basic phone subscriptions are far more important. In developing markets "more users" will drive results. In developed markets most of the net gains will come from taking market share.

It is difficult to quantify how much revenue 5G actually creates on a “net” basis, as up to 80 percent of 5G subscription revenues come from an existing account upgrading from 4G. It is possible there is some incremental revenue change, but since the upgrade to 5G also cannibalizes an existing 4G connection, only the revenue delta can be attributed to 5G. 

Most observers might agree that perhaps 80 percent of all “new” 5G accounts represent upgrades by current customers. 

Possibly 20 percent of 5G accounts are new signups by customers a mobile service provider did not have before. In some cases such signups represent “new” accounts from customers who did not previously have mobile service. But perhaps most of the “new” 5G accounts are customers ported over from other service providers. 

So particular service providers might gain, but the overall market might see much less net change. 

But 5G fixed wireless, some IoT device connections, some amount of mobile-operator-supplied 5G private networks and some amount of edge computing revenue are better examples of incrementally-new revenue sources that might not have existed before 5G. 

The other qualification is that 4G is used to support private networks, IoT connections and some edge computing use cases. So the 5G contribution is less than the revenue earned using all mobile platforms and sales channels. 

Also, global estimates vary by as much as an order of magnitude, especially in early years. But one observation most might agree upon is that fixed wireless has been the surprise 5G revenue generator. At the moment, fixed wireless revenue likely surpassed IoT connection revenue, mobile operator-supplied private networks and edge computing. 

Revenue Stream	2022	2023	2024	2025
Fixed wireless	$10 billion	$15 billion	$20 billion	$25 billion
IoT connectivity	$5 billion	$10 billion	$15 billion	$20 billion
Private networks	$2 billion	$4 billion	$6 billion	$8 billion
Edge computing	$1 billion	$2 billion	$3 billion	$4 billion

Still, all of those sources are dwarfed by “new” 5G connections, assuming 20 percent of 5G accounts signed by any mobile operator are incremental new accounts. Assume 2024 net 5G account additions of 300 million accounts. Assume 20 percent are “net new” account additions. 

Assume each of those accounts generates $120 in annual revenue. That implies $72 billion in revenue. The new revenue sources are welcome, but also dwarfed by revenue changes from subscription volume and average revenue per account.

The point is that mobile operators earn most of their revenue from basic phone subscriptions and device sales.

Operator	Connectivity	Device Sales	Other Revenue	Total
NTT Docomo	70%	15%	15%	100%
SKT	65%	20%	15%	100%
Telefonica	60%	20%	20%	100%
China Mobile	55%	25%	20%	100%
Vodafone	75%	15%	10%	100%
AT&T	65%	20%	15%	100%
Verizon	50%	30%	20%	100%
T-Mobile	72%	18%	10%	100%
DT	52%	28%	20%	100%

The Death of Distance

There are many business implications of the connectivity provider decision to rely on connectionless internet protocols for data communications rather than the connection-oriented platforms telcos traditionally have preferred.

In some ways, cloud computing also has evolved charging mechanisms that are based on combinations of flat fee and usage mechanisms. “Distance” doesn't really matter. Usage does matter, as a rule, and most features are charged on a “volume used” basis. 

Principle	Charging methods
Distance	Not charged based on distance
Volume	Charged based on the volume of data transferred
Capacity	Charged based on the capacity of the cloud service
Quality	Not charged based on QoS
Bandwidth	Charged based on the bandwidth used
Storage	Charged based on the amount of storage used
Flat fee subscriptions	Used for some cloud services
Usage-based charging	Used for most cloud services

Consider pricing mechanisms in the connectivity business. Flat rate, usage-based and “quality” remain key charging methods. But “distance” has generally receded from cost principles. As virtual connections replace physical connections, and as packet networks are not deterministic in terms of routing, the distance any packets travel cannot be determined, much less the distance they travel.

Other mechanisms including flat-rate, usage-based and in some cases quality mechanisms are used differently on mobile and fixed networks. With the caveat that there are lots of nuances and lots of service providers will use different mixes of principles, distance, actual consumption and quality are the main areas of difference. 

Principle	Connection-oriented	Connectionless	Where used
Distance	Charged based on distance between sender and receiver	Not charged based on distance	Generally not key
Volume	Charged based on volume of data transferred	Charged based on volume of data transferred	Fixed and mobile networks
Capacity or bandwidth	Charged based on capacity or bandwidth used	Not charged based on capacity or bandwidth used	Fixed networks offer speed tiers
Flat fee subscriptions	Charged a flat fee for a monthly subscription	Charged a flat fee for a monthly subscription, in part	Fixed and mobile use, in part
Usage-based charging	Charged based on actual usage	Charges are for “ability to use” rather than consumption	Fixed networks less than mobile
Quality	Charged based on the quality of service (QoS)	Not charged based on QoS	Fixed and mobile networks

Public internet communications are “best effort,” without granular quality of service mechanisms, as a rule. Private IP networks can be engineered to provide QoS mechanisms. Also, customers pay for the ability to use a resource, not the intensity of usage, as a rule, using flat-rate mechanisms, often supplemented by heavy user charging based on actual consumption. 

But distance essentially ceases to be a defining driver of customer pricing. In fact, generally is no longer relevant to the cost of the service. “Tele,” recall, means “at a distance.” In the internet era that is not a defining issue when it comes to the value or cost of connectivity. 

That is reflected in a shift of pricing to interconnection mechanisms. Value is driven by “who” is connected, at what capacities, and less by actual metered or measured consumption. 

“Where” resources are located is not crucial. “What” gets connected, at what capacity, drives pricing. 

Industry	Cost Structures	Revenue Opportunities	Value Drivers	Revenue Sources
Connectivity businesses	Decreased costs for long-distance transmission	Increased demand for high-speed internet	Bandwidth	Subscription fees, advertising, data sales
Data centers	Decreased costs for physical infrastructure	Increased demand for cloud computing services	Scalability, reliability, security	Infrastructure as a service (IaaS), platform as a service (PaaS), software as a service (SaaS)
Software industries	Decreased costs for software development and distribution	Increased demand for cloud-based software	Innovation, agility, flexibility	Subscription fees, licensing fees, pay-per-use fees

Further, though usage often is a driver of customer cost, that also is not deterministic. The ability to connect is the basic principle, whether data is transferred or not. Mobile and home broadband subscriptions have a basic cost per month, irrespective of whether any voice calls are made, text messages sent or received or data consumed. 

Also, since distance does not matter, charging mechanisms shift to “what and who” are connected, not “where” they are connected. 

Does it matter whether a connection between domains, people or companies happens thousands of miles, a few hundred feet or a couple of meters away? When two people in the same room send text messages to each other, the messages might well travel hundreds to thousands of miles before hairpinning back to someone located a few feet away.

Likewise, two internet domains can connect over a few hundred feet inside a data center or across thousands of miles to other data centers. With the exception of some instances where latency is an issue,  distance does not matter.  

Increasingly, what matters is the ability to connect, not whether such a connection is physical or virtual. And the trend clearly is towards virtual connections. Virtual private networks, cloud routers, leased wavelengths or leased bandwidth of any type are essentially forms of “virtual networking. 

Virtual Function	Physical Device Replaced
Virtual private network (VPN)	Dedicated leased line
Microservices	Monolithic applications
Software-defined networking (SDN)	Hardware routers and switches
Software-defined wide area networking (SD-WAN)	Dedicated WAN links
Software-defined mobile cell sites	Physical cell sites
Software-defined interconnection (SD-I)	Physical interconnection facilities
Virtual routing and forwarding (VRF)	Multiple physical routing tables
Network functions virtualization (NFV)	Dedicated hardware appliances
Cloud computing	On-premises data centers
Content delivery networks (CDNs)	Physical servers
Managed security services (MSS)	On-premises security appliances
Managed IT services	On-premises IT staff
Unified communications (UC)	Stand-alone voice, video, and messaging systems

The important observation is that when communications functions are virtualized, “where” things are located means less than it used to. And if the core “connectivity” business model remains “connecting people, places and things,” value sources and charging principles have changed.