Global Telecom Revenue Will Hit $4.58 Trillion by 2017

Looking at global telecom revenue over the past several decades, and considering the latest revenue forecast from the Telecommunications Industry Association, it is hard to conclude anything but that the industry grows, year over year, every year.

Where in 2008 global revenue was about $2.9 trillion, in 2013 revenue had grown to $3.87 trillion. By 2017, TIA forecasts global revenue of about $4.58 trillion.

Over nearly every time period, global telecom revenue grows. The only possible exceptions were the years 1929 and 2001, but even there the dips were relatively slight.

For that reason, many consider telecommunications “recession proof,” a theory that was tested in 2000 and 2008. For the most part, aggregate revenue remained fairly stable, though there were some changes in composition of revenues.

And that generally remains the present revenue trend, where annual revenue, on a global basis, grows about 2.7 percent.

Recessions might have impact in some regions, from time to time, slowing growth rates. But even the 2008 global recession did not halt revenue growth.

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.

To be sure, growth prospects vary between regions. In fact, growth in Western Europe has gone negative, perhaps the first time in history that communications revenue, at least in a region, actually has seen a declining trend.

So it might seem odd that service provider executives worry so much about revenue cannibalization. It isn’t a misplaced concern.

As now is clear, telecom products or services have life cycles, like all other products. For more than 150 years, voice services drove industry revenues. That did not change in the 1980s, when a global wave of deregulation and privatization began.

By the 1990s, however, profit margins clearly began to erode, as competition in the formerly high-margin long distance market eroded pricing.

By the mid-2000s, growth had shifted to mobile services, even if voice was the biggest contributor even for mobile services.

Most recently, Internet access and video entertainment have been the revenue growth drivers for fixed networks.

These days, “marginal costs” often mean “marginal revenue” for service providers. To be sure, one can argue that the marginal cost of one additional minute of use of a telecom network is almost nil.

That has implications for pricing, as a provider arguably could price slightly above marginal cost and still make a profit, provided fixed costs are covered and the pricing does not disrupt pricing of existing services and products.

That is a big “if.” The traditional problem with a massive shift to VoIP, on the part of service providers, is not so much the incremental profit or loss from VoIP, but the impact on the entire installed base of customers.

In other words, it is one thing for a service provider to match market prices for over the top voice. It is quite another matter to lower prices for all carrier voice to those levels. That is why “harvesting” has been the strategy for virtually all carrier voice providers.

Service providers rationally have chosen not to formally drop prices on carrier voice, but rather have chosen to lose share and call volume, to protect what remains of the revenue stream.

The argument can be made that prices have been lowered, but only because they are effectively hidden within triple-play bundles, allowing stand-alone voices to remain largely as they were.

The other change is that some service providers have shifted to “consume as much as you want” retail pricing, instead of a metered approach. In some cases, that represents a lower effective price for usage.

In other cases, because people only use so much of a resource, effective pricing on a “per unit of consumption” basis has not actually changed so much. A customer who typically uses 250 calling minutes a month, or 2 Gbytes of data a month, or 200 text messages a month, will not generally consume much more, even if pricing shifts from usage to “unlimited” rating.

But that is one sort of issue faced by mobile service providers, namely margin pressure.

Fixed network service providers face a different problem, namely abandonment of voice services altogether, since mobile provides a substitute.

So even if both mobile and fixed network providers face issues related to the stability and growth of their voice services, mobile faces quantitative changes. Fixed network providers face qualitative changes.

Mobile customers are not abandoning voice; fixed network customers are doing so. The obvious corollary is that future fixed network service provider performance will be dictated by how well service providers can find replacement services.

Growth, in other words, is not a given. Only in Western Europe has growth actually gone into reverse. But other markets face similar challenges.

Demand for fixed network voice is dwindling. Sooner or later, that matters, unless new revenue sources--of at least equivalent magnitude--can be created.

Does the Telecom Industry have a Life Cycle?

Though the roster of contestants within any industry changes over time, few entire industries actually disappear.

Much depends on how one defines "industry." One might argue that the computing industry has gotten bigger over time, even though the "mainframe," minicomputer" and now "personal computer" segments have declined.

One might ask the same about the telecommunications industry.

In some ways, the question seems odd.

Over nearly every time period, global telecom revenue grows. The only possible exceptions were the years 1929 and 2001, but even there the dips were relatively slight.

For that reason, many consider telecommunications “recession proof,” a theory that was tested in 2000 and 2008. For the most part, aggregate revenue remained fairly stable, though there were some changes in composition of revenues.

And that generally remains the present revenue trend, where annual revenue, on a global basis, grows about 2.7 percent.

That, however, is a secular trend that was in place before the recessions, so the actual impact of specific recession-induced changes is hard to measure.

So while revenue growth might slow, the 2008 global recession did not halt revenue growth. The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth  slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.

To be sure, growth prospects vary between regions. In fact, growth in Western Europe has gone negative, perhaps the first time in history that communications revenue actually has seen a declining trend.

The point is that any particular telecom product or service has a life cycle. The bigger question is whether telecommunications, as an industry, also has a life cycle. That does not necessarily require that people “stop communicating.”

The issue is whether the presently-constituted communications industry represents the way people do those things, in the future, or to the same magnitude.

Glimmers can be seen in the role cable TV companies now have assumed in the communications business.

Whether “communications revenue” earned by the cable TV industry has shifted to “another industry,” or whether cable TV providers simply have become part of the communications industry, is a judgment call.

From a telecom service provider’s perspective, it does not really matter how one classifies the revenue and market share. Telecom providers have lost revenue and market share to new providers, across the consumer and business segments, and across the voice and data services markets.

To be sure, telcos have compensated by earning new video entertainment revenues and by making the formerly distinct “mobile communications” business a core part of the telecommunications business.

So the question of industry life cycle is no mere speculation. Can a telco go bankrupt? A few already have, though so far no former incumbent telco has literally disappeared altogether.

But it remains an open question, albeit not a major issue, whether the way communications services and access will be provided exclusively by today’s telcos, cable TV companies and other access providers in the future.

Google Fiber poses the challenge in somewhat concrete terms. Again, one can argue that revenues earned by Google Fiber are simply “communications revenues” earned by a new provider in the traditional business.

But one might also argue that Google Fiber might eventually be something else, namely part of a shift of the traditional access business to a new industry.

It’s a bit of a stretch to label Google Fiber access or video entertainment revenues as “application” revenues. Google’s advertising revenues generally are measured as a distinct business from that of communications access.

But the boundaries are getting porous, as Google manufactures and sells mobile devices and Internet access as supports for its application and ad revenues business.

Consumer Spending on Connectivity Might Surprise You, Even in Recession

It is easy enough to predict that consumer, smaller business and enterprise spending will fall if the world falls into recession in 2020. That would be in line with findings that consumption and consumer spending fell virtually across the board in the Great Recession.  

But that does not directly translate into consumer, small business and enterprise spending on communication services and products. 

Telecom service provider revenues did not change much in the wake of the Great Recession of 2008. In fact, according to some studies, U.S. consumer spending on communications actually grew, overall, in the wake of the Great Recession, for example. 

Some surveys found that device purchases slowed during the Great Recession. But some surveys also found consumers willing to make other tradeoffs to keep their broadband, mobile and video subscription services. There was, in other words,  less willingness to cut high speed access than other services, for example.

In fact, some surveys found consumers would rather abandon their mobile service than give up fixed high speed access. Consumers have indicated they would give up other products as well to keep their broadband access.

If they had to give up one service  (video entertainment, mobile, broadband), U.K. consumers would ditch video (49 percent) or mobile (30 percent) before their fixed network broadband connection (two percent), a survey of  more than 10,000 U.K. consumers found, for example.

The point is that high speed access arguably is highly resilient in a recession, and arguably the most-valued service, perhaps even be more valued than mobility. But mobility likely would rank as among the next most important service.

By some studies, consumer spending on mobile devices increased during the Great Recession of 2008 and spending also increased for communication services. That pattern hasn’t changed.

It does not seem that there was much recession impact on subscription video entertainment spending, though some consumers might have dropped a premium channel in favor of expanded basic service.

So despite fears, it is likely that overall revenue will not change that much in the wake of the expected Covid-19 recessions, either. 

One reason is that consumer spending on communications is relatively fixed. As data gathered by the Organization for Economic Cooperation and Development suggest, developed nation spending by consumers was remarkably consistent in the few years after the 2008 recession. 

source: OECD

Still, operators will be prudent, given growing expectations that the global economy now appears headed for negative growth in 2020 because of the Covid-19 pandemic, according to the Economist Intelligence Unit. 

Three years after the 2008 Great Recession, many still were noting reduced revenue growth in some regions. The caveat is that those areas arguably also had secular revenue issues that might have been masked by the effects of the Great Recession. It is likely that revenue trends were shaped by both consumer and enterprise spending, arguably benign in the former case, but more pronounced in the enterprise customer segment. 

Growth Forecasts, G20 countries in 2020
Real GDP growth (% in 2020)	Real GDP growth (% in 2020)	Previous forecast (before outbreak)
Argentina	-6.7	-2
Australia	-0.4	2
Brazil	-5.5	2.4
Canada	-1.3	1.8
China	1	5.9
France	-5	1
Germany	-6.8	0.9
India (2020/21 fiscal year)	2.1	6
Indonesia	1	5.1
Italy	-7	0.4
Japan	-1.5	0.4
South Korea	-1.8	2.2
Mexico	-5.4	1.1
Russia	-2	1.6
Saudi Arabia	-5	1
South Africa	-3	1.4
Turkey	-3	3.8
UK	-5	1.1
US	-2.8	1.7
Global (market exchange rates)	-2.2	2.3

source: Economist Intelligence Unit

The last two big recessions of note happened in 2001 and 2008. The issue now is whether the recession caused by economic shutdown for health reasons because of Covid-19 is going to be better, the same or worse than the great recession of 2008 or the collapse of the internet bubble in 2001, for example. 

The “same as” or “worse than” scenarios would be multi-year, perhaps half-decade long events. 

In a 2014 analysis, EuroMonitor noted that “the speed of the recovery from the 2008 global financial crisis has been unusually slow,” compared to recoveries from previous recessions. In the U.S. market, for example, gross domestic product per person did not recover to 2007 levels until 2012, four years after the 2008 great recession. 

GDP Per Working Age Person in Advanced Economies since 2007

source: Euromonitor