Value or Price Driving Video Cord Cutting?

Customer account losses in the traditional pay TV ecosystem could soon accelerate to around five million a year in the U.S. market, up from about two million a year, RBC analyst Steven Cahall said. A survey conducted by RBC found that only around 55 percent of respondents planned to keep buying services from their video services provider.
The data suggest that “the floor that ultimately will keep the linear bundle” is only at around 68 million homes. SNL Kagan says current U.S. pay-TV homes number 86 million at the moment.
Precisely why consumers are cancelling subscriptions, or refusing to subscribe in the first place, typically is said to be the result either of diminishing interest in the product or high prices.
Do consumers cancel their entertainment video subscriptions because they are deemed too costly? Some say so. Others might argue that disinterest is the issue. So it might seem as though there are conflicting views about why some consumers are abandoning linear video for strea…

Peak Telecom is Coming

Most observers of global telecom revenue will note that, with a couple of possible exceptions, industry revenue has grown continuously, for as long as we have kept records.

On the other hand, one has to wonder whether telecom revenue will reach a peak at some point in the relatively-near future, as mobile adoption reaches saturation in every country and as every customer buys as much internet access as they prefer.

Looking only at the country of Malaysia, the trends are clear enough: Mobile growth is reaching an absolute peak, as is mobile broadband. Fixed line voice is declining, and has been dropping since about 2000, while fixed network internet access has grown to replace the lost fixed network revenue, but itself is nearly saturated.


source: FCC

That does not mean service providers will stop innovating--or trying to do so--or seeking to add big new revenue sources. But that new revenue will mostly balance lost revenues in the core business, as voice, messag…

Why App-Access Provider Partnerships, Even When Necessary, are so Difficult

One often-cited bit of advice for mobile operators trying to change their value propositions is to wrap more functionality around their core offers. That does not mean "moving up the stack" (occupying new positions in the ecosystem) so much as enhancing existing offers. 

Sometimes mobile operators do want to move into different roles within the ecosystem, though. A common bit of advice is to partner to accomplish such objectives. Such deals can be low-margin gambits, though. 

For starters, profit margins typically are difficult, because there is a cost of goods issue, especially for services that already have low profit margins.  

Any business deal requires that all parties gain value from any transaction. So when any service provider wants to partner with another application provider, value has to exist for both parties.
You might argue that one reason tier-one service providers have not have much success partnering with voice or messaging application providers, to compete wit…

Market Cap an Issue When Moving up the Stack

There is one practical reason why many service providers, when looking to gain either scope (moving up the stack) or scale (making horizontal acquisitions) almost always choose to go horizontal.

For starters, the risk if often lower. When adding more scale (accounts, customers, revenue) of the type you already sell, it always is possible to gain economies of scale, and reduce overhead costs to some extent.
When moving into a new part of the ecosystem, there is execution risk. By definition, a service provider is moving into a business that has not been its core competency.
There are other practical issues. When a telco buys an asset in the applications or platform portions of the business, it is buying a high-multiple business with a low-mutliple currency. In other words, a service provider is buying an expensive asset with a relatively low-value currency.
For example, AT&T has a market capitalization that is a 1.4 multiple of revenue. Apple has a market capitalization that is 3.7…

Platforms Win Value Race

Most of the value created in the technology, media and telecom (TMT) space actually is created by the software industry, an analysis by McKinsey clearly shows. That is one more way of describing changes in value (and profit and revenue) in the internet ecosystem.
As the McKinsey analysis of public firms suggests, on a global level, value has grown most for software and consumer electronics suppliers (device suppliers), far less so for telecom and cable TV companies, and a bit less for media firms.
The analysis, of course, is flavored by the fact that growth rates for all these firms vary by region. Relatively ittle of the profit--in any sectors--have been seen in Europe. Service providers have grown fastest in regions such as Asia and Africa. Software growth arguably has been highest in the United States and China. Service providers in many developed markets have seen revenue grown, but in a low single digits range.
source: McKinsey
There is a clear “winner take all” pattern, as well.

No Revenue Source Ever Lasts Forever

No revenue source in the telecom industry has ever powered revenues forever. For more than a hundred years, fixed network voice was the only service, and revenues seemingly grew every year, as more people and businesses connected. source: ITU
That fixed network growth trend ended in some countries by 2000, globally by 2003 to 2006 or so, even as account growth continues in Asia and Africa.
After that period, accounts began to fall, in many markets, even if growing globally in Asia and Africa.
But that maturation was replaced by a new growth cycle built on mobility. And when mobility account growth slowed, sales of text messaging services emerged as the next revenue driver. Then mobile internet supplanted messaging revenue growth.
source: Analysys Mason
peak telecom
But even internet access, among the newest telecom services, has a product life cycle.
In the U.S. market, for example, even fixed network internet access seems to have peaked, and subscriptions are now declining.
That does not…

Up the Stack, Down the Stack Or Not?

One recurring and important strategic issue was raised at both the Spectrum Futures event and the following PTC Academy training course held in Bangkok, Thailand the week of Sept. 18, 2017: Can service providers move up the stack, and should they?
Russell Lundberg, Bangkok Beach Telecom CEO and founder, argued that “I’m a plumber; I can’t worry about moving up the stack.” Instead, his view is that service providers must “embrace their dumb pipes.”
Allan Rasmussen, Yozzo Co. managing director, took the other position. “You can move up the stack, but you must partner” to do so.
A third position was offered by Marc Olivier, Sigfox VP, namely that many new business opportunities in the internet of things area--especially for machine-to-machine sensor apps--are best handled by networks optimized for such applications. Olivier leaned towards the “stick to your knitting” approach, pointing out that a new ecosystem has to be built.
John Kjellemo of Yandex also provided his views about the intern…