Traditionally, US Telecom operators have had only two sources of revenue – Wireless and Wireline; both of which were growing exponentially and extremely profitable. But the telecom landscape is changing quickly and carriers are struggling to define their strategies in the face of these changes. To add to this, the industry is slowing down. This is evidenced by the fact that the industry grew its revenues by only 2.6% in Q4 and 3.3% for all of 2009; a significant decline from the past two years. To maintain growth, carriers must quickly adapt to the changing landscape, and find ways to drive more revenues from their networks.
A brief look at carriers’ revenue streams, as they stand today, is below:
- Postpaid wireless revenue: Historically, these revenues have been the bread and butter (and source of great profits) of wireless operators in the US. Having experienced torrid growth in the last five to six years, postpaid adds have been tapering off of-late. Bernstein Research predicts further slowdown in postpaid, and expects these revenues to grow at just 1.2% in 2010. With US mobile penetration close to 100% of the addressable market, Bernstein's estimate seems to be on target.
- Prepaid wireless revenue: Prepaid, an area that no US wireless operator cared about in the past, is suddenly the area of major focus for almost every carrier. Clearly, the credit for demonstrating the potential in this segment goes to MetroPCS and Leap. But with growth projected to be in the 18% range in 2010, almost every major carrier is placing their bets on this segment. E.g.: Sprint’s purchase of Virgin Mobile in late 2009.
- Machine-to-Machine (M2M) Revenues: The industry believes that most of the long term revenue growth potential lies in this segment. In the past, most M2M revenues have come from non-consumer-centric devices and applications. But this is changing quickly. Devices & applications like the Amazon Kindle, Barnes & Nobles Nook, Skiff Reader, Ford Work Solutions, etc are spilling over into the consumer space and are showing their potential for widespread adoption. But this also where most of the confusion lies – carriers are struggling with questions on how to address the needs in this space, and how best to monetize the opportunities without ceding too much control. I will discuss more of these confusions and current carrier conundrums in this space, in a later post.
- Wireline Revenues: Wireline revenues are in long-term decline. Almost every quarterly report from AT&T and Verizon in the last two years will attest to this fact. With “Wireline substitution” in full swing, we can only expect this trend to accelerate going forward.
So this brings us to the question – what next? Where should carriers focus next to maintain growth? While prepaid is a great short term solution, what will its growth mean to Postpaid revenues? What do carriers do with their wide expanses of Wireline assets? Will M2M revenues compensate for slowdown in other revenue streams? As carriers try to make sense of these long-term trends, they must also deal with other issues like – How will the device-wars play out? How not to become a dumb-pipe? Should we invest in next generation 4G technologies, and what is the ROI on these investments? Etc. There are no easy answers in this uncertain environment, but the bounty will be plentiful to the carrier who figures it out first.