One nearly-universal rule in the mobile business is that “more” capacity always is needed. The main implication might be that mobile access revenue per bit always drops over time. Bandwidth-hungry apps are part of the problem.
Mobile video has been a problem for operators because competitive pressure prevents them from usage pricing in a way that would realize much incremental revenue from the shift, Tom Nolle, Cimi Corp. principal, notes. “They’re stuck with another reason for revenue per bit to decline, sinking into the realm of dumb, cheap, plumbing,” Nolle says
“And, of course, if the road is becoming free, then you have to make money on what’s traveling the road, which is video content,” Nolle adds. That is a fundamental insight into present and future business models for many access providers who once earned most of their revenue from voice or messaging.
Across the full range of applications and services, “telcos” (including even cable TV companies, which are a segment of the telecom industry using a different access platform), the value and revenue from traditional apps has fallen. That is starting to be true even for the “newer” legacy services, such as internet access or entertainment video.
There are clear analogies in the internet era, when virtually any app or service can be created and delivered over any public IP network, with no participation by the access provider. With the rise of substitute products, that often means severely disrupted legacy revenue streams.
Voice services on U.S. fixed networks pose a huge stranded asset problem, as fewer than half of locations reached actually generate revenue.
Also, voice is a severely-limited revenue generator. A recent survey of mobile industry executives found that half now view voice as a low value service useful mostly in a multi-product bundle.
The key strategic insight is that since access has become a function that is largely commoditized, with value having shifted higher in the stack, or elsewhere in the ecosystem, at least some service providers must recreate application roles with higher value, higher profit margins and higher revenue, as application or service providers.
In other words, “you have to own at least some of the content and apps that flow across your access network.”