Figuring out “where” the communications business is going requires knowing “how” the ecosystem is changing. Since the rise of the Internet, the ecosystem has added new participants.
And, as you might well guess, adding more “mouths to feed” in any ecosystem can mean that revenue, not simply “value,” shifts to those new participants.
Though there are other reasons for changes in business models (new competition, technology, regulations), a shift of value and revenue within the new ecosystem explains, in part, why revenue is shifting away from traditional telecom providers.
In 2015, for example, consultants at EY argued that traditional service providers earn about 55 percent of revenues within the broader communications ecosystem. Infrastructure and platform providers earn about five percent, while device suppliers earn about 20 percent.
Retail and distribution represents about 10 percent of ecosystem revenues. The other new wrinkle is that over the top content, app and service providers earn about 10 percent of ecosystem revenue.
Not all those shares are “new.” Infrastructure providers always have earned some part of the total ecosystem revenue. Service providers and others have sold customer premises equipment. But the 20 percent share, largely accounted for by the value of smartphones and mobile handsets, arguably is higher than ever.
The spread of revenue within the ecosystem matters, in one sense. Consumers and households have only so much money to spend on all “non-essential” purchases. Whether communications represents one percent or five percent of disposable income, that spending is not completely flexible.
So while consumer communications spending is not completely fixed, nor is it highly expandable. To the extent that a relatively fixed amount of communications spending is spread among more participants, the share earned by legacy providers is reduced.
Add that to the list of reasons why “communications industry” revenues are under pressure, and likely to continue to be under pressure, in more markets.
By 2020, service providers will earn less than 50 percent of ecosystem revenue, where they earned 59 percent in 2013.