March/April 2009 | Volume 1/Number 2
Eye on the Money
Where’s Tomorrow’s Money?
By Grant Lenahan
In search of our industry’s most realistic and sufficient sources of revenue growth and replacement.
But I like to start at the beginning – with the actual opportunity. That means consumer (or business) need and the resulting potential revenues that we – as an industry – can target.
Many before me have hammered home the point that voice and plain data revenues, and especially margins, will be in fundamental decline. But this point cannot be made too many times. It’s pointless to ask, “Will voice service X or high speed data structure Y make me my next billion dollars?” No. The right features and the best-performing, lowest-cost networks may allow you to win out in a highly competitive environment, but the writing on the wall is that voice will commoditize, as will data. Our industry must look beyond its traditional opportunity space.
So let’s think about NGNs. The most fundamental difference between NGNs and legacy networks is that NGNs are IP. Yes, we can deliver voice over IP. So what? To most consumers, it’s still just voice. And its main benefit is its
Ditto data transport. Over time, consumers will have several choices of high-speed data (Internet access). So those prices will be under pressure too, and by and large, competition will drive prices toward cost. Business can be solid, but with low margins. Bear in mind that I’m not speaking to any one segment – the key point here is that competition will derive largely from the fact that cable, fixed and wireless operators will all basically offer the same “triple play” and invade each other’s markets.
While that may sound pretty negative, that’s not the intent. Opportunity exists. It just requires a change in viewpoint and a look in the right places.
Let’s go back to that fundamental difference between NGNs and legacy – IP. IP can work fairly well for voice, but it’s certainly not optimized for it. GSM, for instance, is much better optimized for voice and has much more predictable delay. Where IP shines is in its ability to deliver a wide range of content and information; and to support multiple connections or associations – of different media types – simultaneously. It could be about actions – like web browsing or viewing or messaging, but let’s look at consumer goods here – content and information. The vast majority of the web is used to deliver various kinds of content, including video, music, recorded voice, pictures, financial information, promotional offers, news, weather, and myriad of sub-types that fall (I think) into the major categories.
Content and information is big business. The TV and film industries are huge, and music merely big. But the web and the Internet are creating an explosion of sub-types too numerous to list, but these include indie rock, user-generated content, trailers, stupid pet tricks, etc. In fact, most sources of traditional information, news, entertainment, content, etc., are moving at least, in part, to digital distribution and consumption. For most communications networking companies, this is a new frontier. It is both unfamiliar but also a huge, incremental revenue opportunity. For the most part only the cable industry derives a significant portion if its revenues from content.
Content is, and most always has been associated closely with advertising. First, ads have subsidized most forms of content for as long as most of us can remember. Witness TV, radio, newspapers and magazines. But there’s more to the story than coincidence. Content tends to imply demographics – it may be location (local papers), special interests (specialty publications) or wealth (e.g.;
I’ll cut to the chase. Content and advertising “in the large” represent by far the largest and most realistic new revenue opportunity for the communications industry. According to independent analysts, the global media market is twice as large as the global mobile and broadband telecoms markets, combined. We need not capture 100 percent of this opportunity and assuredly we won’t. But at roughly $2.2 trillion in 2012, the pot of new, non-cross elastic revenues is the only one with the potential to make up for revenue losses and fuel profitable growth.
This is not a simple transition. But fortunately, our industry has several inherent advantages that make this task realistic. I’ll discuss those advantages and other top-of-mind issues in the next several issues.
Grant F. Lenahan is Vice President and Strategist, IMS Service Delivery Solutions at Telcordia Technologies, Inc. For more information, visit www.telcordia.com.