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July 20, 2011

Telcos Have Only a Handful of $1 Billion Per Year New Business Opportunities

By Gary Kim
Contributing Editor

Virtually every executive, at every communications service provider organization, is at some level constantly thinking about significant-sized new lines of business that can offset declining voice, texting, video or other revenues. But the opportunities a small rural telco or competitive local exchange carrier or ISP might consider are vastly different from the types of opportunities a major global telco can consider. Revenue scale and asset base are key constraints. An organization that earns $100 million year can look at an incremental $50 million a year opportunity and it is a big deal. 

An organization earning a billion a year can look at an initiative that generates $500 million, and that is a big deal. A major global telco cannot bother with incremental revenue at those sorts of levels. 

In fact, there actually are a relatively small number of initiatives that a large global telco actually can consider, when looking to affect its top-line revenue in a significant way. “Needle-moving” new lines of business generally have to represent fairly-large areas of activity with substantial revenue. Put another way, “C” title executives at global telco organizations cannot, and arguably should not, be bothering with any proposed growth initiatives that are incapable of providing $1 billion a year in new revenue.

Not $1 billion of potential revenue for all providers in the market; $1 billion for each actor. An opportunity “has to be big to be interesting,” notes Amobee (News - Alert) CEO Trevor Healey. 

As you might guess, thinking naturally runs to ways to leverage the existing networks business in some way. You would be hard pressed to find any proposed new initiatives of any size that do not build on the customer base, assets and network services capabilities telcos and mobile service providers already possess. That does not, by the way, mean that the new businesses necessarily will be run by “telco people” who do not have the background. In all likelihood, the new initiatives will succeed only when professionals with skill sets and perspective in the proposed new businesses are running them, and when telco executives do not handicap those professionals.

Consider the range of initiatives you often hear about. Broadly speaking these are financial services (mobile payments is part of this), machine-to-machine services, mobile advertising or specialized services provided to some business verticals, such as health care or security, for example.

That's about it. In the near term, most of the revenue will come fairly directly from “things service providers already do.”  One thinks of efforts to create new services for some industry verticals or ways to generate more revenue from business partners. Cloud computing probably falls within this basket of initiatives, building on what telcos already do.  

Other initiatives, such as mobile banking and payments, will take a while to reach the serious level of revenue contribution. Mobile advertising likely is that sort of investment as well. 

That is not to say that all sorts of experiments get conducted, all the time, at various other levels within a service provider organization. But it typically is true that unless any of those experiments can suggest why they can generate $1 billion of incremental revenue every year, they won't become part of the strategic discussion. 

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Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Jennifer Russell

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