Re-slicing the telecoms revenue pie
Worldwide telecoms revenues are still extremely flat. A bright spot on the horizon, however, is the market for B2B services which is giving communications service providers (CSPs) reason to hope that they have discovered a path to revenue growth for the next decade, as we explore in this excerpt from our recent report 'Mapping a path to telco revenue growth'.
05 Nov 2021
Re-slicing the telecoms revenue pie
Worldwide telecoms revenues are still extremely flat. A bright spot on the horizon, however, is the market for B2B services which is giving communications service providers (CSPs) reason to hope that they have discovered a path to revenue growth for the next decade, as we explore in this excerpt from our recent report 'Mapping a path to telco revenue growth'.
Between 2019 and 2020, revenue from consumer services registered a decline of 3.6% due to the impact of the Covid-19 pandemic, and revenue from enterprise services also took a hit, falling by 3.5% year on year. However, prior to 2020 revenue from B2B services was growing steadily at around 3.5% annually. This is leading most telcos to shift their focus to enterprise lines of business.
Existing B2B services – voice and data communications packages for enterprises and small and medium enterprises (SMEs) – are not likely to generate vast growth in the coming years, so telcos are pursuing new service models for hot areas such as security, IoT and cloud – despite the vagaries around what the next killer application might be.
It is essential to address the effect that the pandemic has had on businesses worldwide and how it has affected CSPs’ financial performance. Historically, telcos have not been negatively impacted by macroeconomic cycles. For example, they have been resilient in times of recession due to their strong capital positions and because their utility-like core services are necessary.
However, the shift to working from home for a billion people worldwide hit usage of telcos’ core B2B services hard. Many offices were closed indefinitely during the first quarter of 2020, with workers switching to consumer fixed broadband connections.
Enterprise revenue from fixed data services was affected but not catastrophically as many business
Impact of Covid-19
It is essential to address the effect that the pandemic has had on businesses worldwide and how it has affected CSPs’ financial performance. Historically, telcos have not been negatively impacted by macroeconomic cycles. For example, they have been resilient in times of recession due to their strong capital positions and because their utility-like core services are necessary.
However, the shift to working from home for a billion people worldwide hit usage of telcos’ core B2B services hard. Many offices were closed indefinitely during the first quarter of 2020, with workers switching to consumer fixed broadband connections.
Enterprise revenue from fixed data services was affected but not catastrophically as many business
customers are on long-term contracts which ensured that CSPs still received some income. Consequently, the huge drop in usage of B2B fixed data services was not entirely mirrored in the financial results.
Consumer fixed and wireless broadband became a connectivity lifeline for many millions of office workers – for work, shopping, entertainment, and video calling their family and friends. Many CSPs accepted enterprise customers working over their consumer connections and did not try to increase prices, calculating that it would be a temporary shift.
Revenue from B2B and B2C fixed voice services dropped as some companies closed permanently and the ongoing residential trend to cut landline connections accelerated, with hard-hit consumers looking to cut their monthly bills. There was also a huge drop in roaming revenue throughout 2020 caused by lockdowns and travel bans.
Many of the CSPs analyzed in this report were seeing B2B growth before the pandemic, and they have been focusing on digital transformation of B2B operations and service development. We believe that much of this growth is coming from established B2B services as CSPs widen their portfolios aimed at large and small enterprises to drive growth.
Growth is coming from connectivity-based solutions such as software-defined wide area networks which act as an overlay (in a sense, a value-added service).
Consumer fixed and wireless broadband became a connectivity lifeline for many millions of office workers – for work, shopping, entertainment, and video calling their family and friends. Many CSPs accepted enterprise customers working over their consumer connections and did not try to increase prices, calculating that it would be a temporary shift.
Revenue from B2B and B2C fixed voice services dropped as some companies closed permanently and the ongoing residential trend to cut landline connections accelerated, with hard-hit consumers looking to cut their monthly bills. There was also a huge drop in roaming revenue throughout 2020 caused by lockdowns and travel bans.
Where’s the growth?
Many of the CSPs analyzed in this report were seeing B2B growth before the pandemic, and they have been focusing on digital transformation of B2B operations and service development. We believe that much of this growth is coming from established B2B services as CSPs widen their portfolios aimed at large and small enterprises to drive growth.
Growth is coming from connectivity-based solutions such as software-defined wide area networks which act as an overlay (in a sense, a value-added service).
New ICT services such as security, IoT and cloud are also contributing to overall B2B growth, but it is important to look at their size compared to existing core business revenues. The services we have analyzed make up just 1% or less of the total revenue of a typical CSP, even among progressive operators that have invested heavily in diversification strategies. Our full report looks at each segment in more detail.
On the consumer side, the pandemic hit CSPs’ Pay TV revenue as some consumers turned to over-the-top (OTT) players like Netflix and Disney Plus and others cancelled their subscriptions to save money. However, some operators opted to partner with services like Netflix, integrating them into cable and satellite platforms.
The Pay TV segment is still relatively large compared with the other non-communications categories at around 4% of total revenue. We predict that these revenues will drop off slightly over the coming five years.
Most CSPs are worried about flat and declining revenues, and in a growth-obsessed industry the search for the next big source of additional revenue has become a sole focus for many. However, the capital position of CSPs is strong. Their core business is not in radical decline, and the services they sell are essential to society.
Consequently, a catastrophic decline in revenue is not likely to happen any time soon. Still, the search is on for the new hot ticket, and many nascent service models are showing promise. The challenge operators and their suppliers face is continuing to drive transformation of the traditional telco through investment in technology and software.
In 2018, new ICT service categories represented just 5.3% of total B2B revenue, despite IoT existing as a concept for over a decade. By 2024 we predict this share will rise to 12.6% due to the traditional B2B connectivity market being very flat and most growth coming from these new lines of business. During this period standalone 5G will also be deployed, further stimulating revenue for B2B and B2B2C use cases.
Download the report Mapping a path to telco revenue growth
Pay TV stalls
On the consumer side, the pandemic hit CSPs’ Pay TV revenue as some consumers turned to over-the-top (OTT) players like Netflix and Disney Plus and others cancelled their subscriptions to save money. However, some operators opted to partner with services like Netflix, integrating them into cable and satellite platforms.
The Pay TV segment is still relatively large compared with the other non-communications categories at around 4% of total revenue. We predict that these revenues will drop off slightly over the coming five years.
What’s ahead?
Most CSPs are worried about flat and declining revenues, and in a growth-obsessed industry the search for the next big source of additional revenue has become a sole focus for many. However, the capital position of CSPs is strong. Their core business is not in radical decline, and the services they sell are essential to society.
Consequently, a catastrophic decline in revenue is not likely to happen any time soon. Still, the search is on for the new hot ticket, and many nascent service models are showing promise. The challenge operators and their suppliers face is continuing to drive transformation of the traditional telco through investment in technology and software.
In 2018, new ICT service categories represented just 5.3% of total B2B revenue, despite IoT existing as a concept for over a decade. By 2024 we predict this share will rise to 12.6% due to the traditional B2B connectivity market being very flat and most growth coming from these new lines of business. During this period standalone 5G will also be deployed, further stimulating revenue for B2B and B2B2C use cases.
Download the report Mapping a path to telco revenue growth
