With the caveat that undersea capacity providers cannot easily, and therefore probably should not, try to “move up the stack” (occupy higher-value parts of the value chain), it seems undeniable that retail service providers selling services to consumers and businesses must do so.
The reason is that the access and transport businesses are low growth, lowish margin businesses. And that increasingly applies even in the formerly high-growth mobile business.
Another way of saying this is that access providers must vertically integrate, even if this is highly risky.
Even if one agrees with that imperative, the issue then becomes “how and where” to move up the stack. In the past, the logic has been to move into computing services (information technology). That has produced mixed results.
A newer prescription is to move into video entertainment. The rationale is simple enough. Video services add significant amounts of revenue; create opportunities for bundling and value creation; get access providers back into the application business as legacy apps (voice, messaging) erode; and create opportunities for differentiation.
Some believe more room yet exists to create value and differentiation in the “dumb pipe” internet access business. That would be quite helpful. But the fact remains that “bit transport and access” are challenging businesses.
Looking only at price changes in the industry between 1997 and 2010, telecom retail prices were flat, even as prices for other “utility” services moved higher, and sharply higher, in the case of water and wastewater services.
Some might argue telcos still can create new revenue sources and value for their dumb pipe internet access services. Comcast certainly believes that can be done by tweaks and enhancements to the Wi-Fi portion of the experience.
Verizon believes a shift to unlimited mobile internet access can contribute by convincing customers to buy higher-price plans. And AT&T believes fiber to the home and gigabit services can create a strong value proposition.
Still, the data suggests it will be difficult to impossible to increase end user spending on access services too much. In the consumer space, discretionary income is limited. In the business space, newer services with higher value simply cost less than the legacy services they replace.
And competition stil is growing. If all that continues to operate, significant new revenue sources, to offset declining legacy revenues, must be found elsewhere than in the access business.
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