Mobile Has Driven at Least 2 Revolutions in Telco Revenue Sources; Probably Leads the 3rd

Since 1997, when long distance revenues represented about half of all U.S. telecom revenues, mobile services have driven at least two distinct eras of revenue growth. The first change happened between 1997 and 2007, when mobile revenues displaced long distance as the industry revenue growth driver.

Between 2007 and 2016, mobile data revenue has displaced mobile voice as the industry growth engine.

Also, along the way, AT&T now generates about 28 percent of total revenue from video entertainment (with some contribution from high speed Internet access). AT&T once earned zero from such areas.

Some 12 years ago, US mobile data revenues were less than five percent of overall mobile industry revenues. In the second quarter of 2016,  mobile data revenue crossed the 75 percent threshold, according to analyst Chetan Sharma.

That is an important observation for several reasons beyond the obvious importance of mobile data as a revenue source.

As a fundamental analytical principle, I have argued for several decades that service providers must expect to replace half their current revenue about every decade, from new sources.

That has proven true In the U.S. telecom business for several decades, where lead revenue sources have, in fact, been replaced, about every decade.

In 1997 about 16 percent of revenues came from mobility services. In 2007, more than 49 percent of end user revenue came from mobility services, according to Federal Communications Commission data.

Likewise, in 1997 more than 47 percent of revenue came from long distance services. In 2007 just 18 percent of end user revenues came from long distance.

So the latest estimate by Chetan Sharma suggests the process still is at work. In turn, long distance revenue; then mobile; and now mobile data has become the key industry revenue driver.

The question is which new major revenue source will drive the next displacement? One suggestion is that the intense interest in Internet of Things and machine-to-machine communications signals a widespread belief that this is where the big new industry revenue will come from.

Look at AT&T as one other example. AT&T now earns about 28 percent of revenue from video entertainment services (with some contribution from high speed access), where AT&T just a few years ago had only single-digit revenue contributions from video, and most likely almost no earnings contribution from video.

Verizon cannot yet make such claims about the size of its own mobile media and advertising operations, but clearly expects that to happen. The stated goal is to become an industry alternative to Google and Facebook for mobile advertising.