80/20 Rule for New Telecom Lines of Business

The 80/20 rule applies broadly in nature as well as business, including the connectivity business, and especially to revenue and profits. Notably, no matter how important the new internet of things revenues or edge computing might be, most of the revenue and most of the profit still will be generated from the basic consumer and business customer connectivity services. 

It remains unclear how the balance of incremental new revenues will shape up for various service providers, but it might in many cases still be the traditional or legacy sources that bring the volume. The leading mobile and fixed network service providers are likely to find that both incremental new revenues and profits are higher in traditional lines of business than new lines of business. 

One would expect that to be the case for some time, given the immense size of legacy revenue streams, ranging from mobile service or fixed access in general to specific components such as mobile or fixed internet access. 

The installed base is so large that small percentage increases produce large sums. In new lines of business, even large growth rates still produce small revenue volumes. 

Assume that U.S. IoT service provider revenues from all participation in internet of things services and products amounts to less than $1 billion in the U.S. market in 2021. Assume U.S. connectivity service providers make about $420 billion in annual revenues. One percent lift in those revenues equates to about $4.2 billion in incremental revenue.

In other words, the revenue boost from generating one percent more revenue from legacy lines of business is four times the contribution from IoT, if one assumes IoT is even a $1 billion business at the moment. 

To be sure, the amount of IoT connectivity revenue will grow. Still, the 80/20 rule will apply. Legacy connectivity (including entertainment revenues) services will still constitute the bulk of total revenues and likely also profit. 

It is hard to see how profit margins on IoT services will be anywhere close to those of broadband internet access--mobile or fixed--voice services, messaging or even entertainment video.