Gary Kim has “An Ominous Forecast for Service Provider Revenue Globally“. Transparency Market Research notes that half of the 2030 revenue is earned by infrastructure providers, software and platforms; and the other half–or about $1.3 trillion–is earned by “service” providers. IDC estimates that annual global connectivity provider revenue is about $1.5 trillion for 2021 and 2022 (including video entertainment subscriptions). 55% of that is mobile revenue globally. Voice was $170B and fixed data revenue was about $400B. The fixed network requires more CAPEX. And the fixed network revenue is in decline. SD-WAN, broadband, 4G and now 5G are replacing copper services, MPLS, DIA and more. But that is our industry since LD: replacement services for less money.
The migration to mobile internet and SD-WAN favor new competitors like T-Mobile, Comcast and Charter. MPLS replacement hurts AT&T and Lumen/CenturyLink the most. Lumen doesn’t have mobile or entertainment revenues to balance that like AT&T. Lumen is counting on cloud, data center and cyber-security to push its revenue up, while network revenue declines.
Every contract of network or Internet I renew is either double the speed for the same money or a write down in revenue. Since AT&T will only write down revenue when their own sales teams do something like sell Fiber Broadband to replace ADI, partners typically have to move the circuits to a reseller or cable. Either way it is a write down for AT&T – lost revenue, retail to wholesale or keep the customer (happy) and renew at the current lower rate.
SD-WAN was supposed to be new revenue streams for the former CLECs, but it turned out that, like a DVD player, the price declined rapidly. (The only services without price decline: Cable, satellite TV, and radio service. Cable broadband is approaching $100; cable TV is at $200 ARPU; and sat TV has not come down in rates and Charlie says it will die.)
Meanwhile MPLS sales are declining and that was some fat contracts for the ILECs.
Cable at least has been pushing up prices on broadband. According to Doug Dawson, the main reason Big ISPs fought Net Neutrality had to do with a fear of rate regulation under Title II. Not for nothing but if my tax dollars are going to pay for inflated broadband prices, perhaps there should be rate regulation. Also, my tax dollars – and yours – will be building much of the fiber to the home in the next 3 years – not a loan, but grants. Seems lopsided. But I digress.
Even UCaaS is slipping in price. The public providers have to keep showing growth and have been doing every trick in the book to keep that. Imagine paying $675M for the rights to IP and a customer list. 8x SPIFFs. Free phones. Free months of service. And lower pricing by at least $3 per seat from 2018. Any large deal you see is certainly at sub-$10 per seat.
Even CCaaS seat pricing is compressing as CCaaS gets mixed in with UCaaS or CPaaS.
5G FWA (fixed wireless access) is sub-$100. Cell phone plans are unlimited for less than $50. Where is all that CAPEX investment return coming from?
On the commission front, partners have to sell more and more to maintain the same income. They have to sell more into each account, which makes them stickier and the partner more valuable. They have to sell more than voice and internet. That’s a tough pill to swallow. As partners reach the retirement horizon, some are looking at what has to be done to grow the business and look for an exit – either as a merger, “investment” from TSB/master, PE $ or ride it out until the income is gone.
Since Jay & Co think marketplaces are where the procurement will come from, where will partners be in that sale?
The PE powered brokers all say that they are improving the buyer experience. How? They aren’t building a new mousetrap. Most telecom cannot be procured through a market. It is paper and swivel chair driven. That leaves SaaS. And I agree that SaaS can be procured through a webpage. So can streaming services. But too many other services cannot.
One of the brokers talked about transparency and pushing back against the vendors. As soon as you try to put pricing into a public platform, vendors will push back. I once posted AT&T Internet pricing on my blog — AT&T legal called me 2 hours later with a takedown notice. UCaaS may be happy to post pricing online, but CCaaS has required an NDA to get “best pricing”. Data centers don’t even like to tell you who is in the meet me room, let alone post rack pricing or x-connect rates.
A lot has to change, but in the meantime, prices will decrease along with commissions which won’t bode well for PE backed brokers and vendor stocks.