Revenue Centric Approach
Jatinder Pal Singh Sehdev
Transforming Telecom Networks, Businesses and Organizations
According to pwc report - The future on the line:
Internet access revenues are projected to rise to USD 921.6 billion in 2027 from USD 757.7 billion in 2022, growing at a compound annual growth rate (CAGR) of 4%.
Cellular data usage is expected to be the fastest-growing category, with a CAGR of 27% between 2022 and 2027.
Driven largely by video traffic, global data consumption over telecom networks will nearly triple, from 3.4 million petabytes (PB) in 2022 to 9.7 million PB in 2027.
Despite the significant increase in data consumption, telecom providers appear to have little to no pricing power on increasingly commoditized connectivity and data services.
While as reported by Globaldata on Yahoofinance! the global cloud industry is set to exceed $1.4 trillion by 2027, with a compound annual growth rate (CAGR) of 17.1% from 2022 to 2027.
Why is that?
While both cloud and connectivity are essential for connecting consumers to apps, cloud has been able to insert itself in the value chain, while connectivity has relegated itself to be a "Cost" and have become "Commoditized".
Imagine a company where cost increases in proportion to consumption (luckily not linearly) but the revenue does not grow? All the innovation will be used to drive costs low! Leading to cost centric approach to building networks! and also leads to partnerships that gives cloud even more unfair advantage.
Recently Google named Verizon a Gold Verified Peering Provider for optimized connectivity to cloud apps.
Does this help connectivity grow @17% CAGR? No!
It may enable Verizon to gain more market share (at the cost of other telecom operators)! Means more data and more cost! Revenue will grow but so will costs!
So what is the way to break out of this vicious cycle?
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The three paths!
There are three ways out depending on whether the telcos limit their role to being a connectivity player or evolve to be more.
Connectivity Player leads to the first two options,
Option 1) Rationalize the tariff so that revenue increases with consumption.
Option 2) Cost Optimized Network & Business Evolution. Let's think about this more. Where does the cost come from?
Coverage & Capacity!
Coverage adds more customers potentially more revenue, but Capacity does not do much- it just adds cost! So the telco needs someone else to pay for it! The Apps and the Cloud must pay for it. How can the operator get that done?
In the end operators become retail outlet for clouds / an extension. At the edge their costs are mostly coverage, more cost means more revenue and they supplement the income with monetization from the core.
The third path is an interesting one.
Option 3: Value Added Cloud!
The edge is where the action is! Telcos can own the edge and be cloud!
Let's explore this more in the next edition!
Note: The opinions expressed in this article are my personal opinions and have no connection to my present or previous employments.
Co-founder and CTO @ Technavious | Hyperscale | Edge
5 个月Very interesting perspectives, JP. It is a established Carriers are losing their pie to cloud. You brought very important perspectives of “Value Addition” by Carriers. Unless Value addition becomes the part of strategy of carriers, they will remain relegated to status of fat pipe provider.
Ex -Vice President - Project Impementation and Digital Transformation at Tata Communications, Digital Transformation leader and Experienced Project Director
5 个月Thank you for sharing your insightful thoughts on the future of connectivity and cloud services. To break free from this cycle, telecom providers have three potential paths: a) By adjusting tariffs, it can be ensured that revenues increase in line with consumption. This requires a delicate balance to avoid alienating customers while ensuring profitability. b) Expanding coverage can drive revenue through new customers, but capacity augmentation adds costs. c). By offering incentives like free colocation, to cloud partners, Telco’s can foster partnerships where cloud providers bear some of the costs.?d) The third path is perhaps the most transformative. By owning and operating edge data centers, telcos can position themselves not just as connectivity providers but as integral parts of the cloud ecosystem. By choosing to evolve beyond mere connectivity providers and embracing strategic partnerships business models, telcos can thrive in the digital landscape. I look forward to exploring the third path—Value Added Cloud—in more detail in future discussions.?
Driving business transformation through the strategic implementation of AI technologies.
5 个月Very interesting read JP. Look forward to the next episode!