Carriers Need New Revenue Streams


Though the immediate target of this comment is AT&T and its quarterly earnings report, the analysis could extend to any wireline telephone company and, with some tweaking, to cable and even cellular companies.

The writer, Dow Jones' Newswire Senior Columnist Robert Armstrong, points out that AT&T's operating revenue has declined in each of the past five quarters compared to its year-ago quarter. That's understandable because of the slow and painful death of legacy telephony, which is losing out to cellular and VoIP. The more worrisome problem for the carrier is that the "healthy" segment of its business -- wireless -- also is in a five-month slump versus the year-ago quarter. The U-verse fiber build will do nothing but slow the decline and the current savior-the iPhone, with which AT&T has an exclusive deal-will not stay hot forever.


AT&T is hurting even beyond the recession. The company will be at a disadvantage even when the economy rights itself because the sectors in which it competes all are highly competitive and aren't gaining as many new customers as before. What AT&T and the others really need are new businesses with fresh revenue streams.


All carriers certainly are aware of this predicament. The common wisdom is that the overall pie gets bigger as communications technology becomes more pervasive and ubiquitous and new applications are developed. While that is true, it also is true that the pie doesn't expand fast enough to accommodate the heightened competition. Gaining a market share point in one segment while losing two in another isn't a winning long-term strategy.


The search for new markets may partly explain theaccelerating interest that carriers have in machine-to-machine (M2M) communications. It's an attractive market in its own right, with low churn and long contracts.This week, for instance, T-Mobile USA introduced an M2M subscriber identity module (SIM) card. The card, which the story says is about the size of a head of a pin, is unique in that it is built from silicon and not plastic. This, according to the company, accelerates deployment. The SIM is being deployed by Echelon Corp., and the two companies have allied to push smart grid, an important M2M technology, in North America.

Some reactions to the constricting of the revenue streams are more subtle than others. Cable operators historically are not known for tact, though they have cleaned up their act during the past decade or so. Tough times may be bringing them back to their roots. Time Warner Cable created a firestorm when it said that it would introduced "tiered pricing" for Internet use in New York and North Carolina during the summer, and was forced to cancel the project. The company said this was an effort to put the burden on subscribers' whose heavy use was taxing its infrastructure, reports the Los Angeles Times. Many commentators had a less innocuous explanation: They think the company-which was set to institute rates as high as $150 per month on some users-wants to guard against people canceling their video subscriptions in favor of IPTV. This, of course, is not an attempt to enter a new market, but a perhaps brazen way to protect one in which a significant slide would be especially painful.


Another fresh market that may emerge in the next few years is Cuba. The opportunity is limited. The island is relatively small and Cubans, judging from the 1955 Buicks and Chevys still in use, don't seem to have a whole lot of discretionary income. Nonetheless, Cuba remains an untapped market, at least by American companies.


FierceTelecom says that Washington is paving the way for U.S. companies to set up shop. The writer points out, however, that entrants will have to compete against entrenched companies. For instance, Telecom Italia owns 27 percent of Cuban firm Etecsa and the Venezuelan government and Telefonica both are active. On the other hand, the ITU says that the island nation has a wireless penetration rate of a miniscule 1.8 percent and many Cubans have relatives in the U.S., so at least some revenue will flow.


As Armstrong's analysis suggests, carriers are desperate for new sources of revenue. In a strange way, the recession is masking the situation, simply because everyone is in the same sinking boat. Once the overall economy improves, the struggles of the carriers will be more obvious. While Cuba, tiered pricing and M2M will produce, respectively some, none (because it will never be deployed for public relations reasons) and moderate revenue, the three approaches are not enough to rescue legacy carriers.