AOL Results Show Importance of Legacy Revenues

By Gary Kim February 08, 2013

Service providers need urgently to discover huge new revenue streams to replace lost legacy revenues (whether than is voice, messaging or video). But history suggests that, no matter how important, the legacy sources will be important, and have huge financial value, for quite some time.

Consider AOL, which drove the Internet access business not so long ago.

Despite the fact that most people have switched to broadband access, AOL continues to earn significant access revenue from its old access business. Dial-up access in fact still represents more than half of AOL’s total profit.

In fact, subscription revenue actually grew sequentially in the fourth quarter of 2012 due to 4 percent growth in average revenue per user, compared to the third quarter of 2012. Also, the rate of decline is slowing, suggesting that AOL’s remaining customers have some affinity for the product that makes them more resistant to churn.

Something like that will probably happen for telco voice and messaging operations, and cable operator video operations. Even as each of those formerly key revenue sources declines, the relative contribution to gross revenues and actual profit might remain quite high, for quite a long time.

In other words, despite all the effort rightly to be focused on creating new lines of business, in the medium term, telcos and cable operators will derive huge value from protecting what remains of their legacy businesses, and from exploring new ways to add value to those products, or to reposition the way the products are packaged and sold, even as other revenue sources grow.

By some estimates, gross profit margins averaged 86.51 percent for the telecommunications industry in 2010, though net margin was only about 10.99 percent, on average.

Also, profit margins vary dramatically by product. Text messaging margins are almost arbitrary, and can in principle feature margins of 80 percent, though margin is dropping. Voice margins, which once were safely in the 40-percent range, probably have dropped into the 20 percent range.

Something like that has happened to video subscription profits, which once were predictably in the 40-percent range for cable operators and now seems to have dipped to about 20 percent.

But the relative importance of video, voice and messaging revenues will remain high for quite some time. Just ask AOL.

 




Edited by Rich Steeves

Contributing Editor

SHARE THIS ARTICLE
Related Articles

Amid Cryptocurrency Mania, Coinsquare's goNumerical Raises CAD $10.5M

By: Paula Bernier    12/5/2017

The company that operates the Canadian digital currency exchange known as Coinsquare says it has raised CAD $10.5 million in new funding.

Read More

Your New Heart Monitor is an Apple Watch. Really.

By: Doug Mohney    12/4/2017

Looking at a new smartwatch or fitness wearable for the holidays? If you are concerned about your heart health due to family history or reason, Apple …

Read More

Amazon Unleashes Alexa for Business - Consequences Abound

By: Doug Mohney    11/30/2017

Today, Amazon Web Services (AWS) announced Alexa for Business, bringing Amazon's intelligent assist into the office. This shouldn't be a surprise to T…

Read More

Pai Makes His Case for Title II Repeal

By: Paula Bernier    11/21/2017

FCC Chairman Ajit Pai today made clear his plans to repeal Title II net neutrality rules. The commission is expected to pass his proposal at its Dec. …

Read More

Winners of the 2017 Tech Diversity Award Announced

By: TMCnet News    11/20/2017

TMC, a global, integrated media company helping clients build communities in print, in person and online, today announced the recipients of the 2017 T…

Read More