Are Telcos Still Making Money?


You would be hard pressed to find a single quarter in any recent year when the likes of AT&T and Verizon Communications did not show steady revenue growth and relatively stable earnings, with the ability to pay dividends. That isn't to say all providers are in the same condition. From time to time, many providers have faced some distress. 

But Craig Moffett, Bernstein Research analyst, has been a notable "bear" on business prospects for the large mobile service providers. He now calculates that AT&T and Verizon Wireless are not even earning a return above their cost of capital. 

In other words, AT&T and Verizon now are already losing money, investing in networks and services that do not earn back the cost of the borrowed money driving the investments. But most of the problem comes from the wireline businesses, he argues. 

AT&T and Verizon executives would disagree, of course. In part, Verizon aregues, returns have been depressed recently because of heavy investment, both in the FiOS program and wireless upgrades, but the revenue impact of the sluggish economy. Over the long term, those issues will recede, Verizon argues. 

Still, there are signs executives are trimming investment in fixed line networks, to favor mobile networks. Read more here.

According to analyst Strand Consults, many European mobile operators in 2009 were selling mobile broadband for around 50 per cent less than it costs to support such volumes of  data. See this.

Beyond that are the long-standing issues caused by third party apps, which increasingly can supply some of the value traditionally provided only by service providers. Voice is one example.

Voice revenue telcos get from the average wireless subscriber has declined from $50 per month in 2005 to just above $33 today in 2010.

Text messaging, long a hugely profitable service, represents 16 percent of Verizon Wireless’s revenue, and contributes as much as 40 percent to total profit. The numbers are similar for AT&T Wireless are similar, says Moffett. The problem is that mesaging alternatives might be increasingly viable alternatives. Read more.

To be sure, industry executives have been dealing with the maturation and decline of several foundational services for decades, and have successfully shifted business models before. 

But some of us, and apparently many within the European Community policy community, do not necessarily view telcos and mobile service providers as "rich monopolists" that need to be restrained. Though large organizations with substantial revenues, there are clear threats to all of the key revenue segments, ranging from video to voice to text mesaging to broadband access. 

As value continues to shift to "over the top applications" and devices, the access part of the ecosystem gets devalued. That seems an unstoppable process. 

Gary Kim is a contributing editor for TechZone360. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

Contributing Editor

Related Articles

Coding and Invention Made Fun

By: Special Guest    10/12/2018

SAM is a series of kits that integrates hardware and software with the Internet. Combining wireless building blocks composed of sensors and actors con…

Read More

Facebook Marketplace Now Leverages AI

By: Paula Bernier    10/3/2018

Artificial intelligence is changing the way businesses interact with customers. Facebook's announcement this week is just another example of how this …

Read More

Oct. 17 Webinar to Address Apache Spark Benefits, Tools

By: Paula Bernier    10/2/2018

In the upcoming webinar "Apache Spark: The New Enterprise Backbone for ETL, Batch and Real-time Streaming," industry experts will offer details on clo…

Read More

It's Black and White: Cybercriminals Are Spending 10x More Than Enterprises to Control, Disrupt and Steal

By: Cynthia S. Artin    9/26/2018

In a stunning new report by Carbon Black, "Hacking, Escalating Attacks and The Role of Threat Hunting" the company revealed that 92% of UK companies s…

Read More

6 Challenges of 5G, and the 9 Pillars of Assurance Strategy

By: Special Guest    9/17/2018

To make 5G possible, everything will change. The 5G network will involve new antennas and chipsets, new architectures, new KPIs, new vendors, cloud di…

Read More