For such reasons, “business model innovation” has become a key concern for global telecom executives. Dieter Lange, Deloitte head of telecommunications for Central Europe, says.
Business model innovation is about the money-earning logic of a company; its value proposition; target market; customers; core processes, value proposition; strategic assets; partner network and revenue model, for example.
The issue is how big a change in money-earning logic will be required. The optimistic view is that relatively incremental changes in products and packing, such as providing video, content delivery networks and cloud computing or data centers, plus tiered pricing and more sophisticated policy-based pricing, will do the trick.
There is some logic also for expansion outside of existing home markets.
And, in the interim, there is huge growth ahead for mobile broadband.
Barney believes that his firm, Pacnet, can succeed in raising both its revenue and profit margin by moving into the data center and cloud computing infrastructure business.
“Glass and clouds,” is the way he puts it.. “The cloud is where we are headed in the future,” he says. “In the next five years we will all be in the same business–telecom, data center operators and CDN providers,” he argues.
Others might argue that such relatively-obvious line extensions won’t be enough for all service providers, especially the bigger tier one service providers who sell at retail, rather than operating niche businesses such as undersea transport systems.
The reason is simple sales volume. Tier-one service providers can expect to be in the market for new businesses that earn billions of dollars in incremental annual revenue, for each tier one provider in business. That will be necessary to offset losses in legacy products such as voice and messaging, for example.
But those losses will be quite significant, in annual turnover. Some of the larger tier-one providers could stand to lose $10 billion to $20 billion in annual revenue over perhaps a decade’s time, history suggests.
Facing those sorts of losses, replacement businesses have to be substantial. What isn’t clear right now is how big the cloud infrastructure will prove to be, for example.
And the losses will continue. “Voice pricing only goes one way, down,” says Telegeography VP Stephen Beckert.