At a high level, every fundamental revenue issue and opportunity in the tier-one part of the telecom business is related to the notion of “zero billion dollar markets.”
The term can refer to any market potential less than $1 billion; a market that does not yet exist, but which can be created; or an existing market a disruptor can enter, capturing leadership of a much-smaller market.
One use of the term is negative for tier-one telecom service providers; one understanding is potentially exceedingly valuable and one sense of the term is neutral, in terms of revenue impact.
The sense of the term that is neutral for tier-one service providers is the notion of any revenue opportunity smaller than perhaps $1 billion worth of annual revenue, the simple reason being that such markets typically are too small for a tier-one service provider to bother with.
You can think of any number of products large telcos have chosen not to create or sell as examples.
The traditional business telephone market (PBX, key system) provides one example. Sales of information technology products to small businesses provide another example.
The content delivery business and Internet access in its early dial-up days provide additional examples.
When products are sold through channel partners, those are examples of “zero billion dollar markets.” Service providers use channel partners because they cannot afford to sell direct, as the markets are not big enough to support the costs of selling direct.
Of course, those dynamics also create opportunities for specialized providers.
The obviously dangerous sense is what can happen when a big market is disrupted by an attacker, leading to a much-smaller market overall. You might argue that VoIP, over the top messaging and now perhaps over the top video entertainment are examples of markets that were once far larger, and now are far smaller, because of disruptive attacks.
Understand the attacker logic: by destroying the legacy business, the attacker hopes to create a new business that it dominates, even if the aggregate market size is much smaller.
That often makes sense for other reasons, including the notion that the attacker makes most of its money someplace else, in some other manner, and the “destroyed market” is an input to that other business model.
During the 11-year period between 2002 and 2013, U.S. fixed network provider gross and net revenue both had fallen by more than 50 percent compared to 2002.
In 2002, U.S. telecommunications industry gross revenues were $385 billion (including cable and satellite TV), and its net revenues (after interconnection costs, program content, and handset subsidies) were $315 billion.
In 2013, gross revenues were $455 billion and net revenue was about $333 billion. Mobility accounts for most of the growth.
But revenue generated by the fixed segment was cut in half.
Any disruptive attacks that shrink the size of the market likewise are unhelpful for traditional service providers.
Skype, or any other major voice over Internet Protocol app or service that is a direct or indirect substitute for carrier voice, provide examples of that.
Messaging apps such as WhatsApp provide other clear examples.
In most competitive markets, contestants try and gain or hold more market share, to build scale and thus obtain higher profit margins.
But many practitioners of the zero billion dollar market strategy are not playing that game. Instead, the objective is to essentially destroy the economics of the present business model.
Skype and messaging services give away for free what telcos try to sell. They hope to create a new business selling new or complementary products. The new revenue streams do not have to be as big as the former revenue streams. They simply have to be quite attractive for the new providers.
Skype, Netflix and WhatsApp therefore raise uncomfortable questions for access providers and incumbent Internet service providers. Those services are not trying to take market share in the legacy business. Instead, they literally destroy the existing business, allowing them to create a new one that is far smaller than the older business, but dominated by the attacker.
Likewise, use of over the top messaging apps is shrinking demand for text messaging services sold by carriers.
Potentially Positive Understanding
But there is one clear sense–”zero billion markets that do not yet exist”–that is profoundly important for service provider. For service providers, that is what the Internet of Things is all about: creating huge new markets where access is a component, but where it might be possible for service providers to create and own the actual apps.
Aside from that, consider the volume of connections. Fixed networks connected places. Mobile connected people. IoT will connect objects. Each new segment represents a market an order of magnitude larger than the former.
So connected places might represent a universe of about a half billion places. Connecting people represents a potential market of five billion. Internet of Things might represent 50 billion objects.
For example, services related to the connected car market will generate as much as $152 billion by 2020, including the value of hardware and software, according to Business Insider Intelligence.
Relatively little of the total revenue is likely to be generated by the “access” function (the equivalent of a mobile or fixed network Internet access subscription).
Most of the revenue will be reaped by providers of services or apps, which suggests the direction mobile service providers are likely to continue taking in the connected car markets.
One reasonable hypothesis is that auto industry related firms are in position to win most of the app revenue, as the biggest categories are vehicle management and safety. In those market segments, mobile service providers are likely to be supplies of access, more than the actual application or service providers.
Mobile providers logically should do best in the mobility management area, and could be significant providers in the driver assistance, entertainment or well being apps categories, to mention a few possible segments.
The point is that “zero billion dollar markets are really important for tier-one service providers. Service providers are being disrupted by attackers who essentially will destroy existing markets for all the core legacy products.
On the other hand, tier-one service providers therefore are compelled to look for huge new businesses that will be created in the Internet of Things areas. One way or the other, zero billion dollar markets will define the future of the tier one service provider business.