DTWS: New research finds the path to telco growth is through security, IoT, cloud

Telcos believe their future revenue growth lies in B2B, not B2C. New research from TM Forum’s Research & Media team shows that the most promising B2B services include security, IoT and cloud, with double-digit percentage growth possible for each into 2024.

TM Forum Chief Analyst Mark Newman and Principal Analyst Dean Ramsay provided a preview of their research during a Digital Transformation World Series session. The full benchmark report, Mapping a path to telco revenue growth, will be published later in September, and the analysts will present full details of their research during a webinar November 9.

“What we wanted to do with this research project is [create] a current data collection and financial analysis, so that we have a very up-to-date set of data, because many of the B2B growth areas that we’re tracking are [changing] quite quickly,” Ramsay explained, adding that a main goal was to compare the size and growth rates for telcos’ new lines of business, and to show how they compare to growth in the traditional connectivity business.

Crunching the numbers

Ramsay and Newman looked at 32 of the world’s largest communications service providers (CSPs), comparing their financial results for the period from 2018 to 2020. The combined revenue of this set of telcos represents about 70% of the service revenue in the telecoms industry, and analysis was based on a data model produced using the CSPs’ publicly available financial results.

“Because of the disparities in the way that operators report earnings and the way that they look at profitability…it’s not possible to build a financial model that shows all the things we wanted to cover, so…we stuck to [services] where we had solid numbers, where we could analyze real growth,” Ramsay explained. “So, in our consolidated model, some of the data is modelled but it’s based on real-world, solid research.”

Specifically, Ramsay and Newman analyzed revenue for B2B services including security, IoT and cloud and for B2C services including TV and payments.

“We are not currently in the forecast business – we don’t spend a huge amount of time building forecast models,” Newman said. “But we wanted to show some trends: If you were to see a continuation of that growth trend from 2018 to 2020, what might this business look like in three years’ time?”

In addition to the financial modelling, the upcoming report will include the results of an extensive survey of 200+ CSP respondents from 82 unique operating companies. Questions focused on where telcos are seeing growth now and what the impact of new technology like 5G and edge computing will be on their ability to diversify their business models.

“We wanted to look at the current state of the telco B2B business, looking at how they’re doing both overall and in terms of B2B as individual segments to see whether what we’re seeing in those new areas demonstrates a path towards growth,” Newman explained. “l think we probably all feel there’s not been enough specificity around how telcos can monetize new capabilities, so from the start we were trying to get some real numbers, which we can use to justify our arguments.”

Where’s the money?

Of the 32 CSPs analyzed, 17 provide clear breakdowns of their B2B revenue. Based on this data, Newman and Ramsay calculated that overall growth in B2B revenue was about 3.5% from 2018 to 2019. Revenue declined by the same percentage from 2019 to 2020 because of the pandemic, but the analysts expect growth in B2B revenue in the upcoming three years.

“Unfortunately, we picked a period that was probably not ideal because of the pandemic,” Newman acknowledged. “It’s our belief that the B2B business is growing – relatively modestly, but it is growing.”

Telcos typically earn B2B revenue in three ways:

• Selling connectivity/access to network services


• Resale of software or hardware provided by partners (IoT devices are a good example)


• Professional services, which could be traditional managed network services or more complex professional integration services in new areas like security, IoT and cloud

“For the core telco business, EBITDA is maybe in the mid-30s as a percentage,” Newman said. “If we look at the services businesses, telcos don’t break out their EBITDA…, but even the most successful professional services firms are making an EBITDA margin of about 20%. We believe that telco EBITDA margin in [professional] services is actually a lot lower than 20% – it’s probably half of that or even less.”

He adds: “So, that’s an interesting starting point for thinking about these new services. On the one hand we’re saying that growth is all in IoT, security and cloud, but is that services? What is the margin, is the question?”

When it comes to connectivity, TM Forum’s research finds that many observers and even CSPs themselves believe that it is, or is fast-becoming, a commodity. But many of the new services that operators are exploring like network slicing are, indeed, connectivity.

“So, then you start thinking about well, how do you monetize ‘better’ connectivity – connectivity-as-a-service?” Newman said. “Do you monetize it by selling more of it, or [through] higher prices?”

Types of telcos

Another way to explore the potential for B2B growth is to consider which types of CSPs are likely to succeed. Today, B2B services are delivered primarily by large incumbent CSPs, but that may be changing. Newman and Ramsay identified four categories of telco as shown in the graphic below.

“If you’re an incumbent, your B2B revenues would go down every year if you did nothing, and that’s because the core...connectivity business – is stagnating,” Newman said. “So, if you sit down and do nothing as a defender, you may lose 5% of revenues per year.”

For challengers and prospectors, on the other hand, B2B revenue can be incremental growth because they don’t serve the market now.

“So, if we relate our core theme, which is a path to revenue growth, it does kind of depend on who you are and how much legacy you have, because in practice many of these growth areas are compensating for decline in the core,” Newman explained.

“To cut to the chase, the question is: Can you grow your new areas more quickly than you lose business in your legacy areas?” he said. “That’s the race that everyone is up against.”

To learn much more about the revenue potential for security, IoT and cloud, and to find out what steps Newman and Ramsay believe CSPs should take now to grow revenue in the future, watch for the full report.

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Watch Research Spotlight: A path to revenue growth on demand here.