The Service Provider business model is under constant and increasing change. Larger providers tend to have a significant marketing and R&D budgets allowing them to keep up with these trends much easier than smaller Tier 2 and below providers. Recently there has been quite a bit of consolidation in the markets. USConnect Holdings being formed is a good example of that mindset. In February of this year USConnect Holdings announced the consolidation of six additional providers under its umbrella.
Service Providers must continue to reinvent themselves before they become irrelevant “dumb” pipes. Voice, video, and data are commodities.
— Matt Reath (@mpreath) October 4, 2014
Voice, video, and data services are becoming more of a commodity and margins are gradually eroding. It is imperative that Service Providers don’t fall into the trap of becoming a “dumb” pipe, a race to zero margin. This race to zero can result in reduced profits combined with changing regulatory programs can result in a downward spiral of not being able to stay relevant. It takes vision to stay ahead of this and only takes sticking to old business models for a short period of time to be left behind.
In order to increase margins providers must increasingly look at its primary sources of revenue – subscribers – residential, SMB, and Enterprise. Sales and Marketing groups at these providers must get out and really understand their subscriber’s technology and data use cases as well as what their primary pain points are. SMBs and Enterprise customers are migrating services to the cloud and increasingly relying on others to manage and operate their systems that aren’t tied directly to what they are good at. For example, SMBs don’t want to spend a lot of time, money, and other resources on IT infrastructure or managing those, but rather focus on their core business. If providers create bundles of services that include Internet service, managed IT services, managed WiFi, WiFi analytics and location services, as well dedicated 1G connectivity to the providers Data Center for virtual compute applications, the provider can increase their margin and revenue with those customers as well as solve business problems for that customer. Other options include hosted collaboration with telepresence, voice services, and conferencing and big data analytics services.
For residential subscribers the key is providers adapting to the changing use cases, preferences, and technical knowledge of its subscribers. Services like TV anywhere, al a carte content, integration with over-the-top (OTT) providers as well as home security, home automation, and network management for the home bundled with high-speed Internet and personal cloud options. These bundled options and additional services can keep customers using an SPs higher margin services.
Cord cutting is increasing over time as residential customers are looking to go to a broadband only service and make use of OTT video applications such as Netflix, Hulu, Apple TV, and Amazon amongst others. According to Neilson survey cord cutters (Broadcast-only+Broadband) watch half of the TV and stream over double the amount of content online. Service Providers must adjust to these changing habits. Although its a smaller amount of total viewers its trending up and represents how a new demographic of younger viewers are going to be watching video content.