#4 – When classic revenues stagnate, find different seeds to cultivate
Adapting to a new industry standard of flat revenues, Operators are venturing outside of the connectivity service space to find new revenue streams. Operators are exploring monetizing in-house capabilities, embracing new partnerships and/or acquiring to diversify their services. But there is no magical and simple solution to this complicated problem, instead Operators need to address many different ventures in order to achieve notable growth. In addition, there are several key capabilities that are essential and a prerequisite for a successful growth journey. Northstream predicts that in 2021, meaningful Operator growth will come for those that accept that the path outside connectivity is diverse, less profitable and dependent on others.
In a year full of challenges, it becomes even more evident that connectivity is an essential part of our society with many services extremely dependent on a steady and reliable connection. In the foreseeable future, it is safe to say that connectivity will continue to serve as a relatively stable revenue stream for Operators. After two decades of flourishing growth in the 90’s and early 00’s, we are however adapting to a new industry standard where revenues remain flat or at times even declining for the last decade or so. With a new mobile generation on the horizon, some have looked towards 5G for a new growth opportunity to capture. Although Fixed Wireless Access (FWA) has evolved into a tangible 5G use case with revenue growth potential, 5G at large will serve as more of an enabler and prerequisite of other services rather than a standalone revenue growth area. As pressure from Investors increases to break the trend, Operators continue to venture outside of the connectivity service space to find new revenue streams.
Operators are exploring many avenues by trying to monetize in-house capabilities, embracing new partnerships or by acquisitions to diversify their services. Media acquisitions have dominated many headlines in the past couple of years, both acquisitions of media platforms but also pure content creators. In addition, Operators are developing their own media platforms or serving as a platform aggregator of third-party content providers. B2C bundling of connectivity, media and hardware has been a widespread approach and lately there has been a strong focus on B2B bundling, especially of connectivity with cloud, IT, SaaS and/or security services. We are also seeing examples of Operators trying to monetize in-house capabilities by selling them as packaged services, primarily automation tools or consulting services.
But there is NO silver bullet in any of the above. For meaningful growth you need to address many or all. In order to do that, there are a number of things that needs to be put into place.
First there needs to be a realistic financial management and expectation that growth comes in areas with lower EBITDA or relative cash flow than traditional services. Without this acceptance, it will not be possible to fully branch out to the discussed areas. Management also have to open up for more flexible financing solutions, potentially working with financing partners or co-investing with customers in order to not have to fund everything on own balance sheet. Secondly, Operators need to move from partnerships that cut cost to partnerships that enable growth; embracing strong partnerships across the value chain to enable commercialization, standardization, vertical know-how and market reach, as well as scale. Furthermore, to address larger share in B2B and IoT, Operators need to have consulting capabilities and services skills in order to discuss, sell and deliver complex systems in partnership structures. Moreover, it takes a trust based, flexible and collaborative culture with an ability to scale processes, people and systems fast. Finally, it is critical to have a well-functioning portfolio management with proper management attention and focus. In the end, the Operator that sets up to properly manage the diverse portfolio from all these aspects stand to capture growth. Others will merely be talking about it.
Northstream predicts that in 2021, meaningful Operator growth will be achievable for those that accept that the path outside connectivity is diverse, less profitable and dependent on others.