It’s been quite a wireless party over the past five years, with Verizon bringing in $319 billion and AT&T taking $291 billion. But the end of the telecom-giants-printing-money era may be in sight.
The frightening thing for wireless providers is that the world is running out of new people to who might pay for the service. A report published Thursday by technology market-research firm Ovum predicts that mobile industry revenue will decline for the first time ever in 2018.. New connections will slow to about four percent annually between now and then while wireless revenues grow at less half that rate.
This doesn’t necessarily mean doom for companies like AT&T and Verizon, which between them haven’t suffered through a year with a profits south of $4 billion in over a decade. But it could mean lean times ahead for companies that have grown fat on easy money.
BUt there’s one thing that Ovum hasn’t taken into account: the so-called Internet of Things, in which consumer products and industrial equipment alike send and receive information over wireless networks. The current report assumes that the telecom companies bring in no revenue here—and that won’t be the case. Ovum’s own unpublished estimates put machine-to-machine wireless revenue at $44 billion by 2018, up from $13 billion last year. And that number may be overly pessimistic, since it includes only industrial uses and not consumer products with wireless connections.
The promise of Internet-connected factories, cars, and dog collars is no secret. Just this week, AT&T said it was collaborating with GE on Internet-connected industrial equipment. Surely someone will make a lot of money here. But after years of reclining on ever-growing stacks of wireless cash, the large telecommunications firms may not move quickly enough to be the ones to do so.
“The wildcard is whether telcos can adapt quickly enough to take advantage before the opportunity gets usurped by others,” said Sara Kaufman, an analyst at Ovum who worked on the report. “Obviously the telcos have a huge compelling reason to make every effort to do that, but we’ve certainly seen that telcos, generally speaking, don’t move quickly and adapt.” Kaufman lays out two potential futures: one in which telecoms figure out a way to develop services for the Internet of things, and one in which other companies do. In the first scenario, the party likely continues; but in the second, telecommunications firms become dumb pipes selling connectivity to other businesses at low prices, who then reap most of the rewards.
There are plenty of recent precedents of telecoms losing out by failing to hit on changes in they way people use wireless services, like group messaging and voice-over-Internet calling. The Internet of Things could represent an even more fundamental shift. If AT&T and Verizon don’t figure it out, their near future could look a lot different than their recent past.
