Technology Report:

Key West Service Provider Profitability

The Telecom industry is continuing to undergo a dramatic transformation. The frantic telecom deregulation of recent years coupled with the tremendous growth of the Internet gave birth to thousands of service providers. Hundreds of billions of dollars flowed into the industry as companies sought to leverage the booming demand for data services and fast, reliable Internet access.

This model provides an opportunity for early stage companies, yet to achieve their full potential, to assign value to their inherent intangible "knowledge" assets as they pertain to their future revenue and earnings projections. The Key West quantitative analysis accounts for the probably of achieving those results and discounts the projected revenues, along with traditional discounts for things like liquidity, and earnings quantitatively to estimate a company’s NPV of it probable market value at the end of some arbitrary period.

For carriers, service providers and large enterprises, success was defined by performance attributes – speed, reliability and quality. Was their network able to meet the data needs of tomorrow? Could they deliver the elusive “five nines” of reliability in the data world that they had been used to in the voice world?

Yet as service providers built high performance networks, serious competitive pressures were brewing, just below the surface. The massive investment in network infrastructure was followed by low financial performance. In North America, where once the industry earned $5 in revenue for every dollar of capital spent, the figure dropped to $3 – and below. Earnings of $1 for every dollar of capital invested dropped to less than 50 cents.

Prices for traditional, high-margin voice services like long distance collapsed as a growing number of carriers (and their robust, high performance networks) came online. At the same time, pricing for basic data services (“bit hauling”) became tremendously competitive as well. Voice services still accounted for 80% or more of Service Provider revenue but less than 20% of their traffic. Data now dominated the networks but was far from paying its way.

For solutions providers and service providers globally, this has forced a fundamental shift in their strategy. They’ve achieved levels of speed, quality and reliability few thought imaginable. Now, they must find ways to drive revenue – and, more importantly, profit – from their network investment.

"click" to download the complete Key West Service Provider Profitability Paper"

"click" to download the Key West Telecom Strategy Presentation"

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