Telecom and tech companies have been working hand in hand for a while, with various projects being chosen to benefit both sides. TechPP recently took a look at ways telecom and tech are working together to be a powerhouse duo.
First up is the obvious—revenue sharing. Google’s Project Fi, Google Fiber and Project Loon are just some examples of the way a tech company has tried to garner a profit from telecom’s connectivity. Verizon has done the same with purchases of Go90, AOL, Yahoo! and Awesomeness TV as examples.
Next is capital investment, with TechPP reporting that investing in telecom or broadband is “very different” than in an internet service or software, because more money is needed for the investment. Telecom companies must buy spectrum, then equipment from networking companies and then deploy equipment on towers that they rent, which can cost into the billions of dollars. The same goes for underground broadband, according to TechPP. Starting a software company is less expensive. This could amount to “a few hundred thousand dollars of seed money” for coders or office space. TechPP noted that Recode needed $1 billion to cover an operational area in Kansas City while working with Google Fiber, however, Snapchat only needed $485,000 to start and is now worth more than $10 billion.
Scaling is also a way the two entities differ. TechPP noted that with telecom and broadband, “the more you want to expand your network the more capital expenditure is required.” The telecom operator must balance a subscriber base and ARPU “such that enough revenue is made to cover operational expenses while at the same time it earns a return.” On the flip side, tech companies have minimal scaling costs. They only need to code software once and can host through public cloud services. “So, the app can demand for more compute and storage capacity as it continues to grow and if there is lesser demand, they can rent lesser compute and storage capacity,” TechPP reported. Expansion works in the same way—software makers have minimal costs and can reach large audiences while telecom operators need major capital to reach billions of customers.
Lastly, do the earnings pay off? TechPP said that the “margins of wireless operators are almost half as much of their internet counterparts,” with wireless operators in America reporting an operating margin of approximately 30 to 40 percent and internet companies reporting around 60 to 70 percent. There may be hope for the telecom side, however, with capital expenditure being a positive. TechPP noted that “the high capital investment means that often times it’s only the telecom operators that can afford to build networks in other countries. By comparison, software requires minimal capital investment.”
Looking forward, TechPP said that test trials, regulatory issues and device compatibility may be roadblocks to the telecom/tech marriage, but both sides are willing to try.