Report: Telecom subscribership growing, revenues aren't

The good news for telecom service providers is that subscribership continues to grow, reinforcing the fact that telecommunications is becoming more important in people's lives, according to a new Insight Research report.

The bad news is, however, that growing subscribers doesn't automatically mean growing revenues, said Insight President Robert Rosenberg. The downside is particularly bad for incumbent telcos, who are losing subscribers while other industry segments--wireless, cable and CLEC--continue to expand.

"The number of people who sign up for telecom services keeps going up," he said, in a telephone interview. "The other side of the coin, of course, is that the margins aren't what they used to be."

The report, Telecommunications Service Providers Subscriber Growth 2005-2010, projects that U.S. network operators will add subscribers at a compounded rate of 2.9% a year between 2005 and 2010. Some of that growth represents wireless industry expansion at the expense of local and long-distance providers, both in terms of subscribers and minutes of use. The cable industry is also facing competition in its core market and could see "dimming prospects" there, the report said.

"At the end of the day, it's about who owns the customer to be able to provide new classes of service that you and I are not thinking about right now," Rosenberg said. "It's the services our kids are going to want." To date, even the most innovative services haven't been all that different from today's ways of communicating, he said. Rosenberg sees the current state of the industry as poised on the brink of something very new, and something very uncertain.

"I think that clearly the message is that people are not leaving," he said. "It is increasingly important and what we all recognize, that we are in a birthing mode. We are in the midst of a birthing and it is taking the rules that have operated in telecommunications 80 to 100 years or more and essentially rewriting them on the fly. We are no longer looking at time and distance and new business models will have to arise to account for that. It is an extremely disruptive process. Until those new models arrive and are solidified, it's going to be a tough time."

Rosenberg is also concerned that, in the U.S. specifically, investor interest in telecom hasn't rebounded fully after the industry bubble burst in 2001-2002.

"We are all still hung-over intellectually speaking from the bust," he said. "Until investors and risk-takers come back to this segment, it will make organic change that much harder."

The lack of investor interest limits funding for innovative ideas and keeps service providers unduly focused on Wall Street, he said.

"They are still paranoid about Wall Street, and as a result, innovation is not taking place here," Rosenberg said. "We are doing some work in the converged handset area. Where do you go for lessons? To Europe and Asia, which are well ahead of us."