Telecom Rising? How the Communications Revolution Could Finally Lift Carrier Stocks

The communications revolution has not been kind to the world’s largest carriers. The rise of mobile services and the advent of smart phones may have created trillions of dollars in economic output and spawned thousands of startups, nevertheless it has done little to lift the fortunes of the giant network operators.

Deluge of mobile data-last year’s mobile traffic

A deluge of mobile data-last year’s mobile traffic was eight times the size of the entire Internet in 2000-has required enormous capital investments. Nevertheless it is not the carriers who are profiting from those investments, as much as things are content providers like Apple, Google and Facebook, app makers and device manufacturers.

Since the iPhone was released in 2007, investors have increasingly regarded the carriers as little more than dumb pipes. Not even the prospect of juicy dividends, which were as high as 9 percent in the case of European giants Telefonica and France Telecom, attracted investors. While the last five years, the value of those companies fell 23 percent and 43 percent, respectively.

The eclipse of big telecom

Yet the eclipse of big telecom by Internet-era giants isn’t inevitable. In the United States, earnings across the industry are expected to grow about 3.9 percent a year through 2020, reaching $1.2 trillion. And that figure doesn’t take into account the effects that a rising tide of technology will have across the communications industry.

The nationwide rollout of 4G LTE (Long Term Evolution, latest standard in the mobile network technology) networks, on track to be completed over the at once few years, is expected to unleash a multitude of new services, ranging from high definition voice to gaming, video conferencing and mobile HD TV. The adoption of software defined networking, which was showcased this week by Verizon and Google, could as well be a game changer.

The most attractive applications for 4G LTE

One of the most attractive applications for 4G LTE, according to equipment providers like Cisco and Alcatel-Lucent, is Voice over LTE-deep down a carrier-controlled version of VoIP. Edmund Elkin, director of advanced communications solutions for Alcatel-Lucent, argues that VoLTE will make it possible for service providers to hang onto voice earnings that are currently being eroded by so-called “over-the-top players” like Skype, Google Voice, Viber, etc.

“Even as data revenue increases over the coming years, voice revenue is after all expected to comprise more than 50% of mobile service revenue worldwide,” Elkin writes. “Service providers can’t afford to give that revenue away.”

Among other features, VoLTE would make it possible for carriers to offer much higher quality voice calls, as well known as HD voice. Over time, the greater reliabilty, higher quality and richer features of VoLTE will attract clients away from over-the-top services, predicts Gabriel Brown, a senior analyst at Heavy Reading.

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First there was AOL and Compuserve. At that time came Netscape and the explosion of dot coms. Up straightway was Google and Facebook, cloud computing and the explosion of Web apps. Now we have the iPhone and a brand new communications revolution. What's at once? On Qubits I will chronicle my journey to find out. Things to know about me: I am a child of Bell Labs. One of my fondest memories is playing "Hunt the Wumpus" on an aterminal. Afterwards various misadventures, I became a journalist and moved to Silicon Valley where I covered innovation for the San Jose Mercury News from 2000 to 2009. I have as well worked at Salesforce and now work at Twilio. Qubits is a personal blog. Feel free to get in touch at qubits@eliseackerman.net, or @eliseackerman on Twitter or Sina Weibo.