Verizon announced yesterday that it will launch an end to end digital video service that enables content creators and digital retailers to outsource the entire digital supply chain to them. This is the first such move by Telcos to get a cut of the maturing market in digital content delivery and differentiate themselves from the pure CDN players. By providing a large scale "utility" service for this increasingly non-differentiating part of the value chain, Verizon should be able to dramatically reduce the cost of streaming video and potentially further accelerate the demise of traditional TV (if one believes that the latter's demise is inevitable). I can't say much more as I've been involved in the launch of this service, other than I'm looking forward to seeing whether the market is ready for end-to-end delivery to be fully commoditised. Time will tell.
Following yesterday's post, here's some related thinking on the impacts on operators of handset leasing. Handset sales represent around 25% of operator revenues in a typical European market, but generate only around 5% of margin. It may therefore be the case that the scenario described would lead operators to a more profitable structural model than exists today. Oil companies are consistently and acceptably profitable, despite being (literally in some cases) the ‘dumb pipe’ that operators are so desperate to avoid becoming. One of the reasons for the oil majors sustained profitability is clear focus on their role in the value chain – to supply the fuel that enables transportation, relying primarily on location, then brand and finally product innovation to compete. BP or Shell do not need to subsidise the purchase of a car in order to drive consumption of fuel because consumers are ‘hooked’ on it (it gets them from place to place) and there are many credible car manufacturers an...
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