More France IP Communications Stories

France Telecom (News - Alert) and Publicis SA are setting up a venture-capital fund focused on European technology startups. Initially capitalized at about $139 million (100 million euros), the companies will seek additional investors to raise a fund of perhaps 300 million euros ($411.5 million). 

As you might guess, the sorts of companies that might receive funding are of interest to both a mobile service provider and an advertising firm. Fund priorities

Likely sectors include online marketing, e-commerce, mobile content and services, online gaming and social networks, as well as their associated technologies and infrastructures such as middleware, cloud computing, security, and online payments.

The venture and the likely investment themes illustrate the perceived importance of mobile advertising to both France Telecom and Publicis, and the broader challenges major service providers face. The basic problem is exhaustion of the current revenue models and sources.

According to Ofcom, the U.K. communications regulator, over the last decade, average monthly household spend on communications has increased by just 12.8 percent in real terms to £93.10 (£83.01 in 2000) and has fallen consistently year on year since 2005 (£106.50). 

Total operator-reported telecoms revenues fell by two percent in 2010. Retail revenues from mobile services increased slightly (up one percent, having fallen for the first time in 2009), but those from fixed voice and fixed Internet services continued to decline, down by three percent and six percent respectively.

Total annual communications industry revenue in 2010 was £53.4 billion. On an inflation-adjusted basis, industry revenues were £54.3 billion in 2000.

BT’s (News - Alert) share of voice call volumes fell to under 20 percent during 2010. BT’s share of total fixed and mobile voice call volumes fell to 19.4 percent in 2010. BT’s share of fixed voice call volumes also fell to under 40 percent for the first time during the year. 

In that regard, a significant action is the application by Rogers Communications (News - Alert) to become a bank under the Canadian federal Bank Act. If approved, the proposed "Rogers Bank" will focus mainly on credit, payment and charge card services. There is an obvious relevance for Rogers as a provider of mobile payments, but that might not be the immediate application. Banking, advertising, M2M

Some of you should have the logical reaction of “I thought telecom companies were in the communications business?” And that would be a good question. But some might have wondered why telcos were in the video entertainment or advertising businesses as well, and both those businesses now are seen as logical for large telcos. 

It might now be more accurate to say that telecom companies are in a growing variety of businesses that use networks.

The move by Rogers is highly significant, as it illustrates an important point about where large tier-one providers must look for revenue growth. For an organization such as Rogers, which might book $12 billion in 2011 revenue, even interesting new lines of business that produce scores of millions to hundreds of millions worth of new revenue are too small to "move the needle" overall.

The problem is even worse for organizations such as AT&T (News - Alert) or Verizon that book $30 billion to $40 billion a year in revenue. Simply put, there are few realistic new lines of business large enough to matter. That is why you hear so much about machine-to-machine communications, mobile advertising, mobile banking and enterprise-oriented cloud services. Each of those businesses could, in principle, produce $1 billion a year in incremental revenue for any single contestant in a national market.

Keep in mind the scale requirements. A business has to be big enough to produce $1 billion in incremental revenue for each contestant that wishes to compete in the business. By definition, any new line of business must be capable of generating global revenue in the scores of billions of dollars.

To repeat, Rogers will become a bank. It will do so because "banking" is a business big enough to be interesting, and Rogers has customer and other assets that will help it compete. 

Something similar is likely at work at France Telecom, which likewise seems to believe that mobile advertising offers revenue opportunities potentially large enough to "move the needle."