AT&T's proposed acquisition of T-Mobile (News - Alert) USA is but the latest in a series of acquisitions AT&T has made since about 1995, and perhaps only the most-visible part of a broader merger wave that has been underway for at least that long. There are lots of reasons. Telecom is a scale business, favoring larger entities. But low rates of organic growth also are an issue. Put simply, telcos, both wired and wireless segments, are finding they cannot grow fast enough based strictly on internal and organic growth.

Under those conditions, growth through acquisition is necessary. That is not to say service providers are not launching serious forays into other growth initiatives, but the financial returns from those ventures will not help service providers maintain growth in the near term. For starters, wired network providers continue to lose voice customers. 

In 2010, major telco residential wireline telephone line loss was about 10 percent, down from 11 percent in 2009, according to analysts at Convergence (News - Alert) Consulting Group. In 2011, the losses will probably be in the 9 percent range. You might think VoIP or competition from cable operators was the main reason for the losses, but wireless substitution was responsible for the estimated 65 percent of the loss.

Convergence Consulting Group estimates U.S. wireless-only households at 28 percent at year end 2010, up from 24 percent in 2009. By the end of 2011, wireless-only households will grow to about 31 percent of U.S. homes.

Still, market share losses to cable competitors represented 26 percent of residential wireline telephone subs lost during 2010, up from 22 percent in 2009. In 2011, cable probably will represent about 30 percent of total line losses.

You might argue that, to some extent, telcos are simply shifting customers from a fixed service to a mobile equivalent, and that is true, much of the time. Still, though the volume helps, typical recurring revenues are not growing much. Wireless service average revenue per user declined less in 2010 than 2009, and the firm believes ARPU will be just slightly negative in 2011, and flat to positive in 2012.

Television has been a growth initiative less important than wireless or broadband, one might argue, but finally has started to help with current revenue growth. Convergence Consulting Group estimates 300,000 telco TV subscribers were added in 2010, down from almost 1.8 million in 2009, and the firm forecasts 630,000 TV sub additions for 2011. 

Cumulatively, about 550,000 U.S. households cut their multichannel TV subscriptions from 2008 to 2009, and about a million did so in 2010. Even here, though, service providers are battling a trend by what appears to be a growing number of consumers to abandon multichannel video service entirely. About 1.15 million more households will cut the video cord in 2011, the firm believes. See the report here. 

Still, AT&T (News - Alert) and Verizon continue to make headway in adding TV subscribers, even if cable operators now are seeing subscriber losses. Convergence Consulting predicts telcos will have 8.4 percent of multichannel video entertainment subs by the end of 2011, up from 6.8 percent in 2010. By the end of 2012, telco share should have grown to 9.8 percent.

Video subscription revenues for cable, telco and satellite providers as a group grew 6 percent to $89 billion in 2010. The average multichannel video subscriber pays $74 a month & watches 240 hours of TV, across the industry as a whole. 

Residential broadband still is providing some growth as well. In 2010, residential broadband sub additions were 4.4 million, and the company forecasts an additional 4.2 million accounts will be added in 2011. 2010 residential broadband access revenue grew to $37 billion up 8 percent, with a forecast of 8 percent growth as well  for 2011.Cable will maintain its 58 percent residential broadband sub market share lead over telcos through 2013. Of course, in addition to customers cancelling video service and cutting back on premium channels, many customers also are increasing their consumption of movies and television in the form of physical media or online viewing. 

In the video rental business, retail stores represented 43 percent of revenue, rent by mail 35 percent, Kiosks 19 percent, and online three percent of the 2010 U.S. movie and TV rental business. But kiosk and online share are growing. In 2011, stores will represent 28 percent, Mail 41 percent, kiosks 24 percent and online seven percent.  All of those trends in voice, mobile service, video and broadband make it tough for large service providers to grow revenues organically. Acquisition will, for some time, continue to be a major method companies grow.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Janice McDuffee