Intel is not immune from the general trend to turn products into services. Nor is Intel protected from initiatives that do not develop as fully as expected. Sometimes it works; often it does not. That is the risk firms take with innovation.
And, as always, questions are raised about strategy: stick on the core business or diversify. Telcos face the same problem as Intel does, in one important respect: acquisitions in growth areas mean spending a growth multiple to acquire the assets. In other words, Intel and ISPs have to buy high-value assets using low-value currencies.
So the typical problem for tier-one telcos is debt, which more than anything else causes telcos to reverse course quite often.
Analysts and advisors often disagree sharply about what telcos ought to do about their “growth” initiatives. Some favor “sticking to core connectivity” while others emphasize “diversifying beyond connectivity.”
Service providers have tried both approaches, sometimes alternating between them, as competitive opportunities and threats come and go.
Some service providers are fortunate to operate in markets with high profit margins. In such markets the advice to “stick to connectivity” can make sense. Others have fewer chances to grow if they stick to connectivity. In those cases diversification makes sense.
But almost every service provider explores some growth opportunities outside the core connectivity business. How to do so remains the challenge. Growth initiatives are risky, expensive and often do not move the revenue needle very much.
And such initiatives almost always are fueled by debt. In almost all cases, such efforts are reversed when priorities shift back to core business investment and debt reduction.
The other approach is to try to grow new capabilities organically. That can reduce the danger of debt, but at the risk of not being able to scale quickly.
It’s a huge issue, for Intel or ISPs.
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