Want CNET to notify you of price drops and the latest stories?

Data revenue boosts telcos' bottom line

Although the telephone may still be king, final figures from some of the country's biggest telcos show that data revenue may soon eclipse revenue from traditional phone services.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
2 min read
Although the telephone may still be king, final figures from some of the country's biggest communications companies show that data revenue may soon eclipse revenue from traditional phone services.

In its 1998 earnings statements, MCI WorldCom said today that revenue from its data business had grown by 28 percent to $2.2 billion since 1997. In the same period of time, revenue from voice services grew just 8 percent.

While MCI WorldCom remains one of the biggest data players through its UUNet subsidiary, its competitors at both the local and long distance levels also posted huge gains in their data businesses.

SBC Communications said last month that its data services revenue increased by 32 percent to more than $2.2 billion, representing about 7 percent of the company's overall revenue.

And Ameritech reported 1998 data revenue of $1.7 billion, representing a third of its annual revenue growth rate of more than 11 percent. That figure amounted to about ten percent of Ameritech's total revenue of $17 billion for the year.

The numbers paint a picture of a communications market quickly shifting from an emphasis on voice to data across the corporate spectrum, underscoring an evolution that is likely to change the way many telecommunications companies--and the networks they operate--function in the future.

But analysts still caution that the data figures may be misleading.

Some companies lump traffic that flows over private networks, such as corporate PBX systems and virtual private networks, into the broad category of data revenue--even though much of this traffic is still voice, analysts said.

"They all have to keep Wall Street happy, and the way you do that is to report data revenues," said Hillary Mine, a telecommunications analyst with Probe Research.

The companies' emphasis on voice services is certainly changing, but Mine warned that the business may not be shifting as quickly as some of the aggregated figures in earnings reports seem to indicate.

"There's no question that data traffic is growing," she said. The point at which genuine data revenue overtakes voice revenue is likely to come after the balance of traffic has already shifted, she added.

"If it's measured accurately, it will take a while," she said.

Probe Research estimates that data traffic takes up about 30 percent of total traffic on networks around the world.

MCI WorldCom's data revenue came closest among the big phone companies to matching this proportion, with about 20 percent of its revenue coming from data traffic. That figure climbed to about 27 percent if revenue from its Internet business, which it broke out separately, was included.

The test for companies in future years will be to see if their earnings can remain at high levels as data customers take over the business, Mine noted. This will be particularly true for new companies, like Qwest and Level 3 Communications, that do not have historic relationships with voice customers to fall back on.

"The threat is that these networks are going to have to start showing earnings," she said.