For most of the past decade, telecom operators built their financial models around a straightforward premise: sell connectivity, collect the monthly fee, and manage churn at the margins. That model is cracking. Core connectivity revenues in North America are growing in the low single digits at best, and in fixed broadband they are close to flat. The companies that once anchored their P&L to the pipe are discovering, with increasing urgency, that the pipe alone cannot carry them into the next five years. (McKinsey, 2024)
What is changing beneath the surface is not merely competitive pressure—it is a structural shift in how business customers, particularly small and medium-sized enterprises, actually buy technology. B2B buyers are consolidating vendor relationships, preferring integrated service packages over discrete purchases, and increasingly transacting digitally at higher price points. Average order values across all B2B customer segments are projected to grow by 51 to 55 percent by 2025 as digital purchasing confidence rises. (McKinsey, 2025) The implications for operator P&Ls are significant, but they are not linear—they unfold across a three-to-five-year arc that rewards those who move decisively and punishes those who optimize the old model for one more quarter.
The Revenue Mix Problem
In the near term, the most visible P&L effect is a widening divergence between the operators who are adding software and cloud services to their SMB accounts and those who are not. The global B2B market addressable by telecom operators was estimated at $584 billion in 2024, with the beyond-core segment—cloud, cybersecurity, business applications—already at $204 billion and growing at a CAGR of 8.9 percent, compared to just 1.6 percent for the combined core and near-core segments. By 2028, that beyond-core pool is projected to reach $287 billion—growing six times faster than traditional connectivity. (McKinsey, 2025)
For operators still generating most of their SMB revenue from connectivity-only accounts, this creates an immediate revenue mix problem. The base is commoditizing and price-sensitive, while the growth pool is moving up the stack into services they are not yet selling. The fixed-mobile convergence (FMC) wave offered a brief reprieve—research from Simon-Kucher found that FMC bundles can deliver 26 to 51 percent higher ARPU—but that uplift is now saturating in mature markets. The lesson from Europe, where major telcos grew their contract bases by nearly 50 percent since 2017 without a corresponding ARPU lift, is that volume without value-add is a dead end. (Simon-Kucher, 2024)
The more promising early signal comes from operators layering cloud productivity, cybersecurity, and managed services onto their connectivity accounts. Nearly 80 percent of business decision-makers view telecom operators as viable partners for services beyond core connectivity, with SMEs showing around 35 percent lower intent to switch away from telcos than large enterprises. (McKinsey, 2024) The SMB customer is not looking to build a technology stack from scratch—they want a trusted provider who can deliver it as a subscription, integrated and managed.
The P&L Transformation Kicks In
The compounding effect of a subscription-first, bundle-led SMB strategy becomes most visible in years three through five, working through four distinct P&L levers: revenue per account, churn, margin mix, and valuation.
The revenue per account effect is the most straightforward. A connectivity-only SMB account is a flat-to-declining revenue stream. An account that also subscribes to cloud productivity, managed security, and unified communications can reach multiples of that figure without the operator building new infrastructure. Microsoft 365 Commercial cloud revenue grew 15 percent in fiscal 2025, with SMB and frontline worker categories outpacing enterprise seat growth. (Microsoft, 2025) Operators positioned as the distribution channel for these products within their existing SMB bases are capturing a revenue stream that is structurally different from connectivity: recurring, higher-margin, and relationship-deepening.
The churn effect is equally important and often underestimated in financial modelling. An analytics-driven approach to base management can reduce telco churn by up to 15 percent. (McKinsey, 2017) When an SMB customer is using four to six services from a single operator, the switching cost rises dramatically. Bundle-attached accounts are structurally stickier, which means the lifetime value compounds over three to five years in ways that single-service accounts cannot. McKinsey’s 2025 B2B pulse data confirms that customer stickiness is improving fastest precisely in business applications and end-user services—the layers above the network. (McKinsey, 2025)
The margin mix effect operates more slowly but is ultimately the most consequential change to the P&L. Core connectivity is capital-intensive and relatively low-margin. Value-added services and managed cloud products can be delivered over existing infrastructure with incremental capital. Oliver Wyman’s 2025 analysis identifies providing integrated connectivity, communications, and security services to SMEs as a primary lever for improving the ratio of free cash flow to revenue—the metric that most directly drives equity rerating. (Oliver Wyman, 2025)
What North American Operators Are Learning from Early Movers
The most instructive case study in North America is TELUS. Over the past five years, the Canadian operator has deliberately built out B2B digital verticals to the point where they account for roughly a quarter of total revenues. McKinsey has highlighted this diversification strategy as directly contributing to TELUS’s total shareholder return outperforming Canada’s broader telecom sector. (McKinsey, 2025) The health services segment grew its EBITDA contribution at double-digit rates through 2024, even as the company’s core connectivity margins faced the same macro headwinds as the rest of the industry. (TELUS, 2024)
Swisscom offers another data point: its ICT business grew to represent 39 percent of total B2B revenues by 2024. (McKinsey via Analysys Mason, 2025) The pattern is consistent: the P&L does not transform immediately, but within three to five years, the composition of revenue is fundamentally different—more recurring, more defensible, and more valuable to investors.
The risk falls on operators who maintain a connectivity-only posture. Beyond-core spending is growing at nearly six times the rate of core connectivity. Operators absent from that conversation do not simply miss incremental revenue—they cede the customer relationship to cloud providers and hyperscalers who will, over time, be better positioned to take the connectivity contract as well. The loyalty of an SMB customer attached to your billing and productivity stack is durable. The loyalty of one who sees your network as a commodity is not.
The Execution Gap Is the Real Risk
The strategic case for the subscription-and-bundle pivot is well-established. The harder question for most mid-size operators is not whether to move in this direction, but how to do it without the internal cloud expertise, vendor partnerships, and go-to-market infrastructure that hyperscalers spend billions constructing. McKinsey notes that the primary barriers to beyond-core success are organizational and operational rather than strategic: traditional telco structures designed for scale and reliability often lack the speed and customer-centricity required to execute ecosystem plays effectively. (McKinsey, 2025)
This execution gap is where the three-to-five-year P&L story either gets written or stalls. Operators who bring cloud and digital services to market at pace—through partnerships, marketplace platforms, or turnkey delivery models—begin compounding the revenue, churn, and margin benefits within the planning horizon of a standard CFO forecast. Those who spend years building internal capability from scratch risk arriving in year five to find that the B2B cloud conversation has already moved on without them. The customer buying behaviour shift is not waiting. The P&L question is simply whether the operator will be the one capturing it.