“Much of the growth in the overall telecom ecosystem has been captured by the electronic products companies that make smart- phones—the devices, ironically,that have put so much pressure on telecom networks and forced operators to invest so much money in upgrading them to handle the ongoing data tsunami they face” ~ Booz Allen
Do you agree with the received wisdom amongst telecoms players: that online service providers are generating unsustainable demand and free-riding on telecom networks? I don’t.
Three reasons for painful network economics
- It is true that there are periods of oversupply in networks (the FASP4 space layer). This is often due to occasional technology upgrades (e.g. 2G to 3G, or 3G to 4G) briefly creating an abundance of capacity. It can also be because of new entrants with empty networks entering the business and pricing under average costs to build their customer base. But this is a competitive issue, not a demand issue.
- As access technology has converged, exclusivity in the place layer has eroded, meaning that multiple infrastructures are competing for the same customer. These infrastructures are largely fixed costs, so players may be motivated to price on incremental costs only, leading to unsustainable price levels. But this is a market structure issue in the Place layer, not a demand issue.
- The Internet players are obviously cannibalising old cash cows at the A.C.E. layer of the FASP4 Framework, like voice and messaging. But that’s not a traffic volume issue, that’s an artefact of cross-subsidies. It doesn’t change the Space-layer network economics.
Online service providers are a good thing for networks
Smart phones and online service providers are generating increased reliance on connectivity. This is a good thing! They have been responsible for the massive uptake in mobile data plans and their associated revenues: you can’t have one without the other. Let’s face it, until the iPhone came along, the mobile operators mobile data businesses were hardly booming.
They are not generating “unsustainable demand” for connectivity – unless you have an unsustainable business! Put it another way, nobody has forced operators to upgrade their networks to deal with the data tsunami. Presumably, the decision to invest was made given competitive dynamics: better to invest than to lose customers. Now – if you lack differentiation and have an inefficient cost base, and you are competing with a leaner and meaner competitor, then it is going to hurt. But don’t blame the source of demand for that.
Are Web players a good thing for the network business, or are they free-loaders? Leave your thoughts in the comments below…
Other posts you might like:
- 3 hidden messages in the new Cisco VNI 2014 forecast
- Telecoms will never be dumb pipes
- The FASP4 framework for telecoms strategic thinking
- Why emerging markets will not solve telecoms revenue growth