Will Mobile and Fixed Network Broadband Prices Start Increasing?


Scarcity, which many would say has been a key reason network owners have had business advantage, has generally been declining over the last several decades, as regulators have allowed competition for the first time, as public firms have been privatized, as cable, satellite and wireless firms have entered markets and as new technology has lowered costs.

But some would argue that a degree of scarcity is returning to both mobile and fixed markets, which could have important ramifications for the extent of competition and therefore pricing in broadband access markets.

In some markets, the capital requirements of competing in a fiber to customer environment, or fourth generation mobile network business, might actually reduce some competition, as some contestants find they cannot afford to make capital investments of their own.

You might well expect telecom executives to say that “scarcity” does convey business advantage, and that network owners are behaving rationally in making access to their networks as “scarce” a possibility as they possibly can.

In fact, analysts at HSBC argued early in 2011 that “a degree of pricing power is (at long last) becoming apparent in the telecoms sector, at least in Western European markets, thanks to scarcity emerging as a factor on both the fixed-line and the mobile sides of the industry.”

In fixed line, the capital required in the shift from copper-based infrastructure to fiber
platforms is reasserting the importance of scale at the expense of the un-bundlers, and resulting in a more benign pricing environment,” HSBC said.


Meanwhile, in mobile, the finite nature of mobile spectrum has already led operators to begin rationing capacity based on price.

Scarcity is the reason telecom always had been a monopoly in the past. It was deemed too expensive to build more than one network. In essence, that remains the thinking, in countries where there are robust mandatory wholesale requirements.

“We believe that this vital ingredient has been largely missing in both the fixed line
and mobile elements of the sector over the last decade, but is now making a reappearance; as a consequence, we think that telecoms should – at long last – begin to enjoy a measure of pricing power,” HSBC has argued.

The new element is the need to upgrade copper networks to optical fiber access, an undertaking expensive enough, with financial returns risky enough, to make would-be competitors think very hard about building their own networks. In fact, even regulators seem cognizant that the capital investment decisions are highly risky, encouraging rather new thinking about allowing investors to reap more of the rewards of their investments.

The point is that if scarcity does re-emerge in access, prices and revenue should improve.
Post a Comment

Popular posts from this blog

Voice Usage and Texting Trends Headed in Opposite Directions

What to Do About Industry Challenges? "Take the Package," One Exec Quips

Verizon has a Brand Promise Problem