Telecom Market Concentration is Not Related to "Lack of Competition" in a Linear Way

Capital intensive businesses with high sunk costs tend to be relatively concentrated. That is why most markets have one or two dominant fixed network providers.

That also is why most mobile markets have about three leading providers.

Whether policymakers can expect much more than that, on a sustainable basis, is the issue.

Most mobile markets are fairly concentrated, by typical measures. After looking at 36 markets, the typical pattern is three leading firms, according to analyst Chetan Sharma. At least 30 of those 36 markets would draw regulatory scrutiny, using the Herfindahl-Hirschman Index of market concentration.

Some would argue that level of concentration does not inevitably lead to lessened competition.

After comparing  market concentration, as measured by the Herfindahl-Hirschman Index (HHI),  the GSMA argues there is no statistically significant relationship between market concentration and prices.  

Also, capital intensive markets with few providers still can exhibit significant levels of price compeetition.

And economics at the Phoenix Center for Advanced Legal and Economic Policy argue that reasonable competition in markets such as fixed network services can occur with as few as two main providers in a market.

The GSMA also argues that "concentration" and "prices" are not related in a simple linear fashion.

The point is that policymakers have to work within the constraints of sustainable business models in capital-intensive industries with high fixed costs and significant competition.

Most such markets will not be able to sustain "more than a few" leading suppliers, over time.




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