In a Competitive Market, the Low Cost Provider Wins

One business lesson I learned in the cable TV business decades ago was that,  “in a competitive market, the low cost provider wins.”

It also helps when a business can create or discover entirely new sources of revenue as well. But operating costs, profit margins and capital investment burdens, do matter as well.

Right now, U.S. mobile operators are feeling pressure on all those fronts. Several have made huge investments in new spectrum, and new auctions are coming. The industry is in the midst of a price war and new competition seems to be coming.

All that also has put pressure on equity values. By some estimates, U.S. mobile operator equity values have dropped $45 billion between November 2014 and March 2015.

It is probably coincidence that the cost of new spectrum purchased in the AWS-3 auction was about $43 billion. The bigger issue has been the warnings by AT&T and Verizon that profits will be challenged in the early quarters of 2015.

So the eventual winners will have found ways to create big new revenue streams, maintain profit margins and cut costs.

In the absence of consolidation by the top four national providers (regulators seem unwilling to approve), contestants have to cope by considering losing market share to protect margins or sacrificing margins to gain share.

Some think a four-provider market would become much more stable with two “premium” suppliers--AT&T and Verizon--and two “value” suppliers Sprint and T-Mobile US.

But at least some fear the mobile operators might never recover investment costs, as network upgrades and spectrum purchases escalate.

AT&T’s Domain 2.0 program is one way to attack capital and operating costs by virtualizing the network.
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