Friday, July 31, 2015

Myanmar to Test "Rule of Three"

That mobile and fixed network communications industries structurally are oligopolies might irritate many, but has proven to be an enduring foundation of communications industry dynamics globally, since the great wave of privatizations and competition began in the 1980s.
Some might argue that stable oligopolies are possible somewhere between two and four providers, with many arguing three strong contestants is the optimal sustainable outcome. That four or more providers exist in many markets is considered by many a “problem” in that regard, generally called the rule of three.

Most big markets eventually take a rather stable shape where a few firms at the top are difficult to dislodge.

Some call that the rule of three or four. Others think telecom markets could be stable, long term, with just three leading providers. The reasons are very simple.

In most cases, an industry structure becomes stable when three firms dominate a market, and when the market share pattern reaches a ratio of approximately 4:2:1.

A stable competitive market never has more than three significant competitors, the largest of which has no more than four times the market share of the smallest, according to the rule of three.

In other words, the market share of each contestant is half that of the next-largest provider, according to Bruce Henderson, founder of the Boston Consulting Group (BCG).

Those ratios also have been seen in a wide variety of industries tracked by the Marketing Science Institute and Profit Impact of Market Strategies (PIMS) database.

Myanmar aims to test the thesis.

Myanmar has formally invited proposals from local public companies to create a fourth mobile operator, in partnership with a foreign company. Myanmar also is planning to auction off additional spectrum.

The Rule of Three applies wherever competitive market forces are allowed to determine market structure with only minor regulatory and technological impediments. But there are some circumstances where market structure does not take that stable “rule of three” shape.

Regulatory policies hinder market consolidation or allow for the existence of “natural” monopolies.
Also, in some cases, major barriers to trade and foreign ownership of assets can have the same effect.

We shall see what happens, long term, in Myanmar. In other instances, four has proven to create an  unstable market. But instability can last for long periods of time, so the outcome cannot be predicted, yet.

In July 2015, Telenor had grown its subscribers to more than 10 million, while Ooredoo reported  3.3 million at the end of April, 2015.

Myanmar also is allocate more sub-1-GHz spectrum in the 700 MHz, 850 MHz, and 900 MHz bands.

As you would guess, as mobile adoption--especially of smartphones--grows, new demand will be created for subsea bandwidth to Myanmar.

As of the end of the first quarter of this year, mobile penetration in Myanmar stood at 25 percent,  up from less than 19 percent at the end of 2014.  

In a significant development, half of people buying a mobile phone buy a data plan, while 70 percent of all the phones sold are smartphones.

Myanmar  has about 30 Gbps of international bandwidth, with Telenor and Ooredo adding another 10 Gbps, and another order of magnitude to come over several years.

There are currently 3,000 mobile towers, but the country needs 15,000 to 20,000, and 25,000 km more transport facilities.

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