Wednesday, May 11, 2016

Google Fiber Seems to be Sustainable

For many years a reasonable rule of thumb has been that a competent provider in the fixed network consumer communications services business could reasonably expect to get 30 percent market share within the first few years of operation.
That was true for cable TV operators getting into the voice business, for telcos getting into the linear video subscription business, and for telcos and cable TV providers getting into the Internet access business.
It now appears Google Fiber is getting to the 30 percent threshold in its first few markets. If so, then Google Fiber is a sustainable endeavor.
In the mobile business, similar rules of thumb suggest that any single mobile operator requires market share around 30 percent to sustain itself long term.

But there is a major caveat. All such analyses are based on current notions of capital investment and operating costs. Should capital or operating expense assumptions change dramatically, the conceivable market structure could also change dramatically.
In other words, under different assumptions about the cost of market entry, more competitors could survive. Equally plausibly, lower-cost competitors could imperil the existence of legacy providers.
One might note that the emergence of platforms using unlicensed spectrum, or shared spectrum, could change assumptions about the range of sustainable business models, as well as the viability of firms with high cost structures.

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