Rapid Technology Cycles in Mobile Business Will Lead to Consolidation

It would not be unusual for any executive in a capital-intensive and highly-competitive industry to worry about rapid market changes that drive technology obsolescence, necessitating additional rounds of investment.

So some might point to the Indian mobile market, where the standard has been 2G, with relatively-slight investments in 3G, disrupted by a huge shift to 4G that essentially meant a leapfrogging of 3G.

Now operators confront coming 5G platforms just over the horizon, as well. Even before the capital investment hurdles become ruinous because of intensifying technology requirements, competition is driving smaller operators out of the market.

To support higher levels of investment, operators will need more scale, especially if payback periods are shorter than desired.

The other issue is a possible change in formerly-linear relationships between investment and revenue. You might argue that, in the voice era, additional usage brought incremental revenue at levels which were roughly in balance with the additional investment.

Some might argue that formula breaks down in the internet era, where investments in additional capacity do not produce anywhere near linear increases in incremental revenue. The net result is a process of consolidation that has multiple drivers (competition, capital intensity related to spectrum and network platform, faster pace of required investment).

All those trends tend to increase needs for scale, which is driving operator consolidation. More markets, aside from India, might face similar pressures, if not because competition is especially intense, then because the 5G upgrade cycle might be coming so soon after the 4G deployment.

Also, there is the nagging issue of wringing revenue out of mobile data services where increased usage does not grow revenue as fast as the consumption is boosted. That, simply stated, is why internet of things is so important. Such new services might well be the only way to sustain revenue growth.

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