"Winning" is Not What It Used to Be

What does “winning” look like for telco internet access? In the monopoly era, this was no question at all. In the competitive era, maximum feasible market share is something else, entirely.

And that underpins nearly all business models. In the monopoly era, a network could be built on the safe assumption that upwards of 95 percent of locations passed would generate revenue.

In the competitive era, it is doubtful whether maximum possible success ever leads to market share more than 45 percent. In other words, no matter how good a service provider is, or how powerful its value proposition, more than half of all locations will not generate any revenue.

Rough implication: the cost of building a network, “per customer,” doubles.

In Singapore, SingTel, the leader, had 44 percent market share in 2014.

In Nigeria, MTN, the market share leader in 2017, had 39 percent share.

The clear implication is that no service provider, anymore, can build a network and assume it will get much more than about 40 percent to 45 percent market share, at best. In other words, more than half of capital investment in the access network will routinely be stranded.

Operating costs “per customer account” might be as much as double what they might have been if market share were closer to 95 percent.

All that constrains our notions of what “success” looks like. For no matter how much a contestant invests, it cannot reasonably expect to achieve much better than 40 percent to 45 percent market share.

That necessarily raises the danger of “over-investment” in facilities and features that will not provide an adequate financial return.

Consider a U.S. telco modeling a gigabit internet access rollout. Assume that telco has present market share of 35 percent to 40 percent. How much better can it do, if it upgrades to gigabit access?

In all too many cases, the answer is “a few points of market share.”

Consider Cincinnati Bell, which is in the process of upgrading to fiber-to-home across its service territory. “Our results demonstrate that we continue to compete and win against cable with fiber,” said Leigh Fox, Cincinnati Bell CEO.

“Competing” in this case means having 40 percent market share, and gaining about three share points in the year.

Since its main competitor Charter Communications, is in the midst of its own upgrade to gigabit speeds, the issue is how much more share Cincinnati Bell actually can take. The worst case answer might be “not much more.”

The best case answer might be 10 share points, to reach something like a 50-50 split of the market, until and unless other competitors enter the market. In that case, Charter and Cincinnati Bell might see something like a 40-40-20 or 45-45-10 share pattern, as a reasonable expectation of “winning.”

Winning is not what it used to be.


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