One of the most-enduring problems faced by communications regulators and service providers is the market structure of any access business. Regulators generally want more competitors, while service providers understandably prefer fewer.
This chart originally produced by the Federal Communications Commission shows why connectivity providers dislike competition: it directly reduces both gross revenue (market share) and profits (average revenue per user, for example). When there are just two competent competitors in a single market, potential market share is reduced from 100 percent to 50 percent.
Add one more competent provider and maximum theoretical market share (or take rate) drops to 33 percent or so. In any capital-intensive business--especially one that has high stranded asset risk--those “small” changes in market participants can dramatically shape sustainability.
At least traditionally, in fixed services markets where three anchor products are sold (voice, video, data), survival is possible when market share is at least 33 percent. At some point below that there are serious questions about profitability, and therefore long-term survival.
With fixed network voice and video revenues under pressure, internet access increasingly emerging as the anchor service for U.S. cable companies, while video entertainment seems poised to make the difference for telcos. Voice is declining in both segments of the access business.
Still, the chief determinant of revenue arguably is the number of competent competitors in the market, as that reduces potential upside the most.
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