Are Access Networks Still a Source of Competitive Advantage?

Just how far might tier-one telcos be willing to go with dispositions of their home market access network assets? Lumen Technologies in the United States sold off about half of its access network assets, to deepen its focus on enterprise, wholesale and global connectivity services. 

That move is a classic asset disposition driven by a repositioning of capital from a declining business to others with higher expected growth. What is not so clear is the appetite for selling assets in a business still considered “core.” 

In some other markets, tier-one service providers including SingTel, BT, Telstra and Telecom New Zealand have voluntarily surrendered ownership or control of their access networks, often in exchange for rights to pursue perceived higher-growth lines of business. 

Telefonica might now be considering how to monetize at least part of its Spain home network, at least in part because there is high private equity interest in acquisitions of such infrastructure assets, and in part because Telefonica has been monetizing other assets to reduce debt. 

It might be worth noting that the private equity model is based on acquiring what are perceived as underperforming assets, repositioning those assets for higher returns, and then selling the assets, often with target holding times of six to seven years. 

All those moves do raise a question. 

Where does sustainable business advantage lie in the connectivity business? In other words, where are the potential sources of long-term advantage that competitors find hard to copy?

Widespread sales of tower assets suggests many mobile operators no longer consider tower ownership a source of competitive advantage. Fixed line operators have a possibly wider range of views. 

In out of home markets, the ability to lease capacity on a wholesale basis from a third party is routinely viewed as a reasonable alternative  to building and owning assets. 

In their home markets, ownership of access networks has typically been viewed as a key source of advantage, absolutely in the monopoly and relatively in the competitive era. 

But in markets where optical fiber access is supplied on a wholesale basis by one provider, with retailers able to rent access, ownership is not necessarily seen as vital. 

The point is that ownership of scarce access network assets traditionally has been viewed as a source of competitive advantage in the fixed networks business. In at least some cases, that view has changed.