"Asset Light" Still Does Not Solve Big Problems in the Access Business

Many might lament that the access networks business would be a lot easier if only access networks did not cost so much.

So a reasonable and long-term argument can be made for divesting some fixed assets in the asset-heavy connectivity business, especially those that seemingly offer no business model advantages. Cell tower ownership is among those categories of things. Though essential for the mobile business, little strategic advantage can be gained from owning tower assets. 

At the other end of the spectrum, ownership of scarce fixed network assets has traditionally been deemed a source of business advantage. Such assets are quite expensive to replicate, and therefore form a competitive moat against new competitors. 

So business advantage, to the extent it can be created, then changes if an asset light approach is possible.

The paradox seems to be that the “asset light” approach works better for some business opportunities and entities than others. Asset light works fabulously for application providers, who then get access to potential users without the burden of investing in access networks. 

The problem is that the access business itself remains stubbornly dependent on capital-intensive networks, especially in the case of “fixed” services. Mobile businesses, based simply on the number of deployed infrastructures, are inherently more asset light than cabled networks. 

source: EY 

Of course, all that arguably changes when regulators decide to implement wholesale-based access regimes. By allowing network access, at mandated prices, to all retailers, the scarcity value of the access network is diminished, and advantage must be sought in other areas such as product packaging and marketing skill. 

Since the whole purpose of competition policy is to create supplier incentives to improve product quality and quantity while reducing retail prices, we might as well recognize that lower prices in the core access business are somewhat inevitable. The corollaries are pressures on gross revenue and profit margins as well. 

A competition policy that leads to higher prices, reduced quality and quantity would be deemed a failure. 

All that leads to constant pressure on firm leaders to seek new ways of reducing capital investment and operating costs. And many advocate an “asset light” approach that reduces need to invest in physical networks. 

McKinsey 

In practice, that has meant reliance on one wholesale network and retail competition all using the single network. The mobile virtual network operator business strategy likewise is built on leased access to existing networks. 

One might say this is akin to the “fabless” approach to the microchip businesses, where an entity designs a chipset, but then outsources its manufacturing to a third party. In that analogy, high value is earned by embedded intellectual property. 

The issue for access providers is that it is quite hard to create similar embedded value if relying on a wholesale access and asset-light approach. By definition, differentiation is hard to achieve when every competitor uses the same network, with the same capabilities, at common prices. 

So the “secret sauce,” to the extent it can be created, has to rest elsewhere. The search for enduring value “elsewhere” explains much access provider activity.