Ever-declining price per unit is a common lament in the connectivity business. What we sometimes forget is that similar price drops--often of greater magnitude--also happen in computing hardware, software and services as well.
The salient difference might be that in the computing hardware business, fast retail price declines are offset by equally-dramatic shrinkage of underlying cost of creating those capabilities.
Over the last two decades, software costs also have arguably begun to decline at faster rates as well, in part because of the shift to X as a service and cloud computing. Even there, the total cost of ownership can vary over time based on volume. At scale, private cloud might be less costly than public cloud, for example.
Still, services, software, content and communications are subject to the costs of coding, acting, writing and producing those products.
The amount of non-computing inputs are less subject to the reduction of simple computing or storage costs. Up to 80 percent of the cost of communications is related to the cost of building and upgrading network facilities, for example. And construction costs are only slightly affected by Moore’s Law improvements.
The point is that lower retail unit costs, over time, drive profit margins and gross revenues in most parts of the internet ecosystem. The salient exception is content.
The difference is that communications unit costs do not improve as much, with scale, as do other digital products. Cost pressures are an issue for managements in every business and industry. But hyperscalers are able to reduce costs with scale in a way that connectivity providers find much more difficult.
So it is not so much the declining unit cost, but the inability to scale that causes connectivity providers more pain. Applications, content or other cloud-based services that are inherently global have a clear advantage there, compared to geographically-bound telcos and access providers.
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