Some mathematical ratios reoccur so often they are applied in nature and business. Fibonacci provides an example. “The Fibonacci sequence is a famous group of numbers beginning with 0 and 1 in which each number is the sum of the two before it. It begins 0, 1, 1, 2, 3, 5, 8, 13, 21 and continues infinitely,” Smithsonian magazine says.
Fibonacci sequences drive the Golden Ratio which applies to mollusk shells, sunflower florets, and rose petals to the shape of the galaxy. In financial markets Fibonacci is used by technical traders.
“If you divide the female bees by the male bees in any given hive, you will get a number near 1.618,” notes Investopedia. “The golden ratio also appears in the arts and rectangles whose dimensions are based on the golden ratio appear at the Parthenon in Athens and the Great Pyramid in Giza.”
Others note Fibonacci sequences also apply to human anatomy.
The Pareto theorem also occurs often in life and business. Most of us are familiar with the 80/20 rule, which suggests that roughly 80 percent of value or outcomes are generated by about 20 percent of actions. Formally, it is the Pareto theorem.
We also tend to see Pareto distributions in global connectivity provider revenue, though the pattern is clearer when looking at net profit rather than gross revenue, for example. As a rule, profits are driven by business accounts rather than consumer accounts, for example; urban areas rather than rural areas; dense parts of cities more than suburbs; some product lines rather than others.
The traditional rule for fixed networks is that service providers made money in urban areas; broke even in the suburbs and lost money in rural areas. That arguably remains true for mobile networks as well.
If usage is a measure of implied profit, then mobile operators might earn as much as half their “revenue” from about 10 percent of sites. Perhaps a total of 30 percent of all cell sites handle 80 percent of traffic, and hence, revenue.
Another way to think about it is any single user’s usage. For any single user, perhaps half of all usage occurs in just one macrocell. About 80 percent of usage happens in three cells. About 20 percent of usage happens in 28 additional cells. Again, we see a Pareto style distribution: just four cells handle 80 percent of any single user’s traffic.
One way of possibly using Pareto is ownership of cell sites versus leasing capacity. A competitive supplier--such as a cable operator--might conclude it is best to own the sites where half to 80 percent of usage happens. That might include the home coverage and work site coverage, which are fixed usage locations.
That is especially true if a cable operator can use its own existing network to support such cell sites. For the 20 percent of usage that happens when people are out and about, it makes sense simply to buy wholesale capacity.
All service providers essentially try to do this when segmenting their customer bases. If most of the profit comes from one or just a few customer segments, it makes sense to focus on those segments. The segmentation can be geographic, customer type, customer volume; product line or demographic or psychographic.
The point is simply that mathematical patterns exist in the business.
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