"Telecom" is No Longer Seen as a "Natural Monopoly," But Might Some View it as a Functional Monopoly?

Before the 1980s, global telecom regulators universally considered telecommunications to be a “natural monopoly.” 

Nobody uses the term anymore, as it is obvious connectivity services are not a “natural” monopoly. In most countries, an oligopoly tends to exist at the top of the market, though there can be hundreds to thousands of smaller contestants in large continental markets. 

On the other hand, in some markets, we might find policymakers concluding that access services ("telecommunications") is a functional monopoly, if not necessarily "natural."

In the monopoly era, the owner and operator often was a national government. Then began a worldwide shift to deregulation and privatization as a prelude to allowing more competition in formerly-restricted monopoly telecommunications. Often that takes the form of promoting wholesale arrangements that allow retailers to use a single national network. 

Relatively fewer countries have seen significant fixed network competition based on alternate facilities, but facilities-based competition has been the norm for mobile services.

New wireless licenses issued to many smaller firms will be cited as potential new sources of competition as well, since most connectivity services competition has occurred on the mobile networks. 

Of course, access services remain a scale game. There is no contradiction between services provided by hundreds of small firms with small customer bases and domination of the market by three to four providers. 

But several decades of competition at scale have produced a business where profits are hard to come by, while heavy capital investment, if anything, seems to be increasing. The near-term result has been waves of consolidation and a market structure that is oligopolistic.

There always are at least three sets of opinions  in that regard. Some believe monopoly is the ultimate outcome, as fixed networks will simply be too expensive, with too little revenue, in a facilities-based competitive scenario. 

Some who view facilities monopoly as inevitable therefore argument for a robust wholesale monopoly to support retail competition using the one network. 

Others argue  that a duopoly based on facilities ownership might be the best sustainable outcome, and might produce more innovation than a wholesale approach. By definition, in a wholesale-only framework, the capabilities of the network can be purchased by all retailers, at prices that are differentiated only by possible volume discounts. 

Competitive differentiation then mostly occurs when contestants bundle other non-access services or can leverage some operational or marketing advantage. 

Perhaps the easiest way to illustrate that potential is note that telcos using fiber-to-home; cable operators using hybrid fiber coax and mobile operators using distinct physical platforms can create services aimed at different market segments and customers precisely because their platforms are distinct in terms of cost and capabilities. 

So the issue is how much consolidation will happen, and at what point--if at all--supply and demand in the connectivity business are at equilibrium. In other words, what structure will emerge that allows service providers to sustain themselves with adequate profit levels, while still ensuring the benefits of competition for consumers of those services?

If access services are not a "natural monopoly," might they be oligopolies in most cases (mobile and fixed providers able to sustain themselves)? Still, in some cases, policymakers might conclude that either mobility or fixed services are better supported by a monopoly provider, albeit with strong wholesale arrangements.

That might especially be the case in markets where new services beyond bandwidth are likely to be big opportunities.