Many “utility” or “infrastructure” industries are regulated as natural monopolies, with one sanctioned provider in any area, and rates controlled by law. Fixed network communications used to be regulated that way, but now is less-regulated and generally operates without formal price controls or monopoly-style market entry limitations.
The argument for deregulation has been that competition would produce better prices for consumers. In the case of telecommunications, it also has been believed that more innovation also would result.
It is hard, after several decades of experience, to argue with either of the two main expectations. Consumer prices are generally far lower, and there has been far more innovation, with one caveat: most of the application innovation has not come directly from service providers but third parties able to use those networks.
For that reason, any evaluation of innovation has to include not only deregulation and privatization but also the fundamental shift to “the internet”as the driving force for innovation.
And while executives in the mobile and internet access industries might be forgiven their belief that their profit margins are too low, requiring additional support in the form of “fair share” funding of access networks by a handful of app and content providers, are unusually low profit margins a reality?
Depending on the sample size (all providers or only tier-one; all countries globally or only in a single country), profit margin rankings for infrastructure industries might show mobile and fixed telecoms at the top of the list or among the top industries ranked.
Almost alone (commercial airline industry is the other main exception) among “utility” type industries, mobile and fixed telecommunications have profit margins significantly higher than most other utility-type industries, with energy suppliers at the top of the list, in general.
In other words, it might not be the case that connectivity service providers experience profit margins that are sub-optimal compared to those of regulated natural monopolies, which was the case for fixed communications historically.
Mobile communications, in contrast, have never been regulated as natural monopolies. The higher profit margins in mobility might be explained for many reasons other than regulatory treatment, however. Some 75 percent or more of global connectivity revenues are produced by mobile services.
So displacement of fixed services, huge growth of the subscriber base and a different cost structure have favored the mobile segment for decades.
But telecom executives prefer to compare themselves to internet app suppliers, which often have growth profiles and profit margin characteristics quite different from that of any utility providers.
But margins across the internet ecosystem vary quite a bit, from the 20 percent to 30 percent margins a search firm might command, to the low margins most chip suppliers and content firms command, in general.
As always, differences between firms in any single industry can have a higher dispersion than differences between industries.
The point is that although profit margins in the mobile and fixed telecom industry are fairly low, they are higher than found in most other utility-type industries, generally speaking. Application providers always seem to have the highest profit margins among participants in the internet value chain.
All complaints aside, mobile and fixed access provider businesses seemingly are more profitable than many other types of network or utility businesses, and more profitable than some other parts of the internet value chain, including content, which is unpredictable and varies show by show.
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