Does the Telecom Industry Really Need "Fair Share" Support?

Executives in the mobile and internet access industries might be forgiven their belief that 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. 

One might argue profit margin issues are primarily caused by the competitive and formally deregulated status of telecommunications, but that might not be the case. 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. 

Industry	Profit Margin (%)	Regulatory Framework	Degree of Competition
Natural Gas	10-15	Natural Monopoly	Low
Electricity	8-12	Natural Monopoly	Low
Mobile Telecommunications	5-8	Competitive	High
Fixed Telecommunications	3-5	Competitive	Medium
Wastewater	2-4	Natural Monopoly	Low
Fresh Water	1-3	Natural Monopoly	Low
Airports	1-3	Natural Monopoly	Medium
Seaports	1-3	Natural Monopoly	Medium
Commercial airlines	0-2	Competitive	High
Roads	0-1	Natural Monopoly	Low

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. 

Industry	Profit Margin
Content	6-7%
Internet commerce	5-10%
Computing Hardware	4-5%
System integration	3-5%
Chip suppliers	20%
Search firms	20-30%
Social media	15-20%
Software	10-20%
Advertising	10-15%

As always, differences between firms in any single industry can have a higher dispersion than differences between industries. 

Industry	Typical Industry Profit Margin	Range of Margins Within Industry
Chip Suppliers	10-15%	5-20%
Software	10-15%	5-20%
Hardware	5-10%	2-15%
Data Centers	10-20%	5-30%
Content	0-1%	0-5%
System Integration	3-5%	1-10%
Advertising	10-15%	5-20%
Internet Commerce	5-10%	2-15%
Social Media	15-20%	10-30%
Search Firms	20-30%	15-40%

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.