"Asset Light" Still Does Not Solve Big Problems in the Access Business

Many might lament that the access networks business would be a lot easier if only access networks did not cost so much.

So a reasonable and long-term argument can be made for divesting some fixed assets in the asset-heavy connectivity business, especially those that seemingly offer no business model advantages. Cell tower ownership is among those categories of things. Though essential for the mobile business, little strategic advantage can be gained from owning tower assets. 

At the other end of the spectrum, ownership of scarce fixed network assets has traditionally been deemed a source of business advantage. Such assets are quite expensive to replicate, and therefore form a competitive moat against new competitors. 

So business advantage, to the extent it can be created, then changes if an asset light approach is possible.

The paradox seems to be that the “asset light” approach works better for some business opportunities and entities than others. Asset light works fabulously for application providers, who then get access to potential users without the burden of investing in access networks. 

The problem is that the access business itself remains stubbornly dependent on capital-intensive networks, especially in the case of “fixed” services. Mobile businesses, based simply on the number of deployed infrastructures, are inherently more asset light than cabled networks. 

source: EY 

Of course, all that arguably changes when regulators decide to implement wholesale-based access regimes. By allowing network access, at mandated prices, to all retailers, the scarcity value of the access network is diminished, and advantage must be sought in other areas such as product packaging and marketing skill. 

Since the whole purpose of competition policy is to create supplier incentives to improve product quality and quantity while reducing retail prices, we might as well recognize that lower prices in the core access business are somewhat inevitable. The corollaries are pressures on gross revenue and profit margins as well. 

A competition policy that leads to higher prices, reduced quality and quantity would be deemed a failure. 

All that leads to constant pressure on firm leaders to seek new ways of reducing capital investment and operating costs. And many advocate an “asset light” approach that reduces need to invest in physical networks. 

McKinsey 

In practice, that has meant reliance on one wholesale network and retail competition all using the single network. The mobile virtual network operator business strategy likewise is built on leased access to existing networks. 

One might say this is akin to the “fabless” approach to the microchip businesses, where an entity designs a chipset, but then outsources its manufacturing to a third party. In that analogy, high value is earned by embedded intellectual property. 

The issue for access providers is that it is quite hard to create similar embedded value if relying on a wholesale access and asset-light approach. By definition, differentiation is hard to achieve when every competitor uses the same network, with the same capabilities, at common prices. 

So the “secret sauce,” to the extent it can be created, has to rest elsewhere. The search for enduring value “elsewhere” explains much access provider activity.

How Much More Can Tier-One Connectivity Suppliers Become Asset Light?

Occasionally over the last few decades, it has been proposed that telcos consider ways to become asset light operators. That advice--to monetize assets--continues to be offered. The issue is what portions of the infrastructure can be spun off or sold. 

In the U.S. market, asset light was recommended for competitive local exchange carriers, at one time able to buy “unbundled network element-provisioned” wholesale services at as much as a 40-percent discount to retail prices. 

In many international markets, mobile virtual network operators are a less-risky way to enter a new market. 

In Europe and other markets, bitstream and other forms of unbundled local loop access have been created to allow asset-light wholesale entry into the telecom market. 

From time to time, observers have speculated on the degree to which it might be possible for new competitors to use unlicensed spectrum assets such as Wi-Fi to create competition for mobile or fixed internet access. At the very least, cable operators and outfits such as Fon argue that a shared Wi-Fi network allows offloading of local mobile phone traffic, thus reducing purchases of wholesale mobile connectivity. 

In specialized areas, such as cell tower facilities, many mobile operators have concluded that sharing the cost of base stations with competitors or selling such assets (with leaseback) is a way to unlock value while becoming a bit more asset light. 

The new issue is whether it is possible to unbundle even more elements of a connectivity provider’s asset base, such as optical fiber facilities serving business customers. Attice, for example, recently sold 49.99 percent of its  Lightpath fiber enterprise business to Morgan Stanley Infrastructure Partners. 

Others have suggested that CenturyLink sell its optical network assets, or at least separate the consumer from the enterprise business. Right now, the enterprise part of CenturyLink accounts for 75 percent of revenue, the consumer business just 25 percent. 

source: S&P Global

Some assets are easier to separate than others. Cell towers and data centers are discrete assets many telcos have divested. In principle, the wide area networks could possibly be divested, though owner’s economics would still be an argument in favor of retaining that portion of their networks. As always is the case, volume improves the economics of owning assets. 

In principle, other new assets, such as small cell installations or backhaul facilities, might be candidates for infrastructure sharing, especially when it is possible to separate the value of facilities from the use of those capabilities to support the core customer experience. 

The issue is whether some operators might become so good at creating and monetizing intangible assets that they can risk shifting in the direction of asset-light or non-facilities-based operations on a wider scale. Few tier-one telcos have felt it was wise to divest access networks.

Access network assets remain quite scarce and therefore valuable in most markets and arguably are the hardest parts of the infrastructure to consider divesting. 

“If telcos do not reconfigure their value chains, other parties may step in, as disaggregated telco assets are being valued differently,” consultants at Arthur D. Little have argued. The problem is that creating more value remains a huge challenge, as the ability to enter new parts of the value chain, though risky for any participant, is asymmetrical. 

Connectivity represents about 17 percent of the revenue earned annually by firms in the internet value chain. The bad news is that connectivity share is dropping.

"Smart Cities" Benefits Likely Will be Smaller than Projected

Asset-light business models such as Uber and Lyft are about monetizing dark vehicle assets. Airbnb perhaps is about monetizing dark room and lodging assets, also using an asset-light approach.

Wi-Fi often is an asset-light approach to mobile device access. Netlfix might be considered an asset light approach to video entertainment, at least in terms of access assets.

In other cases, big data and Internet of Things networks aim to enable more efficient use of in-use assets.

Arguably, the most-powerful trends happen when multiple values can be realized, such as combining dark assets with asset-light business models with peer-to-peer transactions and “leasing rather than owning” consumption patterns.

All those potential changes in business models should eventually affect prospects for many proposed Internet of Things services, such as “smart parking.” If vehicle ownership declines as much as some expect, there will be less demand for urban area parking, and therefore less value and demand for smart parking services.

In other words, all currently-projected markets essentially extrapolate from existing conditions. But those conditions will change as IoT and IoT-assisted ecosystems change.

Similarly, smarter transportation systems that allow users to evaluate transportation options in real time will reduce the amount of vehicle congestion the smart systems aim to solve.

Where it comes to the impact of IoT systems, feedback loops will operate, changing the context even as the systems come online. In other words, non-linearity will be a key aspect of future IoT systems. In the process of solving specific problems, the magnitude of the actual problems will diminish.

That likely will mean the expected benefits will be smaller than forecast.

How AI Could Affect Your Investing Strategies

If you are active as an investor, you've had to spend at least some time evaluating where and how to participate in artificial intelligence: what to buy, what to avoid, and your reasons for doing so. And some of the implications are a bit startling for our thinking about computing-related hardware and software.

Generative AI might turn some computing “principles” upside down, while sustaining others. We have in recent decades seen software produce more value than hardware. In place of asset-light software, we might see value created in greater amounts by capital-intensive physical infrastructure. 

Examples might include compute “as a service” providers; power providers; fiber networks and cooling solution providers. Returns might flow to a smaller number of suppliers able to afford the huge investments in capital-intensive, long-lived physical facilities underpinning AI compute operations. 

Asset-light software might produce less value. Contrary to the recent “software eats the world” model, AI rewards scale and capital access. 

And where value has been created by asset-light, fast-moving small teams, AI should favor larger providers with enough scale to navigate markets that are highly-regulated. 

Regulatory compliance and trust barriers will tend to protect incumbents with scale. 

Likewise, we might see a shift in acquisition value. Where merger and acquisition activity recently has been about “acquiring talent,” AI might force something of a shift to “acquiring assets.”

That might include sources of proprietary data, distribution capabilities and relationships or compute infrastructure and energy resources, rather than teams of people. So the “aqui-hire” strategy might have to be revised. 

On the other hand, generative AI might support the current value of “distribution” or direct customer relationships. Much as distribution became more important once the cost of creating content dropped (social or legacy media), so, as content creation increasingly has a marginal cost of production near zero, 

audience control captures value.

Much of the impact of computerization in general, and AI in specific, has been to emphasize value creation underpinned by scarcity, on one hand, and by scale on the other hand. This sort of “high and low” or “barbell” source of value squeezes out the middle (good but not great; too much labor to fully automate, not enough brand equity to command premium pricing). 

But, in some cases, the changes will be dramatic. Where business strategy, until recently, was to “move up the stack” from lower levels to higher, the reverse could happen, in some instances. 

Value and competitive moats might be created “down the stack” in infrastructure, rather than “up the stack” in apps. “Asset ownership” might produce more value than “asset-light” business models. 

Value also might hinge, in some cases, on better applied judgment (figuring out the better models, sources of value and sources of scarcity (data, distribution, regulatory barriers). In at least some cases, that might mean a revenue model based on outcomes or performance. 

Industry	Value Chain Role	Judgment Being Scaled	Why It Wins	Likely Monetization
Professional services (legal, accounting, consulting)	Senior advisory / opinion layer	Risk tradeoffs, precedent weighting, strategic advice	Execution automates; clients still pay for responsibility	Outcome fees, retainers, premium advisory
Healthcare	Diagnostics , treatment planning	Pattern recognition + clinical judgment	AI assists, but liability and trust anchor value	Per-decision, subscription to clinicians
Finance / Investing	Portfolio construction, risk oversight	Capital allocation under uncertainty	Alpha = judgment, not data volume	Assets under management fees, performance fees
Insurance	Underwriting, pricing	Risk selection and exclusion	Better judgment = structural margin advantage	Loss-ratio-driven profits
Cybersecurity	Threat prioritization , response	Signal vs noise discrimination	Attack volume explodes; prioritization is scarce	Platform + premium response services
Media, content	Editorial direction / curation	What matters, what to ignore	Abundance makes selection valuable	Subscriptions, sponsorships
Education	Curriculum design, assessment	What to learn, in what order, and why	Content cheap; sequencing is hard	Tuition, cohort-based pricing
Supply chain, logistics	Network design, exception handling	Tradeoffs between cost, speed, resilience	Automation fails at edge cases	Optimization-based pricing
Enterprise IT	Architecture, systems integration	Tradeoffs across cost, security, flexibility	Complexity increases with AI	Long-term contracts
Telecom / connectivity	Network planning, traffic engineering	Capacity allocation under uncertainty	AI drives demand volatility	Regulated or contract pricing
Energy, utilities	Grid management, load balancing	Reliability vs cost vs emissions	Errors are catastrophic	Regulated returns
Marketing, growth	Strategy, budget allocation	Channel mix, attribution judgment	Content automates; spend decisions don’t	Performance-based fees
E-commerce, retail	Merchandising, pricing strategy	Demand forecasting, margin tradeoffs	SKU explosion increases complexity	Margin expansion
Manufacturing	Process optimization, quality control	Yield vs throughput tradeoffs	AI reduces waste; judgment prevents failure	Cost savings share
Real estate, infrastructure	Capital allocation , siting	Location and timing decisions	Long-lived assets amplify good judgment	Asset appreciation
Regulatory, compliance	Policy interpretation, enforcement	Ambiguity resolution	Rules expand faster than clarity	Subscription + advisory