Mobile data services clearly have been a product that compensates for lost voice and messaging revenues. But there are issues. It remains unclear whether mobile data can be monetized on a sustainable basis, as average revenue per account continues to fall. Granted, there is some increase in usage, or increases in speed, that could help offset the falling ARPU trend.

On the other hand, 5G infrastructure also is going to cost more than 4G or 3G networks cost, meaning there are additional pressures on the business model.

There also are going to be growing questions about whether spectrum rights actually create a sustainable advantage, as huge blocks of new millimeter wave spectrum are released, as new shared spectrum and more unlicensed spectrum are added. So in addition to vast increases in capacity, higher cost of networks, and margin pressures, at least some mobile operators could see new strains in their operating models.

For such reasons, at least some observers think “access” is a dwindling asset.

“Connectivity is not an asset,” said Alexey Reznikovich, Veon (VimpelCom) CEO. Few internet service providers, mobile operators or telcos likely agree, in a literal sense, since “access” and “subscriptions” literally are the foundation of the business and the specific role within the communications and internet ecosystems.

As difficult as it might now seem for telecom markets to support multiple providers on a long-term basis, prospects are likely to dim, longer term, especially for smaller operators in smaller markets. The basic argument: smaller markets will not tend to be places where new revenues from internet of things applications and services can be turned into service provider revenue.

That means more-expensive 5G networks, all other things being equal, will tend to depress profit margins, as services sold to human users will continue to feature lower average revenue per account (or user), over time. And though new revenues from IoT will appear, ARPU is likely to be even lower than for “human” accounts, per location or device.

That is only more more example of the challenge of avoiding a low-margin, dumb pipe role in the internet ecosystem.

 

So take the Reznikovich statements as slightly hyperbolic warnings to “add value” to the access business. Up to this point, that process of adding new value and revenue sources has worked. Fixed network voice was replaced by mobile voice; then mobile voice augmented by text messaging revenues. Later, maturing mobile voice and texting revenues were supplanted by mobile data services.

But Reznikovich raises a key issue: will mobile data actually drive profit? There are two angles. First, whether mobile data access services are–and can remain–profitable in their own right. The second question is whether service providers can create new roles in mobile apps and services, with value and revenue streams to match.

To break even in the long run, the operator’s revenues less avoidable costs must cover its sunk costs. The number of players in the industry will adjust in the long run to ensure this margin is realized.

The general observation is correct. In a capital-intensive industry such as the telecom business, only a relatively small number of firms can invest and still hope to wring a profit out of the venture. As a rule, that number is somewhere between two and three firms.

But market size matters. Larger markets can support more contestants, generally speaking. Markets where suppliers have more differentiation can support more contestants. Conversely, markets where price competition dominates might not support so many contestants. Also, in markets where competitors compete in the same geographies, there tend to be fewer sustainable opportunities.

If telecom access services no longer are thought of as being a “natural monopoly,” neither is the business capable of supporting many providers on a sustainable basis. Precisely “how many” providers are viable in any single market is the issue. In some markets, regulators believe a minimum of four providers is sustainable.

In other markets, many believe only three mobile providers can survive, plus perhaps some number of fixed network operators. In some markets, the present number of mobile suppliers is as few as two. In some markets, perhaps even two cannot be sustained long term, others would argue.