Communications regulators typically try to achieve two contradictory goals: sufficient competition to improve consumer outcomes and sufficient incentives for suppliers to improve services. It is not an easy balance to achieve, as in many ways, success on one criteria causes failure on the other dimension. Competition acts to reduce retail prices. But reduced prices mean lower profit margins for suppliers. Excessive competition will lead to excessive reduction of profit, leading to firm extinction and a market that includes fewer providers. That tends to retard consumer benefit, in terms of prices, new products, higher quality and user experience. In other words, the outcome of robust competition is that stronger providers, with better offers, thrive, while less-effective competitors go out of business.

The trick is achieve balance: enough competition to spur investment, lower prices and better products, but enough profit margin so that suppliers are willing–or compelled–to invest, and keep prices in check. In the capital-intensive communications business, that tends to produce oligopoly markets, long term.

The issue is, in the internet era, with new platforms and contestants, how much can change. Some might argue that new technology or emergence of new ways of competing, plus new competitors, can reshape the traditional nature of the balance. It is fair to say almost everything is moving.

Legacy markets are shrinking, and might nearly disappear. Voice, messaging and capacity services provide examples. Voice alone once represented 80 percent of total revenues. Nobody thinks that can last. Messaging once drove profit margins. Nobody thinks that can last. Linear video, which has become an important growth market for some suppliers, also has become a product in the declining phase of its life cycle.

New suppliers are emerging, perhaps not as ubiquitous suppliers, but as suppliers able to succeed in many niches that collectively reduce the addressable market for the traditional tier-one providers. Over the top app replacements for voice, messaging and video provide key examples. In the internet access area, low earth orbit satellite constellations, fixed wireless, community-owned operations and big new access providers are emerging. Google Fiber, cable TV companies, village cooperatives and municipal ISPs provide some examples.

Partly in response, many now are working on ways to reduce the cost of access infrastructure, which will help ISPs better align revenue and cost. That will help. The issue is “how much.”


The point is that we have not yet reached the conclusion of a massive change in access provider economics, where businesses driven by supplying voice services, messaging, internet access and video have either made a transition to substitute revenue drivers or consolidated to a point where available revenue and profit level are clearly sustainable for the remaining number of providers.