In Business Model, Internet Access, Mobile

Competitive markets are different from monopoly markets in lots of ways, including the “cost” and “profit” of building different types of networks or the “cost” of identical networks. Consider this comparison by Ovum researchers of the relative costs of a new fiber-to-home network versus a new fixed wireless network using millimeter wave spectrum.

In an urban deployment, the fixed wireless network costs a bit more than a rival fiber-to-home network.

In a monopoly environment, all other things being equal, that would tend to tip any construction decision in favor of FTTH, since “cost per passing” and “cost per customer” often are directly related (for high-adoption services).

source: Ovum

But very-different decisions often are necessary in competitive markets where any single retail provider can expect to get half or less of available end user demand. Where total demand is 80 percent of locations, for example, two equally-skilled competitors might expect to get customers from 40 percent of locations.

Larger numbers of competent competitors will further reduce potential market share, and therefore increase the network “cost per customer.”

Where any single provider can get 40 percent take rates of locations passed, then cost per customer is more than double the “cost per passing” or “cost per connection.” When share is 33 percent, the cost per customer is triple the cost per passing.

So in a competitive environment, despite some issues, a fixed wireless network using millimeter wave spectrum should have a lower cost per customer than an FTTH network, as the stranded investment for the fixed wireless network is lower.

Where the FTTH network might have to generate a financial return based solely on revenues from the fixed network, the 5G fixed wireless network has revenue both from mobile and fixed services.

So in addition to economies of scale, the 5G fixed wireless network also benefits from economies of scope.

“Economies of scale” means lower unit costs possible because of customer mass or volume.  “Economies of scope” refers to efficiencies created by product variety, not single-product volume. The former provides the benefits of volume; the latter supplies benefits from product diversity.

The former is an advantage because of lower costs; the latter is an advantage because more types of products are sold. Monopoly electricity supply is an example of the former; a grocery store an example of the latter.

Connectivity businesses in competitive markets often are profitable or sustainable only because economies of scope are possible.

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