Mobile Cost per Gigabyte is Low, But so are Profit Margins

Cheap computing, storage and communications are basic assumptions upon which products and business models are built these days. Our ability to commercialize millimeter wave spectrum for mass market communications hinges on the cost of signal processing, for example. Before the advent of cheap signal processing, millimeter wave communications could not be used for mass market access networks because the signals would not travel far enough to be useful. 

source: Value Walk 

The same trend has been evident in storage for some time, as prices approach zero. 

source: BlackRock

source: Human Progress

The issue for retail service providers is how to sustain a business model, when, in some cases, it can be argued that the cost of supplying a gigabyte of usage is less than the revenue generated by supplying it. 

One analysis of firm profits conducted by Aswath Damodaran of New York University suggests mobile operator net profit margins are less than one percent. 

Axiata Malaysia says “every gigabyte costs about $1.40 to manufacture…generates only 80 cents in revenue…The 2G voice business currently funds any losses” – that’s not a long term sustainable model, is it?

One might make similar observations for the revenue generated by voice and messaging. That, simply, is why many believe access providers must move into additional roles and segments of the internet ecosystem, as hard as that might be, despite the risk and cost. 

It is worth noting that net profit margins in the retail grocery business are 1.44 percent, according to Damodaran. Mobile services might have slimmer margins than the notoriously thin-margin grocery business.