One sometimes hears it said that something” cannot be done.” A mobile market cannot support five providers on a sustainable basis; a fixed network market cannot support three or four leading suppliers. The minimum market share for sustaining operations is about 30 percent share.
We would do better to remember the unstated assumptions. A market cannot, “using present network platforms, with current cost structures,” support more than four providers in mobile, or three to four providers in the fixed business. But change the assumptions and other sustainable structures might be possible.
Two sets of numbers effectively capture present thinking about sustainable competition in communications markets. “Four or three” neatly captures the regulatory view of the minimum number of firms necessary to sustain effective competition in mobile markets.
LIkewise, “30 percent” often is viewed as a precondition for sustainable operation in a fixed or mobile network services market.
But there is a major caveat. All such analyses are based on current notions of capital investment and operating costs. Should capital or operating expense assumptions change dramatically, the conceivable market structure could also change dramatically.
In other words, under different assumptions about the cost of market entry, more competitors could survive. Equally plausibly, lower-cost competitors could imperil the existence of legacy providers.
One might note that the emergence of platforms using unlicensed spectrum, or shared spectrum, could change assumptions about the range of sustainable business models, as well as the viability of firms with high cost structures.
In other words, though for many years a reasonable rule of thumb has been that a competent provider in the fixed network consumer communications services business could reasonably expect to get 30 percent market share within the first few years of operation, that assumption is based on the expected cost of current platforms.
When any competitor, in any market, says “something cannot be done,” the generally-unsaid conditioners are that something cannot be done using the current technology and business models.
In other words, “it cannot be done” really means “we cannot do that, given our present resources, capabilities, business models and platforms.” If any provider can provide a solution using radically-different platforms, technologies, a new approach to market segmentation, revenue or cost models, then something generally considered “impossible” might well become possible.
The current rules of thumb are, in fact, grounded in unstated assumptions about network platforms and costs. The “rule” about a viable competitor getting 30 percent market share in a legacy market was true for cable TV operators getting into the voice business, for telcos getting into the linear video subscription business, and for telcos and cable TV providers getting into the Internet access business.
It now appears Google Fiber is getting to the 30 percent threshold in its first few markets. If so, then Google Fiber is a sustainable endeavor.
In the mobile business, similar rules of thumb suggest that any single mobile operator requires market share around 30 percent to sustain itself long term.
But those rules of thumb can change if embedded assumptions about network cost, revenue upside or operating costs are changed significantly.