Four or Three or Just Two? What Mobile Market Structure is Sustainable, Long Term?

Despite unclear evidence that a typical mobile market can sustain four major providers over time, many regulators continue to insist that a minimum of four mobile operators is necessary to obtain the benefits of competition. Whether that number of providers also can drive investment is the question.

Singapore, for example, has just licensed a fourth mobile operator. China has done so as well, authorizing a broadcasting and cable TV entity to enter the mobile services market. Japan and Korea both have tried unsuccessfully to entice a fourth operator into their markets.

Oddly, it has not yet been conclusively demonstrated that any mobile market can sustain more than two operators,  long term, with current industry cost structures.

Globally, profitability of operations for individual players correlates strongly with in-market scale measured by achieved revenue market share, McKinsey notes. And that is where the problem surfaces.

Sustaining an EBITDA margin of 30 percent can be considered a minimum proxy value for achieving capital returns above the weighted cost of capital, McKinsey says.

Entrants unable to capture a significant revenue share of their market--more than 25 percent-- will be unlikely to achieve EBITDA margins above 30 percent.

There are few--if any--markets where even three providers are able to boast market share of 25 percent or more.

That implies a sustainable long-term structure featuring just two providers. In other words, all debate about whether “three or four” mobile operators is the minimum essential to support competition might ultimately prove moot.

source: McKinsey

There is an important caveat, however. If, somehow, the average cost of creating a mobile business should change in an important way, reducing especially infrastructure capital investment and operating costs, then it is possible sustainable market structures could change.

It might be possible, long term, for more than two major suppliers to be profitable. But that might hinge on major changes in capital requirements and operating cost. That is why all developments in network virtualization, access to shared and unlicensed spectrum, and networks based on use of unlicensed and shared spectrum, are important.

Such developments can change the industry cost profile.