By 2025, the global telecom service provider industry is going to shrink from 800 firms to about 105, lead by just five global giants, according to Bell Labs. That is a reduction of 87 percent, by 2025.
James Sullivan, J.P. Morgan Securities managing director, argues that across Southeast Asia, it will be possible to support only a single mobile infrastructure on the revenues and profits likely to be available in the industry, long term.
The former suggests an absolute reduction in the number of retail providers; the latter suggests such an outcome is possible, but might still allow for some amount of non-facilities-based competition.
In either case, much will change. There will be less gross investment and less innovation, in all likelihood, from the traditional “telecom” access providers. There also is likely to be more innovation from non-traditional providers, in some cases on an alternate facilities basis.
One might well argue that innovation, under such circumstances, will be driven more by the non-traditional providers than telecom providers. There will be limits to how much any retailer can differentiate when the wholesale products are supplied on a common carrier basis (every retail customers gets the same features and services, at the same price, terms and conditions).
There are some other important issues. One has to assume that the reason for service provider consolidation is that profits will be increasingly impossible to earn. And that eventually will have huge implications across the ecosystem.
If those projections are close to accurate, big changes are coming, for service providers, network infrastructure suppliers and regulators.
For starters, one has to account for one or both forms of consolidation: an absolute reduction in the number of retail competitors and an absolute reduction in facilities providers.
It is possible to conceive of a fundamental industry pattern where, in most markets, there is a monopoly supplier of network services on a wholesale basis, plus multiple retail providers using those wholesale assets.
It also is possible to conceive of major changes in network investment patterns. Even if facilities do not automatically “go away” in the event of supplier consolidation, future upgrades will be made by one company, not several. In other words, where platform suppliers now sell to several customers in any one market, in the future they might sell to only one customer.
If you look at platform supplier industry dynamics over the past few decades, even as the number of retail competitors has grown, the supplier base has consolidated, so supplier industry dynamics are fairly easy to predict: more consolidation will come.
For regulators and policymakers, there are other implications. To the extent that consumer welfare depends on competition, mechanisms to stimulate competition still will be necessary, even as the business model becomes more difficult for contestants.
The other issues are how to maintain incentives for investment and encourage innovation. To be sure, a wholesale provider will have incentives to invest in features it believes its retail customers will pay for.
On the other hand, the chances for disruptive innovation arguably will lessen, as all retail service providers will have access to the same network features, at the same prices, at the same time, provisioned in the same manner.
There will be ramifications for spectrum management as well. Where today multiple contestants vy for new spectrum, that obviously could change if there is but one network services provider. That also should affect spectrum prices and therefore government revenues raised through the sale of spectrum.
Oddly enough, after a period of monopoly, then deregulation and competition, we might be heading for a new era where facilities-based competition is less common, where even the number of retail providers in any market is vastly reduced.
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