Will 5G Small Cell Needs Reshape Mobile Market Share?

As Benoit Felten notes, the need for fronthaul and backhaul optical fiber assets could change the mobile operator competitive landscape. For initial 5G deployments in dense urban areas, there is relatively little competitive impact. But as small cells get deployed ubiquitously, mobile operators with dense fiber assets start to gain advantage.

“In a nutshell, free market 5G, if left to develop with no regulatory intervention, will lead to diminished competition in the mobile market, the reinforcement of the market power of the incumbent, and a widened digital divide,” says Felten.

Those sorts of questions have grown in recent years, leading to wider speculation about whether significant parts of the global telecom business headed back to monopoly.

In many markets, there is too much competition, many assert, especially as subscription growth slows to a crawl and average revenue per account continues to drop. Some of that margin pressure grows directly from competition. But pressure also occurs because service providers no longer sell their products on a direct usage basis, where one unit of extra consumption produces some quantifiable incremental revenue.

That is one direct result of the shift to unlimited data usage or buckets of usage plans, as well as the increasing reliance on data access as the primary driver of revenue. The implications are stark: service providers cannot assume that incremental increases in investment will be matched at the same rate by new revenues. And that leads to the conclusion that the number of tier-one competitors globally will shrink in coming decades.

Could there really be a radical 85 percent reduction in tier-one and tier-two firms globally? Is bankruptcy a real danger in coming decades? Yes, many now argue.

Consolidation lies ahead for most telcos in Asia, according to J.P. Morgan, and possibly for most telcos globally, according to Nokia Bell Labs.

Where there now are 810 telecom service providers, there will be but 105 by 2025, says Bell Labs. That consolidation of about 87 percent in seven or eight years would be beyond comprehension, for most of us, and would be an apocalypse for most in the industry.

Capgemini calls an era of massive consolidation  on a “spectacular” level. Consider only the impact of 5G small cells on potential supplier fortunes. As Felten rightly notes, ownership of dense fiber networks has strategic value if 5G small cells are required to be relatively ubiquitous across metro areas.

AT&T and Verizon own both mobile and fixed network assets; Sprint and T-Mobile US do not. CenturyLink has lots of fixed network, but no mobile network. Neither do Comcast and Charter. Eventually, firms with both mobile and dense fiber assets will gain an advantage.

And that might be true even when U.S. mobile market consolidation happens. Much depends on how the mergers happen. Today, U.S.  market competition is lead by six to nine major firms.

The big question--if ownership of dense fiber networks grows in importance, is how the combinations happen: will ownership of both mobile and fixed assets become the broad pattern, or is sustainable competition possible without it?

Will tier-one competition in the U.S. market shrink by half? And if so, what patterns emerge for those surviving leaders? Fixed network asset ownership is one important part of the puzzle.