Consolidation is not a new trend in the global connectivity business. Indeed, in competitive and mature markets, such mergers are virtually inevitable.
In substantial part, those changes are driven by different charging models. The voice business, which once drove industry revenues, was based on a charging system built on usage: “the more you use the more you pay.”That is helpful in the sense that when demand grows, so does revenue.
The new business model built on data usage is different. There still is a usage component to the charging system. Customers can purchase usage rights that vary by quantity. But two other trends also matter: “unlimited usage for a fixed price” and “much-lower unit prices.”
The former severs the link between usage and revenue while the latter means higher usage does not produce comparable incremental revenue. One can see this in the fact that average prices paid for internet access service have remained stable--or fallen--even as usage has doubled every two years.
As this graph illustrates, mobile data supply has grown by an order of magnitude about every four to 10 years since 1985.
Customer data demand arguably has grown faster than that rate of spectrum increase. That networks have not saturated is because mobile operators have other tools to increase capacity, beyond adding new spectrum. They can use smaller cells, different radio technologies, better coding and modulation.
Still, the business issue is that it is hard to increase revenue as fast as network supply has to be boosted. To make the business case work, the cost per bit has to keep dropping. That is partly a technology platform issue and partly a capital investment and operating cost issue.
One reasons consolidation will continue to make sense is that it can help mobile operators reduce capex and opex, while boosting spectrum assets.
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