How do you make money in power, transport and other such “infrastructure” industries? Most likely, by doing what you have to do most efficiently (i.e., at lowest cost).
The case I am interested in is that of telecom industry. Telecom industry is seeing commoditization of its services. Broadband connections, for example, compete on price per bytes moved. Only the most efficient bit-movers would win such a game. Voice operators compete on price per minute. While this seems a little more flexible than the price per byte owing to the fact that bytes required to carry a minute of voice may vary on quality of service and compression, it seems unlikely that operators aren’t already on efficient horizon in these technical aspects. Only mobile-VAS services seem to escape this price-per-unit of bandwidth paradigm. Mobile VAS in India has so far been a small percentage of operators’ revenues.
Does this mean telecom industry (has/was always/)will become a “infrastructure” industry with only cost-leadership positions being sustainable? Does this mean the operating-margins (EBITA) of companies like AirTel (37% in Q3-09) and Cisco (28% in FY-08) will show a downward trend, notwithstanding the unique positions and contexts these firms currently find themselves in? I’d like to see the views of my readers who, in my opinion, tend to be smart and well-informed.