Is Telecom Infrastructure?

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.

2 thoughts on “Is Telecom Infrastructure?

  1. Hi Rajesh

    Good to read your views on Telecom. Telecom is certainly a infra with number of services taking the commodity route. However Telecom operators continue to innovate and bring in new services to improve their value prop.


  2. @Lalit

    Thanks Lalit for reading and for your comment.

    As an end user, I haven’t seen any innovation which breaks the paradigm of pay-per-byte except for mobile VAS. These include SMS ticket booking, dialtones, ringtone and such. The revenue from these seems low, although profitability is high.

    ALU strategy of exposing service provider capabilities of SPs as APIs seems like a neat idea. I suspect problems will arise from security considerations of SPs and the bureaucracy. For example, if OTTs are required to submit a detailed plan about what they’ll do with a SP API (valid security concern for SP) before they are granted access, innovation will be stifled. Perhaps user based access to SP capabilities rather than application based access may help. Of course, all this is speculative at this stage 🙂

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