Consolidation. That is the topic for today. Recently we have seen equipment vendors and chip companies that are big in the communications business combining. Why is this? Well, the customers are consolidating. (Comcast, AT&T, etc.). There have not been new opportunities for selling. On top of that the technology in communications has stagnated. So, there have not been market share changes.
I posted about this from an AFC standpoint in a series of articles. This really began with a blog post called “The End of Tellabs” and after a little more history continued in “The Telecom Market circa 2001 and The Start of Why we Did what we Did!“. In case this is not very clear, AFC’s Executive Team predicted this consolidation near the beginning of 2001. Things have changed little in trajectory since then, but there have been plenty of changes.
For Vendors in this space, it means this ongoing push of your customers getting fewer and larger. This means that they will ask for larger discounts and be less likely to take large risks. Margin pressure flows downhill. A pretty good rule of thumb is that a product supplier can not sustain gross margins much greater than his/her customer. Consolidation is a way of reducing expenses (getting rid of G&A overlap for example) without increasing risk.
For consumers, it means that the equipment and networking parts of the business are going to see less innovation over time. I would say this is already a fact on the ground. Think about the changes at the start of the Internet age in 1994. Less than 10 years later we had widespread broadband deployment and AFC was winning its bid on FiOS. What has changed since then? At the network level, not a lot.
For carriers, it means that the price per bit per second is continuing to decline in value. Efforts are now under way on the software side via SDN and NFV to try to either remove costs or add more value into services. The one caution is that these technologies might be able to do either or both, but trying to do both at the same time in a single initiative is problematic.
Wireless is a separate problem. In Wireless, the upping of speeds and increasing coverage has led to more and more usage. The challenge is going to be that the regulators are likely to look more and more carefully about what they are doing (or not) in this space. The last real revolution in Wireless came via the iPhone and other smart devices. Prices remain relatively high for consumers and Wireless is replacing Wireline as the lifeline service. The Wireline Carriers are asking to use Wireless as a replacement for lifeline POTS. Expect significantly more regulation on both voice and data on Wireless over the next 5 years.
Anyway, these things have broad ranging impacts. One move can start a huge paradigm shift. Keep your eyes open for new trends!
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