We all have been taught the basics of supply and demand since high school. If demand is high, prices rise. If demand is low, prices fall. Simple, but true; yet this concept can be manipulated artificially if, as seen with the latest projections of mobile operators, that higher demand means higher prices. Are the dire predictions being promoted by operator’s a true demand, as we have been told, or capacity hoarding that will lead to artificially higher prices and more profits for the mobile industry?
Capacity for Mobile Operators Hyped as Dire, fueling Demand
- A lack of predictive network upgrades since the first introduction of the iPhone has caught mobile operators off guard, and the unwillingness of those operators to take the plunge into serious capital spending on a yearly basis to off-set the increasing demand is palpable.
- A focus on the wrong business metrics, such as mergers and acquisitions, investing in startups to enhance application delivery for customers, leads to serious ramifications of increased demand on capacity and is currently taxing existing networks.
This leads to a fundamental implication; are operators creating artificial demand intentionally to drive market prices up with tiered pricing and data caps, while at the same time, screaming for more spectrum allocation? The question remains, what benefits operators the most, building out networks with extensive capital spending, or making more profits on the demand and supply curve?
“Under the assumption of perfect competition, supply is determined by marginal cost. Firms will produce additional output as long as the cost of producing an extra unit of output is less than the price they will receive.” See (Supply and Demand)
Corporations Tend to Think Short-Term
Large corporations are notoriously short-sighted when it comes to, not only predicting, but acting on, consumer demand for the long-term. Since they are coupled to Wall Street fundamentals in creating short-term profits, spending for the longer term profitability usually takes a back seat. Put off today what can be worked out later for consumer demand. This is what we are seeing as network capacity demand outstrips the provider’s ability to keep up. See (The high cost of the cloud)
Drive Revenue through Demand
If you look at demand metrics for operators that center on capacity, applications, and cloud storage, each of these metrics represent future profit centers which are largely untapped. With current predictions of capacity limits that are inevitably coming sooner than expected. So why should operators want to increase capacity and drive demand down and therefore prices? Smart executives would see the economics in keeping demand high and capitalizing on resulting demand. Therefore promote and implement higher demand and limited capacity to ensure increased profits. See (Verizon warns demand will outstrip LTE capacity ‘as early as 2013’)
Inferior Customer Service: By-Product of High Demand
Consumers will complain of slow data speeds and denied access to networks. Is this just another way to train consumers to use less data or embed the idea that data consumption is now going to be more costly? Training the consumer to get used to higher data pricing creates a possible additional revenue stream, and it bottle-necks the market.
“Despite stark industry warnings, mobile operators are still playing ‘Guess Who?’ with their subscribers,” continued Flanagan, affirming that without adequately preparing networks to support the new generation of smart devices, operators risk spiralling, misplaced operational expenditure while delivering a sub-par quality of experience to customers.” See (Exploding Growth in Mobile Data Demand will Challenge Mobile Networks’ Capacity in 2012)
This is one observation on how demand can be controlled as gatekeepers envision sustainable profits by making it more expensive to access. But, that is the law of supply and demand, and always will be. When demand is high, limiting access; prices will rise to meet that demand.