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Mobile Operators: Creating Artificial Demand for Capacity

Mobile Operators: Creating Artificial Demand for Capacity

Mobile Operators: Creating Artificial Demand for CapacityWe 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.

Mobile Operators: Creating Artificial Demand for Capacity
Mobile Operators: Creating Artificial Demand for Capacity Leonard Grace (270 Posts)

Founder of Broadband Convergent, a Broadband-Mobile-Cable-Wireless-Telecom market website focused on highlighting industry news and strategic issues within technology arenas. Highly researched and experienced insights and trends both inform and enlighten readers on current industry convergence of Broadband-Cable-Mobile-Wireless and Telecom Sectors.

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  • Rich Hammers

    With props given to Freedom Lover and Spec regarding the poor handeling of the spectrum licenses (the one argument I view as a potentially valid regarding the carriers responsibility to the public), I think one overwhelming misconception is the belief that any of us have a right to bandwidth through these carriers.  If we don’t like the performance, if we don’t like the service… don’t use it.  I am fully aware that this may mean my disconnection from the digital world because no carrier is providing the service I want.  Eventually the market will work itself out and these artificial shortages will be corrected in the name of making money from the disenfranchised.  To use the service, pay for it and complain does not make any sense to me…  Money talks

  • Aaron Davis

    “Nothing is preventing these cartels from building more backhaul and putting up infrastructure. Study the topic a bit more.”

    Nothing is stopping OPEC from building more oil wells…

    It’s ironic that you call them a cartel, then ignore what a cartel does.

    • Spec

      “Nothing is stopping OPEC from building more oil wells..”

      Aaron, way to distort the problem by offering a flawed analogy. Oil is a *finite* resource that is difficult and expensive to extract from the ground. Wireless spectrum, when properly managed, can be reused infinitely and can accomodate near limitless demand. The problem here started decades ago when telco lobbyists robbed the American public when they convinced the FCC to sell them spectrum rather than lease it. That spectrum belonged to the American people, and its sale to private interests has fragmented the available space and created this problem. Had it remained under central control of the FCC, this management problem would never have occurred. Mark my words, the telco’s solution to this problem will be less than optimal, and will fall short of what is possible at the expense of the paying public.

  • Be

    Nothing is preventing these cartels from building more backhaul and putting up infrastructure.  Study the topic a bit more.

  • Hoyleysox

    Thought the consumer argument is that the mobile supply limitations are artificial, not the demand. 

  • Freedom Lover

    The author completely misses the point. Mobile phone companies are monopolies. Governments grant them exclusive rights to use portions of the electromagnetic spectrum, with the threat of violence or deprivation of property against “unauthorized users” who haven’t paid exorbitant licensing fees (which protect incumbents). The lack of competition is to blame for the slow technological progress. Identical circumstances exist for broadband, a.k.a. the “last mile” problem.

    If we had true competition, anyone could broadcast on any frequencies. Companies would quickly find free-market solutions to overlapping spectrum broadcasts (for example, wideband and multi-band wireless, or ad-hoc peer to peer wifi overlays). The best companies would co-exist with each other without coercion from the State. Don’t like AT&T? There will be dozens of other choices, all good or better, competing for your dollar.

    • Spec

      Freedom Lover, the Government *used to* grant exclusive rights, where the spectrum in question remained the property of the people. Unfortunately for us, some decades back, myopic bureaucrats sold out the American people by selling our precious and limited natural resource to the highest bidder. Had this spectrum been leased as it always had, instead of sold, no monopoly would exist. The solution to this mess is central management of all spectrum by a neutral third party with no financial interest, aka the FCC. The telco’s have made billions from their spectral investment. If the public is to fully benefit from current advances in wireless technology, the telco’s must return what rightfully belongs to us, by eminant domain if necessary. Only then can competition fourish. 802.22 is right around the corner. If newly released UHF bands fall into the hands of special interests, any hope of wireless broadband that serves the public will be lost.