The U. S. telecommunications market has evolved at an unprecedented pace over the past 20 years, with the introduction and adoption of smartphones, streaming video, and very high-speed broadband access across wireless, wireline, and fiber networks.
Service provider bundles now typically offer user applications, user generated content, and commercial content as part of a package deal with network services. However, streaming video services, led by Netflix and enabled by high-speed broadband are replacing the voice/Internet/pay TV triple play as users cut the cable TV cord in favor of more personalized premium video entertainment.
Millions of homes have cut the fixed line phone cord in favor of the mobility and pricing of wireless services, U. S. wireless carrier revenues grew from $194B in 2001 to over $300B in 2021. “With approximately 260 million smartphone users, the United States is one of the largest mobile communication markets in the world” (“U.S. Wireless Communication,” 2021).
Near-Term Market Drivers
Long-Term Market Drivers
Competitor CSF Ratings
Telecommunications Market Competitor Ratings
|T-Mobile US Inc||4||3||4||5||5||4||25|
|Data is for FY 2020|
|ROA %||ROE %||ROI %|
|Charter Communications Inc||0.40||52.55||6.70||0.32||2.20||11.63||7.69|
|T-Mobile US Inc||1.10||58.67||4.48||0.84||2.13||6.49||6.61|
|Verizon Communications Inc||1.38||60.09||13.88||1.16||5.84||27.47||15.53|
|Note: AT&T losses in 2020 were a one-time change; other years show AT&T as good as or better than peers for returns.|
(Ratio Source: “Mergent.,” 2021)
Five Forces Analysis
Threat of Potential Entrants
The threat of potential entrants in the network service provider market is low because the cost of building and creating a service provider network is very high. However, the threat of entrants into some of the value-added services for companies that already have a network is high, especially when network service providers partner with applications and content providers. For example, Verizon could and has added entertainment packages to its mobile service bundles, challenging AT&T’s vision of dominating the mobile entertainment sector.
The threat of substitute products is high both for network services and for value-added service bundles. For example, users may choose not to pay for mobile data and use free Wi-Fi hot spots in lieu of a provider’s mobile network. Free applications like What’s App have already substituted for traditional voice calls, messaging, and video calls that were once revenues sources for network service providers.
Supplier power is low because network service providers have many vendors to choose from for their network and operations infrastructure, mobile devices that are bundled with the network services are manufactured by multiple highly competitive global suppliers. Those who provide communications applications and content to bundle with telecommunications services are also very plentiful.
Buyer power is high because customers have at least three major wireless providers to choose from (AT&T, Verizon, and T-Mobile) and they have at least two wireline providers to choose from for voice, video, and Internet services (their regional telco and their cable TV provider).
With at least five telecommunications companies competing for the same customer base, competition is very high among rivals including network service providers, mobile device sales channels, applications, and content that is bundles with the network. Profit margins are squeezed as these competitors try to compete on price while offering the best available service bundle.
Market Assessment Analytical Summary
In the highly competitive wireless service market, companies must keep up with commodity-based service plans that demonstrate parity on plan prices, modernized networks, and ever-changing mobile devices. While some of the smaller competitors may differentiate with pre-paid accounts and cut-rate, no-frills service plans, the mass-market leaders will need to seek and sustain differentiation with value-added services to their bundles such as streaming video, information services, and applications. As 5G networks continue to build and as IoT continues to add more devices.
Wireline networks will continue to suffer losses for customers via telco copper; however, telco fiber networks will continue to remain a threat to cable operators, especially given fiber’s high capacity for broadband Internet connectivity and consumer willingness to multi-channel pay TV packages in favor of streaming video services like Netflix and Disney+. Like wireless operators, the dilemma for wireline providers will continue to be finding the best value-added packages that sustains customer retention.
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