Management, page-10

"How can the telecommunications industry be in decline? How can the internet of things be in decline when it's going to play an even bigger part in our future than what it already does."

and

"...how often do we use the internet and chat to people on our phones. I, like most people use the internet dozens of times a day."


@danielpotter1972,

You are right.

Demand for telecommunications services is ubiquitous, and is growing in nothing other than spectacular rates.

However, that overlooks the important structural aspect of the supply of such telecomms services, which is the issue that is damaging the ability for the industry to create shareholder value for the owners of telecommunications companies.

And that structural aspect is that supply of telecomms services is totally inelastic relative to price of those services.

In other words, because of the highly scale-able nature of telecomms services, the cost required to provide a service to each additional customer (aka the marginal cost-to-serve) is very low, almost negligible.

This means that, almost irrespective to what happens to price, the quantity supplied does not change. Economists call this supply in-elasticity relative to price.

And in fact, in the telco space, not only is supply inelastic to price, but - even worse - it is observably negatively elastic to price, i.e., even if price goes down, supply still goes up (!)


And that's the fundamental problem with investing in the telecommunications sector:

No matter how strong demand is, supply has absolutely no problem with satisfying that demand.

Hence, when it comes to pricing power, no one has any... not even the industry leader.

The end result tends to be a race to the bottom.