The barriers to entry for new companies in the telecommunications sector are extremely high throughout the developed world. There may be some opportunity in emerging markets, though any young competitors will have to fight off the encroachment of established giants in the industry.
- Today's telecommunications giants spent decades building or acquiring the massive infrastructure needed.
- AT&T got to the top of the global list only by acquiring Time Warner.
- Emerging nations are quickly getting up to speed on telecommunications infrastructure.
As always, the barriers to entry come down to cost. It takes a massive capital expenditure followed by a massive investment in marketing to create a success story in telecommunications.
The Cost of Entry
The necessary infrastructure to support cable and wireless services requires extremely high capital expenditure investments, at a level that would be very difficult for any new company to raise. Research and development spending is also necessary.
China has the most internet users of any country, at 802 million.
To gain entry to the sector, a new venture would have a strong chance of success only if it came up with a very innovative product or service that was capable of attracting venture capital investors willing to stake a very large amount of money to get the company started, and then sustain it to the point of profitability.
The existing major firms in the sector spent decades constructing or acquiring their existing infrastructures and possess an enormous advantage over any new company attempting to establish a presence.
The biggest of these names are high up on the Forbes Global 2000 List for 2019. They include AT&T, Verizon, China Mobile, Japan's Softbank, and Nippon Telegraph and Tel. Notably, AT&T bounced to first place among telecoms on the Forbes list only after its acquisition of Time Warner.
Other industry giants include Vodafone Group Plc., Deutsche Telekom AG, and Telefonica S.A.
Breaking into the Marketplace
Another major obstacle to any new company looking to break into the telecommunications business arises from the highly competitive nature of the marketplace for telecom devices and services.
The telecom marketplace is one of the most intensely competitive consumer markets. Massive advertising campaigns and price wars between major competitors are the norm; the major players are all household names.
Imagine, for example, a new satellite TV service in the United States attempting to draw business away from DirecTV and Dish Network.
Emerging-market nations may be the only opportunity for startup success in telecommunications.
It should be noted, however, that many of those "emerging" markets have emerged, primarily through the expansion of mobile internet services, although the best infrastructure may still be found in urbanized areas.
There were an estimated 4.1 billion internet users by the end of 2018, according to the website hostingfacts. China has more internet users than any other country, at 802 million, followed by India, with more than 500 million.
And, even in emerging market countries, new firms have to contend with the global expansion efforts of existing telecom giants.