The barriers to entry for new companies in the telecommunications sector are very strong and primarily revolve around the necessity for massive capital expenditures and marketplace difficulties.

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 manage. In addition, high levels of research and development expenses are also necessary. To gain entry to the sector, a new firm would probably only have a good chance of success if it came up with a very innovative product or service that would enable it to attract a large number of venture capital investors willing to invest a very large amount of capital in order to get the company started, and then to sustain it to the point of profitability.

The existing major firms in the sector, such as Verizon and Time Warner, have taken decades to construct their existing infrastructures, and thereby possess an enormous advantage over any new company attempting to establish a presence in the telecommunications industry.

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 Markets

Emerging market nations are the one area where new firms have much greater opportunity; the extensive telecom infrastructure that already exists in developed countries is not established. However, even in emerging market countries, new firms have to contend with the global expansion efforts of existing telecom giants.

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