Nothing new and we all know it. Let’s look at a very simplistic telecommunication value chain.
Value flows from the vendor to the service provider to the customer: Equipment vendor provides the infrastructure. A Service provider uses this equipment to provide service that the end user is wiling to pay.
Money flows from the customers to the serve providers to the vendor: The end user pays the service that was delivered to them by the service providers. And the service provider pays for the equipment to the vendor. The timing may be little different though.
If you look at the power in the value chain – customers want services that they will value and have the option to go to a service provider who would provide this service with the best value. Without collective bargaining, customers may not have a whole lot of power in the value chain.
Now let’s look at the number of vendors (there could be lots of them) and then service providers (there are significantly fewer in numbers in each region). And based on the recent M&A activity in the service provider space, they have the power because of the economies of scale and access to end user customers, service providers play the volume game and expect major pricing reduction from the vendors. Without much differentiation in the product offerings, vendors tend bow to such pressures and use pricing as a differentiator and this differentiator is not sustainable. This is a vicious cycle that the equipment vendors cannot win without a differentiate offering.
Money flows from the customers to the serve providers to the vendor: The end user pays the service that was delivered to them by the service providers. And the service provider pays for the equipment to the vendor. The timing may be little different though.
If you look at the power in the value chain – customers want services that they will value and have the option to go to a service provider who would provide this service with the best value. Without collective bargaining, customers may not have a whole lot of power in the value chain.
Now let’s look at the number of vendors (there could be lots of them) and then service providers (there are significantly fewer in numbers in each region). And based on the recent M&A activity in the service provider space, they have the power because of the economies of scale and access to end user customers, service providers play the volume game and expect major pricing reduction from the vendors. Without much differentiation in the product offerings, vendors tend bow to such pressures and use pricing as a differentiator and this differentiator is not sustainable. This is a vicious cycle that the equipment vendors cannot win without a differentiate offering.
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