The telecom industry is desperately attempting to shake off the after-effects of the downturn in corporate fortunes associated with the implosion of the technology market’s short-lived and spectacular success.

So it picks on perfectly objective economic terminology and distorts its underlying meaning. Think no further than “margins”.

1+1 = 87
‘Margins’ are the differential between price or tariff and underlying cost. Properly modelled, high ‘margins’ equate to profitable inflows into the bottom line; low ‘margins’ do so only if they are attached to high volume or commodity offerings. So far, so sound in terms of economic principles.

Tech companies, which appear to have diverted their R&D laboratories to the task of “finding anyone to blame for our current woes apart from ourselves”, see things differently. Margins are nasty little beasts.

Up, up and away?
According to the latest mantra, the industry’s Redux is now being stalled by a circumstance in which low margin products are being devoured by a hungry market but high margin variants are left on the shelf.

High-margin products succeed only if there is a scarcity of supply or a unique capability attached. Both of these propositions are subject to Moore’s Law, which suggests that only an endless stream of innovation can support them. With innovative archetypes such as Intel abandoning the ‘endless stream’ approach, this looks like a forlorn prospect

In contrast, the demand for low margin products is exponential. This is the ‘boring but profitable’ syndrome: tiny, incremental margins multiplied across thousands or millions of transactions.

How much?
There’s another way of looking at this. Low margins are most often the result of competing service options which drive down the price which the market will support; high margins are indicative of a lack of competition or a surfeit of greed on the supplier’s part.

The telecom industry coined the phrase ‘value added’ to justify why prices could be so far above cost. Recent experience should tell the industry just how dangerous this approach can be when left unchecked. In the 1980s, the user community identified the ‘rake-off’ being enjoyed by carriers in the provision of managed voice/data network and created their own private alternatives. Network-based carriers have spent 20 years fighting back.

And still, there is little or no “margin” for error…
Jim Chalmers