Wireless communications companies are increasingly pursuing economies of scale in specific market capabilities and niches, leaving behind the vertical integration ideal of previous decades, says Tim Horan, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.
“You don’t try to be all things to all people. You don’t try to control every facet of the service that you sell or manufacture,” Horan said. “It’s a lot cheaper to share a tower between three or four different companies and for the hundreds of wireless service providers globally to buy handsets from three or four global suppliers.”
Horan points to Apple (AAPL) as one successful example of horizontal segmentation in wireless communications. AAPL outsources network and manufacturing, but through its customer-facing innovation it has become a market leader in the space.
“[Apple] outsources the entire manufacturing of the device. It has opened up applications development to the masses organized through its operating system,” Horan said. “All of this has enabled the company to do innovation a lot better than what a vertically integrated company, regional wireless carrier, can ever hope to do.”
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