What it Takes to be a Market Leader

by Colin Berkshire

Colin here.

As an executive in a company I’m occasionally asked my opinion about what it takes to become a dominant player in an industry, preferably the market leader. I’ve spoken to a number of business schools on this topic.

The answer that I give is a little different from what the textbooks would like to teach.

I believe the answer is always this: it’s necessary to create and maintain a monopoly. A monopoly is the secret to making money in a capitalistic economy. All great companies have become great through a monopoly.

The monopoly can be one that’s obtained through marketshare, political contacts, technology, patents, copyrights’s, etc. The Disney monopoly is maintained through copyrights and trademarks of a dominant proportion of children’s characters and stories. Google’s monopoly stems from the deep tentacles it has by being the default search engine on browsers, widespread use of GMail, and other Google services.Microsoft’s monopoly was obtained by selling really cheap software that became ubiquitous, and then they could raise the prices to monopoly levels later on.

The cellular telephone industry is a great example of a monopoly that abuses consumers. America has pretty much the highest cellular telephone rates and some of the poorest levels of service. This is the classic mark of a monopoly industry. There were really only two viable competitors in the US cellular business: AT&T and Verizon. This is because they hold the frequency spectrum monopolies in all of the major markets. Sprint or T-Mobile hold some frequencies, but truly not enough.

AT&T and Verizon became the wireline monopolies 75 years ago through the simple tactic of refusing to interconnect to independent telephone companies. This meant that independent phone companies operating in a city could not have access to the long-distance network. Through a series of antitrust lawsuits the federal government eventually ordered AT&T and Verizon to interconnect to any independent telephone company. by the time this was finally enacted, they really weren’t any independent telephone companies left because they had all been bought up by AT&T and Verizon (historical note: Verizon is the old GTE monopoly).

The same solution would work today in the cellular industry: if companies were required to interconnect with each other on a fair and equitable basis then consumers would win. That is, if Sprint and T-Mobile customers could roam on Verizon and AT&T, then we would have true competition.

Of course Verizon and AT&T would scream and argue that their huge investment in towers would be diminished by allowing their competitors to use those towers. But we should not forget that all of the towers in America could be constructed from just one month of revenues. The tower investment is really negligible, fair and equitable rates for using these towers would really be cheap.

Another solution would be to force AT&T and Verizon to vest their tower assets so that the tower operators would be independent from the retail operators. Really, this is not far-fetched when you consider that both AT&T and Verizon have sold off most of their towers to companies like crown capital Corporation. So why not split the tower business from the cellular business?

To go back to my opening comments: The most profitable and successful businesses stem from monopolies.you basically make the most money by screwing customers and negating the free market place.

Whether were talking about Comcast or Boeing or Disney, you can pretty much be assured that if the company is extremely profitable in owns a monopoly position.