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Comment by syedkarim | Hacker News Reader

To support the statement that dumb pipes can be incredibly profitable: Intelsat. They openly admit they are a commodity business focused on MHz and Mbps, and have no problem consistently hitting 70% margins.

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Businesses like Intelsat's have high barriers to entry (literally!). If the business were easier to get into, competition would be fiercer, and the margins would be quickly erased.

I don't disagree that competition would destroy those margins, but isn't a barrier to entry just a barrier entry? And the telcos like ATT and Comcast will still have the good fortune of being on the other side of the barrier, no? Whether it's launch costs, thousands of mile of cable, or spectrum rights, fat margins are supported all the same.

It's well established that high barriers to entry reduce competitive pressures on margin. If nothing else, it discourages outsiders from trying out new business models that drive down prices, because it increases the amount of capital necessary to test out a new approach (and the capital is harder to raise if you're using a new strategy.)

Consider Uber vs taxis - if there were massive entry costs to the cab / private car category, a company like Uber would have trouble raising enough money to get launched. So the existing cabs wouldn't ever experience the competitive pressure from Uber, because it would never enter the market.

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