IDEAS home Printed from
   My bibliography  Save this paper

Bitpipe vs. service: Why do pure service providers outperform fully integrated operators?


  • Grove, Nico
  • Baumann, Oliver


With the emergence of pure internet-based service providers, the business landscape of fully integrated telecommunications providers - industry incumbents that provide services on their own infrastructure - has changed massively. While various pure service providers exhibit successful business models and high performance, the services offered by the integrated telecommunication firms are not able to compete on neither price nor user experience. To shed light on this issue, we build upon work that has applied a complex systems perspective on performance - how firms manage to configure a large set of interdependent activities affects the performance of the overall activity system. We develop a simulation model to illustrate the effects of a) configuring only interdependent service-related activities, while building on an existing (external) infrastructure, and b) configuring both infrastructure-related and service-related activities at the same time. Our results point to a mechanism that helps explain the underperformance of the fully integrated operators. Pure service providers can improve the performance of their services speedily, as they can focus on optimizing only the service-related activities and adapting them to an existing infrastructure. Fully integrated operators, in contrast, will likely be concerned with both infrastructure and service components, taking into account also the interdependencies between these two domains. While this approach can help reap synergy effects and yield a performance advantage in the long run, it requires more time and results in a lower performance in the short run. Put differently, the objective of the integrated operators to integrate their bitpipe and service business puts these firms at a disadvantage when compared to their specialized competitors. We illustrate this mechanism with two case studies that show how fully integrated operators adapted their infrastructure in response to their service activities, which in return triggered further adaptations and coordination effort.

Suggested Citation

  • Grove, Nico & Baumann, Oliver, 2011. "Bitpipe vs. service: Why do pure service providers outperform fully integrated operators?," 8th ITS Asia-Pacific Regional Conference, Taipei 2011: Convergence in the Digital Age 52308, International Telecommunications Society (ITS).
  • Handle: RePEc:zbw:itsp11:52308

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Lori Rosenkopf & Paul Almeida, 2003. "Overcoming Local Search Through Alliances and Mobility," Management Science, INFORMS, vol. 49(6), pages 751-766, June.
    2. Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
    3. Martin Fransman, 2001. "Analysing The Evolution Of Industry: The Relevance Of The Telecommunications Industry," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 10(2-3), pages 109-140.
    4. Baer, Walter S, 1995. "Telecommunications infrastructure competition: The costs of delay," Telecommunications Policy, Elsevier, vol. 19(5), pages 351-363, July.
    5. Sendil K. Ethiraj & Daniel Levinthal, 2004. "Modularity and Innovation in Complex Systems," Management Science, INFORMS, vol. 50(2), pages 159-173, February.
    6. Jan W. Rivkin, 2000. "Imitation of Complex Strategies," Management Science, INFORMS, vol. 46(6), pages 824-844, June.
    7. Daniel A. Levinthal, 1997. "Adaptation on Rugged Landscapes," Management Science, INFORMS, vol. 43(7), pages 934-950, July.
    8. Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
    9. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-528, June.
    10. Herbert A. Simon, 1996. "The Sciences of the Artificial, 3rd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691914, January.
    11. Pankaj Ghemawat, 1991. "Market Incumbency and Technological Inertia," Marketing Science, INFORMS, vol. 10(2), pages 161-171.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Telecommunication industry; complex systems; organizational search;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:itsp11:52308. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.