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Description
The Boston Consulting Group established and popularized the experience curve concept in the 1968 publication Perspectives on Experience. With visually impressive results they graphically presented historic price-volume information for 24 commodities, but failed to quantify the predictive value of the experience curve model. Today, companies in most commodity, or technology, based industries use the experience curve model to project future competitive market pricing. Explosive growth in the wireless telecommunications industry drives fierce competition among equipment manufacturers; industry forecasts predict one billion wireless service subscribers worldwide by the year 2005. Correct future market price assumptions are essential to the future success of equipment manufacturers. Experience curve theory does not necessarily provide an accurate framework for infrastructure market price prediction. In fact, for the original Boston Consulting data, 29 percent of the basic commodities studied have associated historic price-volume information with inherently less than 50 percent predictive value. Wireless telecommunications infrastructure pricing is further complicated by its intangible price measurement metric. Examining the applicability of experience curve modeling for the wireless infrastructure industry uncovers interesting arguments. First, application level complexity makes predicting infrastructure pricing a particularly dicey undertaking. Second, because of the questionable predictive value of experience curve theory, confidence intervals should accompany market point price estimates. Third, because of system complexity, for practical purposes the slope of the wireless telecommunications infrastructure experience curve for delivered call is 60 percent, approximately 10 percentage points steeper than general electronics commodity industries.
