The roles and perspectives of five kinds of stakeholders are discussed and debated: the end user; the device and hardware manufacturers; the traditional media houses; the Internet giants and the telecom operators. All are very important and play essential parts in the mobile/Internet eco-system. The balance between them has shifted over time and will continue to do so. The telecom operators seem to be the most criticised and questioned. Is this unfair or have they earned it?
Historically the telecom operators have been enormously successful offering high quality global fixed line telecom services. Next in line was mobile telephony developed in cooperation between Nordic operators, such as Telia and Sonera, today merged into TeliaSonera, and hardware suppliers such as Ericsson and Nokia. The success of the operators has been based on a network centric business model. Even with many attempts to expand into new adjacent areas almost all of the profits still come from the original core of the business. Moving into new areas has shown to be difficult. This is probably due to limited knowledge and experience, cultural differences and conflicting business strategies. Focus has been on increasing traffic and not end user value, a strategy which now even may show quite dangerous risking ending up in a network apocalypse scenario. Should then the operators avoid new tempting areas and just stick to what they clearly understand, running networks and offer access?
The operators struggle with the dilemma of finding new revenue sources at the same time as they desperately defend the existing cash cows. The main difficulty lies within that the old network business is local/national and telecom centric and most new business is global and based on IP/Internet logic. You can’t move into the new business without starting competing with the old thinking. Moving from a fully controlled stove pipe environment to a horizontally layered business structure with fierce competition on each layer may be an almost impossible equation.
What we see over and over again are attempts to move into new value added services without understanding what it takes to become successful. The new services most often need to be competitive by their own on a regional or global scale utilising significant scale advantages. Instead the new business is subsidised by the old until some brave young business controller analyse the case, showing that the new business is not competitive, have a far too high cost level and do more harm than good.
We have entered into a situation of access independent services also for the mobile. As outlined in a recent report by Gartner the mobile will already in 3 years be set to overtake the PC as the most common web browsing device. Internet will finally be available for all of humanity through Internet enabled mobiles, especially important to developing countries. The operators are of course instrumental to make this happen. We need well run high quality and efficient networks. There is also a number of enabling functionalities, such as efficient payment solutions, location data, device management etc. that the operators may offer partners. However, there are still some very basic elements related to cost control that urgently need to be in place, the two most important being: affordable flat rates and reasonable and transparent data roaming charges.
There is also a lot of talk about utilising all the data the operators have about usage and the end user. However, this data is hard to get out of the systems and is rather technical in nature and not originally defined for marketing purposes. It’s time to realise that the huge amounts of detailed data hidden in the operator’s systems is rather useless. We need specific data depending on business logic, that can be used for marketing purposes, and that is automatically generated and monitored without first involving the technical staff for weeks.
The operators need to shift focus from traffic maximisation to end user and partner value creation. They also need to support device and operator independent initiatives, such as UMIs, as all will be winners when penetration of Internet access through the mobile increases. Differentiation of the access offering through exclusive value added services and content is a very costly and is not sustainable. Stop doing costly experiments in attempts to find new revenues sources in business areas you don’t understand. There’s no reason why being a bit pipe provider should not be a profitable business even in the future, except for if the regulator mess things up completely. Please realise that moving into an IP environment gives access independent services, focus on making data charges understandable and affordable and incentivise all to maximise the value to traffic ratio.
Mobile internet services have gained significant increase in attraction and usage. About 20% of all active on Facebook use the mobile to access the service. 27% of the mobile phone owners browse the Internet, use applications or download content, according to comScore. 3G, smartphones and flat rate data plans are key enablers.
Apple demands that the iPhone is sold bundled with a flat rate data plan to encourage the use of data services. The success of the iPhone gives a good indication for how large the unmet market need is and what can be achieved when services are easy to find, buy, download and use in combination with simple pricing. High quality screens, improved data speed, and flat rates also open up for services that are quite data heavy such as streamed videos, TV and music, for example YouTube and Spotify. The perceived end user value per MB decreases as the users become more advanced and with the introduction multi media services. The dilemma is that the additional value is usually less than the additional cost of production. With flat rates we can expect that the usage of non-voice services will grow rapidly resulting in heavy pressure on the mobile networks, demanding further significant investments.
Flat rates as such are a good thing for the end user giving cost control. The network operator may also initially get an increase in average revenue per user (ARPU) as customers migrate to flat rate data plans, but exponential increase in data traffic drives cost and additional network investments. There is today no incentive for a player like Apple to decrease the data consumption. This situation should worry the network operators as they may be trapped in a situation with competition on flat rate pushing the prices down at the same time as usage increases heavily.
What are then the options for the operator? Trying to avoid introduction of flat rates on the market is probably not an option. To cap “unlimited” data plans is possible but the upper usage limit has to be set at a quite high level not become counter productive. We will also see attempts to increase the price but it may be difficult depending on the competition. Most probably these alternatives will either not be possible or may have a too limited effect. The equation does not add up and we may gradually move into a situation where the networks collapse as it may be impossible to justify further investments. It may be necessary to enter into stage of network apocalypse before we can rebuild the ecosystem on sustainable business principles. Is there then no way out of this situation?
Let’s go back to the original thinking of NTT DoCoMo regarding imode. This success story was created in times of quite limited network capacity. imode was built to maximise the end user value per consumed data volume. The whole system was built based on this basic idea safeguarding that all actors in the value chain should be happy. NTT DoCoMo thereby forced, as they did set up the rules, the content providers to develop services that used as little data as possible. It is now time to once again try to optimise the value for the end user to data consumption ratio, the value density. The operator needs to incentivise the content providers and device manufactures to promote concepts with less data consumption and to develop technology and services to avoid the collapse of the system. Is it too late for this? No, I don’t think so given the options. Flat rates are needed and are welcome but all, including the end user, should be incentivised not to waste data as we today are aware of not wasting any resources in the society.