What a busy industry we work in! The range of hot topics keep surfacing like cloud services, smart phones, net neutrality, mobile app stores and over-the-top services as well as continued buzz from LTE and WiMAX keeps on coming. Of course, these are increasingly facets of the same thing, which has to do with emerging mobile broadband and how the technology is unlocking whole new markets.
Probably the biggest single thing that the iPhone has done over the past couple of years is to give us a tangible glimpse of what the future might hold. Not so long ago, people debated, “If we provide all of this bandwidth, what are we ever going to do with it?” Not any more!
The iPhone and other emerging smartphones give us insight into the very large range of things which you could do with mobile broadband. We’re beginning to see the problem not so much as filling empty pipes, but generating enough bandwidth quick enough to satisfy demand. It’s not just the creativity of the 85,000 plus apps that are available, it’s the level of integration between them (and hopefully the underlying networks too).
For example, the application Shazam lets you discover what that song on the radio is, order it through iTunes and then play it on your phone -- which is so much cooler than trying to hum it to some geek in a record store! Mobile broadband creates an almost unlimited set of opportunities for people to deliver goods and services -- which are not necessarily new -- in an entirely different way.
The rock in the pond with mobile broadband is that it drives a totally different set of thinking, business models, relationships and ultimately money from the mobile voice and messaging world. The fixed Internet has pioneered a rethink on different business models where services are generally free at the point of use. So Google, Facebook many other useful services cost nothing for us to join and use for as long as we want. But in reality, there’s no such thing as a free lunch, it’s of course the sponsor or the advertiser who is footing the bill.
These new business models evolved in parallel with the growth of fixed broadband Internet connections. And for a while at least, everyone, including the communications providers, seemed happy with plenty of new revenues and relatively little new cost as Internet services piggybacked on existing voice infrastructure. That is, at least until the tipping point where copper/ DSL has to give way to fiber and the cost of infrastructure is way out of line with potential returns. Cue government handouts, net neutrality debates et al.
So mobile broadband providers can see what’s coming. And for them, their networks are so tightly engineered that there’s no piggyback play here -- just billions more to spend on new spectrum, 4G base stations and massively fatter backhaul networks. So it’s no wonder that there is intensive interest in new business models, new services and how the money will flow around.
Over the Top
There continues to be a lot of talk about so-called “over-the-top” services, where companies use existing networks to get to their customers. If you’re riding on top of someone else’s infrastructure, the cost of playing with new business models and ideas is very low -- you don’t have to invest millions of dollars and hope it works.
That feeling of being somehow robbed is fairly prevalent in the telecom industry, but actually the feeling exists across the service value chain. Many players, especially the content folks, feel that it’s their assets that are leveraging new markets for other people and somehow, “it’s not fair.” So everyone feels that they are under threat from the next guy in the value chain, and everyone is fearful and suspicious of everyone else and their motives.
Of course, the key here is collaboration as well as innovation. And you have to admit that while the communications industry remains very innovative at the technology level, it’s not exactly flush with great new ideas at the service level, especially compared to the likes of Apple, Google and Amazon.
Michael Porter once penned a seminal business book on core competencies that basically says that you need to know what you’re good at and what you’re not -- leverage the one and minimize dependency on the other. So while I’m not saying that it’s impossible for the communications sector to outgun Apple, Google, Facebook etc., I am saying that it’s unlikely.
That doesn’t mean that communications companies can’t play to their strengths. They have enormous financial muscle, huge customer bases, the unparalleled ability to run five 9s services across hugely complex infrastructure and they are chock full of really smart people. But in reality, they’ve spent 100 years enabling people to communicate with each other but leaving it up to their customers to decide what to actually say on a call. So what they’re not good at is getting inside the skin of a customer and working out the kind of services they might want to use.
So one of their core competencies is enabling and adding value to services that other people can figure out the actual user purpose. And that’s the way that I think they should engage in the brave new world of app stores and smart new mobile broadband services.
Social networking: The next generation
One idea that seems to be a great opportunity is leveraging mobile social networking. But how can communications companies make money out of it – isn’t Facebook just another over-the-top application? Well, the interesting thing about Facebook and why it’s winning the social networking war over MySpace and other rivals is not necessarily because it’s cooler or better than everyone else; it’s because social networking seems to resolve down to being a natural monopoly. Basically, if all your buddies are on Facebook, why would you consider another site? People tend to flock to the most popular site, and then it’s near impossible to peel them away even if your service is 10 times better.
And that’s how the communications industry can leverage new revenues, by tapping into the concept that if everybody wants to be on the same social network, why not be on the same communications network? Not much appeal to people to do that if every mobile or fixed network just gives them vanilla connectivity, but if the service provider provided enables a richer user experience by adding interesting new capabilities that help bind the group of friends together tighter than Facebook alone can, then the communications player can start to reap some benefits.
These capabilities might simply be a sort of “Facebook Friends & Family” arrangement, where a group of people could get a better rate as part of a named group. But it could go a lot further than that. Unlocking features like location services into Facebook applications so that friends who are physically near each other can meet up; providing enhanced click-to-talk and messaging services over and above that provided by Facebook itself; conference calling, enhanced voice, click-to-talk facilities that actually work and so on. The idea would be to grow affinity groups as loyal to the communications provider as they are to their social networking provider.
Why would this be good? Because customer loyalty drops straight to the bottom line. As TM Forum reported in its latest Insights Research Report on Customer Experience Management, small shifts in customer loyalty can have big impacts on profitability. Loyal customers don’t need tempting with expensive offers to win them back, and they are your best salesperson, recommending your service. And what better to have ever expanding groups of friends telling each other that if they switched to using Facebook on your network, they would get a great rate and extra goodies thrown in.
To make this work properly, mobile providers and social networking market leaders and would need to go beyond arm’s length partners and really team up. The service provider gets ‘sticky’ revenues and improved profitability, and the social networking partner would instantly broaden and diversify their user base.
Seizing opportunities
There’s an old theory that everyone on the planet is connected with only 6 degrees of separation between them; that’s to say you are only 6 friends away from every one of the 6.75 billion (and rising) people in the world. That’s some social network to play for! Not all of these people are using smartphones, but within 2-3 years that number will be 5.5 billion and the price point for phones with decent browsing capabilities will be very common.
If service providers aren’t quick to grab onto new business models and start monetizing them, they may get overrun by the over-the-top guys who find ways of circumventing them and leaving them to pick up the pieces.
There are lots of other areas where service providers can be ‘enablers’. They’re very good at billing and settlements; very good at things like security and authentication and so on. Not every ‘over-the-top’ application provider is, so by providing application players with more than just bit transport and sharing the revenue (whether or not it’s the end customer who’s paying), there’s a good role for the service provider once they stop thinking of the content and application guys as freeloaders and the enemy. By thinking of them as partners and providing things that they have real competencies in, they can all start to make money -- and really capitalize on the mobile broadband revolution!
Keith Willetts is Chairman and CEO of the TM Forum.