Over the last few months we saw two big announcements for Telecom consolidation in the US from the 3rd and 4th largest carriers. Is this a surprise or what? By all means it is not – I have been busy lately studying demand and supply curves for my micro-economics class (part of my MBA program) and viola – this all makes perfect sense! It is all due to the economy of scale – the larger the firm is the better it is able to supply the service needed at a better rate (meaning lesser dollars!). The one graphic that is always hurting the budgets for carriers is the ARPU distribution and the long tail economics.
So what will happen over the next few years is a change from selling voice and data for MNOs to service enablers. This requires several market plays which require – two main factors investment dollars and partnerships with several niche market players and this will allow MNOs to move into the VAS space.
Several years ago Microsoft had a similar competition from the likes of Google which challenged the whole notion of selling licenses for an OS, Google brought in the concept of freemium play – give Android for free and sell the apps! A similar shift is happening today in the wireless ecosystem – old models need to be thrown out and value creation needs to shape the networks!
Operators need to take these steps for survival or be bought out –
Who is the competitor? The primary competitors for the telecom service providers had been the other service providers. However, over the course of last few years, players have been migrating and surfing in segments across the board – from Android, Apple to PayPal, from P&G to AT&T, from Facebook to Time Warner, from Google to Best Buy, every company wants to capture the mindshare and piece of the consumer’s pocketbook. The fine line between partners and competitors can get obliterated in a quarter. One product launch or one acquisition can change the game in an instant.
Deploy end-to-end framework starting with the mobile packet core & IMS: Innovation is not just for the edge network or the devices, but rather the entire mobile network from RNC, SGSN, GGSN, Billing systems to the devices should be available as a platform for innovation. Obviously, one can’t just open up all the critical pieces of information at once, it should be done in a methodical and thoughtful manner. In order to provide a good experience for the customer and a robust API framework for the developers, the various network component need to work in sync that help understand the user behavior at a granular level and turn observations into insights that can be exposed to the developers who can leverage the input by building new experiences.
Charge for OTT services: The consequences of not playing an active role in the OTT services can be severely detrimental to the operator profitability. Given that there is a significant pressure on the margins of the voice, access, and messaging businesses respectively, operators have to find new sources of sustainable revenues in the next 5 years or else accept to live with the decline of margins by 30-50%. Netflix, Pandora and several OTT products have created enormous inroads in terms of capital generation while the MNOs have passively seen their ARPU slip! Toll-free apps from AT&T are one step to correct that direction. A detailed explanation of the concept has been provided here in my blogpost.
Exploit the long tail: Voice, Access, and Messaging will continue to be the three dominant revenue generating applications for mobile operators for some time. However, the next bucket of revenue isn’t in any one or two applications but rather in the long-tail that can include hundreds of applications. While individually, they might not generate a significant amount of revenue, collectively, they can rival the top three in generating billions of dollars in the coming years. By focusing the vertical areas such as health, retail, education, energy and horizontal areas such as security, cloud computing, payments, and others, mobile operators can create a sustainable revenue source for the future.
Foster developer ecosystem and provide tools: Mobile operator VAS revenues are tightly linked to the developer ecosystem they are able to foster. Just like Android and iOS have huge developer following which is helping them dominate the mobile OS platform landscape, mobile operators who open up the APIs for network, billing, profile, authorization, location, performance, security, quality of service, etc. will build a robust ecosystem that churns up new services and applications that help drive enormous value to the end-customer. Directly or indirectly, this will add to the bottom line and the operator will be seen as a service innovator in the market place. Application developers primarily focus on how their application or the service works. They rarely spend time on examining how the API request will impact the network. Operators need to setup testing labs and provide simulation tools to developers so that they are more informed about the traffic and signaling load generated by their applications and are better prepared to address data consumption issues. Here are some examples of the developer outreach that has happened over the years – AT&T, Verizon, Sprint, T-Mobile & Clearwire.
Creating value rather than nickel & dime for bytes: MNOs must manage their data margins but the pricing of data shouldn’t exclusively focus on the amount of data transmitted. A byte during a financial transaction or for a medical application is far more valuable than a byte transferred doing social networking updates. A health care application that provides peace of mind to family members might not send gigabytes of data but consumers are more interested in reliability and immediacy than the app tonnage. Remote monitoring apps can lower the overall cost for healthcare and insurance providers and they will not be measuring the cost of the app by amount of data transmitted but rather by the value it provides.
How can the MNOs play the space and get ahead of the game with the changes that will happen over the next few years. Below is a very good video describing the change model for next few years.