Changing Dynamics of Telecom Industry

Tug of WarThe pace of change has not been so fast in the mobile industry. The success of smartphones and associated platforms has increased the value chain overlaps between a handset vendor and an operator. Traditionally, the operators have had an upper hand in the relationship with the handset vendors especially in the western markets as the operators distribute the handsets themselves and provide subsidy. In return, handset vendors have shied away from antagonizing the operators by doing anything that can make the operators a dumb pipe. However, Apple’s entry changed everything and now there is a tussle between the operators and the handset vendors on who controls the most valuable parts of the value chain.

In the past, the operators had almost exclusive access to the subscribers (refer to the image below). Operators used to procure and sell the handsets and provided the voice & data services to the subscribers. This meant that the handset vendors did not have any regular contact with the subscriber. However, now the handset are moving very fast to exploit one of their few unique strengths which is service distribution and discovery  on-device and therefore monetise from retailing and managing services at point-of-purchase and during in-life use.

Telecom Industry Value Chain (pre 2007)

What has changed?

The question is everybody’s mind is what has changed that is leading to huge disruptions in the telecom industry. For any value added services provider, the most important part is the distribution, delivery and billing of its service (refer to the VAS value chain in the figure below).

VAS Value Chain

Earlier, carriers were the only Go-To-Market medium for the VAS providers. However, handset vendors (Apple, Nokia, Samsung, etc.), operating system providers (Windows and Android) and independent players (GetJar) now have application stores which can not only market and distribute services but can also do direct billing. Mobile payments are likely to further reduce the dependence of the application stores on carriers for billing.  With players apart from the carriers becoming service inventory brokers, the new Telecom Industry value chain looks something like the figure below:

Telecom Industry Value Chain

 

It is interesting to note the difference in the above value chain from pre 2007 value chain (figure 1) which was nearly linear. The value chain now is structured in a way that all the different players in the ecosystem have direct access to the user.

Why the change?

The increasing connection between physical devices and online services is driving  new applications that take personal data and turn it into useful, personal, social, visual and manipulable representations. For long the mobile carriers had best opportunity to define the services landscape but they squandered the opportunity, e.g. the carriers always had the location data and could have started the location based services long time back but they could not do it as they were too busy in day to day operations. The operators did not create an ecosystem that could have created huge services business with their support. The other problem with the operators was fragmentation and hence no operator had scale. The handset vendors and internet players have now taken upon themselves to change the telecom industry.

Convergence is driving the change as it is leading to increasing services revenues that has attracted many internet players to mobility. Apple and Google are already trying to capture the living room of consumers by extending their presence to all the screens in a house including television. It is very clear now that mobile internet is going to far exceed the fixed internet so all the players from the internet space are entering the mobile industry. The internet players are trying to replicate the fixed line internet where the service provider is just a dumb pipe. The entry of internet players has acted as a catalyst for change.

Five recent events with far reaching repercussions for Telecom Industry

Operators fear that they would be reduced to a dumb pipe just like the PC industry and hence they are unwilling to cede any space to the other players in the ecosystem. The other ecosystem players are moving very fast to take control over most of the components of the value chain. The following examples illustrate the uneasy relationship between the operators and handset vendors:

1. Direct Handset Sales: Last year, Google tried to sell Nexus One online in a bid to directly sell it to the end user instead of the carriers in a bid to shakeup the carrier dominated distribution model.Google wants the carriers to offer just the voice and data so that it can offer its services freely and reduce the carriers to a dumb pipe. Though the Nexus One experiment did not succeed, it does point towards the tussle between carriers and handset vendors for direct access to users. There are rumors that even Apple is attempting to do the same by selling phone through its iTune store. There are no indications that suggest that Google has given up the idea of selling handsets directly to the consumers.

2. Embedded Software SIM – There are reports of Apple working on embedded software SIM that would allow the users to buy the phone on the web and then select the carrier of their choice. Embedded SIM can potentially increase churn and the carriers may need to bid to be on iPhone’s SIM that could lead to a price war in competitive markets. Many analysts believe that with handset vendor controlled embedded SIMs, the dis-intermediation of carriers from retail distribution would just become a question of timing and degree. So concerned are the operators with this development that they have started to work on embedded SIM standards under GSMA so that they can influence the standards and make it compulsory for all the players to adhere to them.

AppleInsider has discovered a patent awarded to Apple that could further shake up the way carriers do business. The patent, entitled “Dynamic carrier selection,” describes a method for providing wireless communication services. According to the invention, a mobile device would store a network address and communicate with network operator servers. After receiving data from available network operators, the device or user would select a carrier. The invention would allow Apple to run a MVNO system that could collect rate information from participating wireless networks within a region and automatically select or allow users to select the best option.

3. Ecosystem wars – Leading operators across the global have announced partnership to launch their own application development effort under the name of Wholesale Application Community (WAC). The group, an allegiance of telecommunications firms and others working together to create a common mobile platform, has a goal to simplify the mobile application process for developers, allowing them to deploy mobile apps across all member networks simultaneously. Essentially, it’s an effort to build a global mobile application store in response to the hugely popular OEM stores. WAC apps are designed to be used across all platforms, so conceivably the same WAC application could work on an Android phone and an iPhone. This is interesting as the battle is now about ecosystem and not about device features. The handset vendors are trying to create the ecosystem around their operating system which the operators are trying to break via WAC.

4. Duopoly fears – Carriers fear that Google and Apple would control most of the parts of the ecosystem and hence are keen that the vendors do not select Android as an operating system. According to IntoMobile, a group of European mobile operators have concluded that iOS, Android and other such operating system are “trojan horse” that are stealing away the operator’s direct relationship with their customers, and therefore vast revenues. The carriers fear that in case the operating systems get reduced to two, they would lose the bargaining power and could soon find themselves in the same situation as service providers for fixed line internet. There reports that they are willing to back other operating systems and are even contemplating their own operating system. Nokia’s selection of Windows as primary smartphone operating system must be a relief for the carriers.

5. Near Field Communications– Near Field Communications (NFC) is a technology that has the potential to make the mobile payments easier by just tapping the phone at the Point of Sale (POS). Though the technology has been in existence for many years now, the recent push by Google and Apple seems to have changed the equation. Google and Apple want to drive billing through a device to challenge the operator billing alternative and this move would bring them right in the center of the mobile payments.

In summary, the pace of change in the telecommunications industry is refusing to slow down and we are likely to head into more interesting times in the future. The convergence of the voice, data and video networks are having profound effects on telecommunications organizations, infrastructures and platforms. The ecosystem wars are here to stay!!!

 

If you liked this article, you may consider subscribing to Telecom Circle to get all the articles in your mail box

Enter your email address: 

Disclaimer: The views expressed in this article are my personal views and do not reflect the views of my employer.

Related Posts:

Leave a Reply

6 Comments on "Changing Dynamics of Telecom Industry"

avatar

Sort by:   newest | oldest | most voted
Rohit Agarwal
Guest
Rohit Agarwal
5 years 2 months ago
I believe all closed wall garden models will see the disruption. This model always stifles innovation and the carriers make the money because they are the only medium to reach consumer. In India we are still seeing this approach even though the carriers don’t contol handset sales. The main reason for that is the ownership of billing. Because of which they own the 70% of revenues for VAS and APPS leaving little incentive for the APPS player to enter the market. There will be a disruption here as well once the mobile payments starts taking off. There is already a… Read more »
Matt Steine
Guest
Matt Steine
5 years 2 months ago
Rohit, as you identified it was the greed of the carriers and their exclusive ownership of billing that allowed them to bully content providers before – in the west, because of the high penetration of credit cards (note apple’s recent claim to the number of cards they have on file) that allowed apple to break down this monopoly and the walls of the *walled garden*. The truth of it is, that most MNO’s have and probably always will be dumb pipes – they failed at the content game, so we can only hope that the emerging nation subscribers will get… Read more »
Robert Syputa
Member
5 years 2 months ago
On an IP communications playing field market channels will develop based on delivering value rather than control. For consumer markets, this usually means direct lines from various parts of the supply ecosystem to users that benefit the user in ease of use, value for the content or applications, and connectedness to other applications, content and practices. Apple rose in popularity because they are delivering ease of use interface, content and applications more conveniently. Yet their recent actions, including imposing high 30% pass-through share, leaves them open to competition. Moreover, Apple is limited in their internal bandwidth by having a closed… Read more »
mashhood
Guest
mashhood
5 years 2 months ago

Yeah alot have changed over the time…. Nice read…

Mahmoud
Guest
Mahmoud
5 years 1 month ago

I read it and i think that 4G and IP will improve the communications industry

Ozgur Agan
Guest
Ozgur Agan
5 years 25 days ago

with “Dynamic carrier selection” what will be the user’s number? dont need a great change GSM infrastructure or can it be succeed with a basic call forwarding?

wpDiscuz