Blog Post

Carriers Get a Wake-up Call

Carriers are rapidly losing their power in today’s mobile ecosystem, and don’t seem entirely aware of that fact, according to a presentation made at the TM Forum Conference being held this week in Orlando, Fla. James Warner, a TM Forum VP, began his presentation by asking if carriers will become extinct and ended by asking the audience to vote on it.

Warner, much the way I did in an article earlier this week, highlighted how companies such as Google (s goog), Amazon (s amzn) and Apple (s aapl) have already stripped carriers of some of their power by setting up their own billing relationships with consumers, delivering GPS data outside of the carriers’ own data — even by building application stores. All the carriers are left with are their pipes and their relationships with a large number of consumers. He believes carriers needs to stop grasping at the past and move forward by acting as a broker among the various constituencies that want network access.

One possible solution involves a two-sided business model, as laid out by a Cisco executive at our NewTeeVee Live event last month. In it, the consumer pays the carrier in exchange for service, while a content or application provider pays the carrier for access to that consumer. I’m skeptical, but Warner said that in such a scenario, even if a carrier makes the decision to become a bit pipe, it doesn’t have to sacrifice revenue and margins.

He pointed to AT&T’s (s T) Glen Lurie, who’s managing that company’s machine-to-machine business as a decision by a carrier to become a bit pipe. Delivering data to various end devices that a carrier doesn’t control can drive high margins and lots of revenue. For example, providing connectivity for an e-reader broadens AT&T’s subscriptions, but because the device can’t roam on the broader Internet, it doesn’t consume huge chunks of data.

Warner doesn’t think the carriers will become extinct, but does believe they will have to become more agile, learn to share and use their cash to move out ahead of the changing ecosystem. I think we’ll start to see more carriers trying to make this happen as early as next year.

image courtesy of Warner’s slide presentation

11 Responses to “Carriers Get a Wake-up Call”

  1. The key driver needs to be to get as close to controlling the content as possible. Comcast gets it. I hope they execute well. Carriers need to move up vertically to control content for those services where their Value Add is coming from.

  2. Jane Addison

    Two sided market won’t work as you’ve described it. I pay AT&T so much money each month because of the vaule I place on connectivity and content. If they tried to create a two sided market, it would look just like cable TV, where the carrier pays the content providers, because it is the content that is valuable.

    Do you think the NFL is paying Sprint to carry NFL Mobile Live, or is it the other way around?

    Carriers can make plenty of revenues, and margins are incredibly high already, especially for T and VZ, who own their own transport lines.

  3. As in the Japanese market? In the US, carriers want to be everything and control the entire channel and revenue sharing as little as possible. They will either become effective solutions providers for mobile technologies or they will be swept aside by other alternatives. How long before somebody gets tired of restrictions surrounding VOIP mobile applications, and simply drops WiMax into every school and public building for free?

    As in the case of AT&T, simply perform your basic role before trying to take on the world. Get me a data connection in the West Loop in Chicago, and that would go a long way to making me a happier customer.

  4. I would assume what Tracey meant is that what is at risk for carriers is their slice of the value chain – i.e. that slice getting thinner and thinner.

    While I agree that MNOs as the operators of an increasingly critical infrstructure will not go away, they risk losing any perception of creating substantial value in the eyes of their customers. Being reduced to a pure commodity will make it more and more difficult to retain those nice fat margins. Not a happy prospect for proud MNOs who like to see themselves as owning a strong relationship to their userbase, including all sorts of undermonetized services, such as billing an Geolocation.

  5. Nice, Stacy. Always liked comet strikes with fierce but confused looking dinosaurs. Think that the walled garden is probably toast and I think that many at the operators are realizing that they do networks well but content not so much.

  6. Stacey,

    Admittedly, i’m a bit lost on what you’re asserting in your article. Put bluntly, the carriers cannot become extinct, nor can they be rendered economically non-viable as the capitalization requirements for wireless network infrastructure is substantial and expanding with growing data usage. The disruptive innovators that you highlight all depend upon the existing and functional wireless network infrastructure, and cannot simply “innovate the destruction” of the wireless carriers. Hence, the real “innovator’s dilemma” here is that the innovators MUST always ensure that the carriers have profitable businesses over the long term or else they will destroy their own long term prospects for innovation given the unique and high cost capitalization requirements for wireless network infrastructure. It is unreasonable to expect any of the “disruptive innovators” to enter the infrastructure market for wireless network services.

    My $.02.


    • Crap. I wish i had conveyed my point better. The gist is that carriers need to step up to ensure their own future rather than passively sitting back and assuming that consumers, handset makers and app developers will continue to come to them. Few in the app community are willing to be willing to give up huge chunks of revenue in order to access certain kinds of data or even get to the end consumer. On the consumer side, fewer are willing to pay for carrier-supplied services when they can instead download an app. Carriers will never become extinct (someone has to provide the pipe) but they need to figure out how to add value if they want to grow revenue and avoid becoming a dumb pipe.