In roughly 25 years, the wireless and mobile industry has undergone three generations of technological change and stands on the threshold of a fourth. Its success has made it possible for policymakers to imagine a connected world with “communication for all.” In short, the wireless and mobile industry today comprises a critical infrastructure for other industries and constitutes a necessary element of our social fabric worldwide.
One aspect of the mobile industry has been that operators have historically defined and controlled the environment in their respective markets. In making choices about network deployment, they have defined the reach of the network; likewise, in making choices about service offerings, they have defined what users may or may not do on these networks.
The operators’ degree of control over the mobile environment has, of course, varied across national markets. In markets like the U.S., where they have used subsidies to emerge as the principal channel for distribution of mobile devices – mobile operators have often used their channel power to dictate features and functionalities. In such markets, mobile device vendors have often found their market ambitions circumscribed by operators.
Operators’ dominance challenged
As the culture of mobile data consumption begins to take shape, the operators’ control of the mobile environment, particularly through the building of “walled gardens” around their data services, is increasingly seen as an attempt to stifle the ambitions of new entrants, particularly new media and Internet companies.
As a consequence, operators have come under increasing pressure to relax their firm grip on the mobile environment. Regulatory, technological and market forces have conspired to challenge the operators’ dominance and to create a slow but steady shift in the balance of power away from operators.
Regulators are concerned that mobile operators may have, effectively, emerged as a critical gating factor for innovation being brought to marketplace.
Technological advances are likewise undermining operators’ control. Technological convergence is blurring the sectoral boundaries that once separated telecommunications, broadcasting media and the Internet. Companies that were once situated in erstwhile separate and distinct industry sectors are now competing in the same content delivery space. And, increasing separation of networks from services is inviting hordes of new market entrants who are ever-so-eager to challenge telecom incumbents’ hegemonic control of the emerging “converged” market space.
Technological convergence, some have argued, creates the conditions for collaboration and cooperation among industry players. We fear such arguments may be somewhat simplistic. It would seem to us that technological convergence, in blurring sectoral boundaries, is creating the conditions for collision among industries anchored in different world views and different business models.
The manifest struggle between and among incumbent mobile operators, device vendors, leading I.T. companies, content providers, media companies and chipset suppliers for dominance of the converged marketplace lends credence to our view of colliding industry players and business models. Each of these players is seeking to control the mobile user experience and expand its own role in the emerging value chain.
In adjoining pieces, many of our industry colleagues are addressing different aspects of this struggle among industry players for dominance in the mobile industry. We have chosen to focus on what, we believe, is, perhaps, the most salient aspect of this struggle to restructure the mobile industry – the shift in the balance of power between mobile operators and other industry players.
The shift in balance of power is perhaps most clearly evident in the subtle change in the structural relationship between operators and device vendors following the launch of the iPhone. In addition to pushing through a dual mode device, sporting cellular and WLAN connectivity, Apple managed to wrangle an unprecedented concession from AT&T – the privilege of service activation.
New players, business models
In short order, last August, Nokia declared its intent to gain better control of its destiny in the unfolding world of convergence. The world’s largest mobile device vendor, by unit sales, said it had decided to reinvent itself as a software and services company rather than remain merely a vendor of device hardware. The shift in strategic direction, which brings Nokia simultaneously into potential conflict with mobile operators and Internet services companies, is, perhaps, best understood as its desire to get a better handle on the future, rather than have emerging opportunities in mobile data circumscribed by mobile operators or any other player in the market.
Google, too, has signaled its intent to play in the mobile environment. Last November, it announced that it was launching an open source, high-level operating system for mobile devices, called Android, that would allow any developer, anywhere, to build any application for the mobile device and for any user to be able to install any app they wanted on an Android-powered device. While Android is perceived as a threat to other high-level mobile operating systems, like RIM and Windows Mobile, it might well be the company’s single most effective salvo against the ideology of closed systems espoused by mobile operators.
Operator strengths
However, the incontrovertible evidence of a shift in the balance of power away from the mobile operator notwithstanding, the centrality of the network operator to the mobile environment is not likely to wither away any time soon. Network operators own both the spectrum and the network that they deploy and run. And they have an established subscriber base.
The business models of many new entrants seeking to play in the mobility space are predicated upon open and easy access to the network. Mobile operators have little interest in providing such access unconditionally, especially if it undermines their own economic health and viability. Technology may be a necessary, but is not a sufficient, condition for structural change in mobile telecommunications. Regulatory intervention is likely to be required to affect serious structural change.
Shiv K. Bakhshi, Ph.D., is Director, Mobility Research at IDC. He can be reached at [email protected]. You can learn more about IDC by visiting www.idc.com.
