Reader Forum: A new wireless service provider model – give up subscribers

Editor’s Note: Welcome to our weekly Reader Forum section. In an attempt to broaden our interaction with our readers we have created this forum for those with something meaningful to say to the wireless industry. We want to keep this as open as possible, but we maintain some editorial control to keep it free of commercials or attacks. Please send along submissions for this section to our editors at: dmeyer@rcrwireless.com.
So let’s start with reality and I hope we all agree on these facts: Wireless service providers make the bulk of their revenue from voice and data from subscribers and enterprises; their biggest differentiator and business advantage is the coverage and quality of their network; one of their biggest cost after the network is device subsidy; billions of dollars are spent on marketing; and finally in general WSPs have not been able to successfully monetize their wireless asset as well the social, search, content, machine-to-machine and media content companies have. A simple comparison of return on invested capital should prove my point.
This brings me to question the current WSP business model of charging subscribers for use of their wireless networks. Let’s consider an alternative approach where WSPs enter into agreements with companies that want to provide their solution to reach a wireless user, for example an Apple, Google, Netflix, DirecTV, Samsung or Facebook. Here the company providing the device/service offering should own the customer relationship, marketing and any equipment subsidy that is required. The business relationship with the WSP is now one of pre-agreed fees related to devices activated and network usage. Think of this as the Qualcomm royalty rate model approach or the “Intel Inside” approach where the WSP is a business-to-business compensated enabler in the background for any solution (voice, apps, video, M2M, social, etc.) requiring wireless access.
In my opinion this will allow “true” monetization and value creation for wireless assets (spectrum and equipment) in multiple ways.
Allow faster innovation that drives greater adoption and data usage: Market moving innovation with devices like the iPhone and iPad, applications like YouTube and Netflix or social engines like Facebook take place outside an WSP. Instead of trying to fight this trend, make expensive investments and compete with these companies, the new WSP model would provide an easy and clear platform to enable faster innovation and growth. Instead of flat data fees WSPs charge subscribers today, I believe there is better growth potential for WSPs in a model where they receive a “royalty fee” from companies for every byte moved over their network. A real pay for performance/speed model can be developed and the technology exists for WSPs to be able to differentiate and charge appropriately based on the quality of service required. By opening up their networks for access by anyone and creating “lab environments” to stimulate innovation, WSPs will drive much higher usage growth and profits.
Eliminate costs that don’t add value: Another advantage is the elimination of device subsidies and any marketing costs to acquire and retain subscribers. The offerings today beyond voice are complicated enough that true end-user experience of that offering has less to do with just the wireless network and more with the actual application, the device and the simplicity of the ecosystem involved. Given this trend along with the movement of voice itself to becoming an application (voice over Internet protocol, voice over LTE), I believe the timing is right for WSPs to invest in the network alone and remove significant costs related to acquiring and managing customers. In terms of customer service, it will also become very clear to the end user who to deal with, e.g. if a Netflix user is unsatisfied with quality on their smartphone, their subscription is with Netflix and they raise the issue with Netflix customer care who in turn internally can determine whether the problem is software, hardware or network related and take the appropriate actions.
New areas of revenue – sell voice, strengthen big data and analytics: As I stated earlier, with the evolution of wireless technology, voice will become an application and is already commoditized. My suggestion to the WSP willing to embrace this new business model would be to sell all the voice customers to the highest bidder, or else sell them back to the device manufacturer that the subscriber uses to manage. The proposed usage royalty model would apply. In addition to the network usage fees, WSPs should invest and strengthen their data analytics capabilities to be able to provide value add consulting services to all the business clients.
In conclusion, most WSPs will tell you subscribers are their asset and form the basis of how they are valued by the markets in terms of company valuation. What I am proposing in terms of giving up subscribers is disruptive, but given the benefits I have proposed, I strongly believe the value equation can swing back in favor of WSPs and they can be viewed with a much higher multiple by markets for valuation. This disruptive change from a business-to-consumer to a B2B model may also support WSPs with the Federal Communications Commission’s net neutrality rulings and allow them the ability to charge companies (not consumers) for wireless access based on usage tied to speed and quality of service level agreements. So, for WSPs looking at outsourcing their network as an option to cut costs, I would rethink that approach. Think objectively about your real business asset and differentiator and review if a business model change as I have outlined is the right approach.
Sanjay Ambekar is an independent thought leadership contributor with extensive experience in the wireless industry. Ambekar can be reached for comments or questions at sambekar2008@kellogg.northwestern.edu.