WITH THE EMERGENCE OF NEW PLAYERS in mobile from the information technology space and the dominating importance of applications to drive revenue in wireless, the battle over who controls the customer is expected to heat up, analysts say.
Reuben Chaudhury, director of Oliver Wyman’s communications, media and technology practice, described a three-way fight evolving in the industry over who controls the customer and the applications, and how closely applications are bound to either the carrier network or a mobile device. The players include the wireless operators themselves, the handset vendors, and the new players from the I.T. space.
With the introduction of Apple Inc.’s iPhone and Google Inc.’s announcement that it will spearhead development of a common mobile platform, independent telecom analyst Jeff Kagan said that 2007 “was the beginning of a new segment in the industry, a segment we never watched before, that never existed. Before you had the carriers and the handset makers, and now you have new companies that are not in the cellphone business but are still going to be driving a lot of the direction of the industry and the new services.”
Follow the money
New applications and services hold the promise of new revenue as penetration rates grow, and Chaudhury said that carriers want to see those new services continue to be tied closely to their networks, as they mostly are today. Meanwhile, device vendors want applications to be bundled with their handsets or tied to a common platform across their devices. Adding another wrinkle are Google and other I.T. providers, which want applications to be both network and device agnostic so that they control the customer relationship and are able to extract value that way, Chaudhury said.
“We see competing paradigms or forces all battling over the applications pie,” Chaudhury said. In the next three to five years, he added, a hybrid model is likely to evolve.
He expects a trend toward the unbundling of the device from the application and the network, but communications-centric services such as voice and conferencing applications likely will remain tied to the networks.
Holding hands
New opportunities for handset makers include the possibility of working with I.T. players as customers as well as traditional wireless carriers. And some are developing their own services to market directly to consumers, such as content.
Nokia Corp. has recently gained traction in the space through deals with carriers such as Vodafone Group plc and Telefonica to offer Nokia’s Ovi data services directly to the carriers’ wireless customers. Ovi’s content includes digital music, a gaming platform, social networking and mapping. Sony Ericsson Mobile Communications L.P., meanwhile, recently said it would expand its mobile music, game and wallpaper services and has emphasized its willingness to work with-and share revenue with-mobile carriers.
New opportunities
Kagan said that he believes there is also an opportunity for handset makers to make more direct connections to the consumer in much the same manner as Apple did with the iPhone, but device makers have so far not taken advantage of it-and he doesn’t think they will.
“I think they’re going to be busy with all these other customer groups, the carriers and the new companies, and that’s the direction that the industry seems to be heading in,” Kagan said. He pointed out that while Motorola Inc.’s Razr enjoyed stunning success and captured consumers’ imagination, “it’s just a single flash in the pan, now and then. . How many other phones have come out that we’ve loved since?”
Carrier conundrum
Carriers have traditionally had the strongest ties to customers through their all-important billing relationship, and analysts expect them to fight fiercely to maintain their touch-points with consumers. The operators also fear the fate of becoming mere dumb pipes for data crossing their networks while other segments reap the rewards.
“If the carriers lose control of their customers, they have nothing-so that’s going to be the real interesting fight to me,” said telecom analyst Andrew Seybold. “It’s the monthly bill, it’s the 411 service, it’s all that stuff that’s important to touch the customer over and over again. And if they lose that, they are just dumb pipes.”
Chaudhury said that a recent Oliver Wyman survey of about 100 operators around the world showed that about 45% expected an open model to evolve, as opposed to the walled-garden approach prevalent in the past. Partnerships among the three types of players are likely, and some are already starting to take shape; the carriers involved in Google’s Android cellphone platform coalition include T-Mobile USA Inc. and Sprint Nextel Corp. Smaller carriers-the No. 3 or No. 4 operators in a market-are likely to turn to the IT players for differentiation that will help them compete against their larger rivals, Chaudhury said.
Less broad-reaching arrangements between I.T. players and handset makers also could occur, he said, as I.T. players try to expand into the mainstream.
Neutral turf
One of the other important factors, according to Kagan, is trying to figure out which of the smaller players will be the next Google or YouTube.
“Which companies are going to be next?” Kagan said. “We don’t know who will get in early, who will drive the direction.”
For now, analysts agree that it’s too early to tell just what will happen in the next few years. But when asked what approach carriers might take to preserve their role and control, Seybold said that discussions with potential rivals are important.
“I would be sitting down with the people that are threatening my future,” he said. “I would work on common ground, trying to learn what their requirements are and explain why I have mine, and try to put together a partnership that would end up somewhere in the middle.”
