Analyst Angle: The wireless operator of tomorrow

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
With my background working for a major wireless original equipment manufacturer and spending most of my career consulting with wireless operators, I started thinking about how this space would evolve in the future. As operators seek to increase their subscriber base and average revenue per user, they are faced with major technology and asset investment decisions. Their goal is to provide cutting-edge wireless services that attract new subscribers and maintain the quality, choice and cost levers that allow them to minimize subscriber churn.
Addressing operators technology needs are Wireless OEMs that cover the network (radio, core, transport, etc.), subscriber equipment OEMs (handsets, data-cards, etc.), subscriber management OEMs (billing, customer, etc.) and others. The operator today is facing inroad into its value differentiator from all sides. Handset OEMs such as Apple are creating the “real” demand for smartphones and the tremendous spike in mobile data usage, not the operators. Furthermore, infrastructure OEMs like Ericsson, Nokia Siemens Networks and Alcatel-Lucent are beginning to effectively and efficiently manage network operations for operators, a trend which has now reached North America with the operational outsourcing deal of Sprint to Ericsson. So what should the operator focus on, what is their key differentiator that will allow them to create value, given the above trends?
Monetize wireless access
Ask any wireless operator what their core focus is today and they will likely tell you that it is subscriber management. I do not believe that this is a future-proof strategy, given that devices are becoming more complex and will do much more than just “talk and surf the Net” in the future. Smartphones will become our virtual personal assistants in the future, taking care of our schedules, finances, health and security. Given this complexity and with the wireless network access only being a communication modem part of the device, it makes sense for the device OEM to own the subscriber relationship. The operator should instead focus on providing the highest quality wireless network access for any mobile commercial device to exchange information anywhere and anytime.
This means a future business model for operators that involves licensing wireless access of their networks to any device for a royalty fee; think of the wireless access as IPR that any device OEM pays for in order to provide a complete service to their end consumer. Imagine AT&T branding on devices with “AT&T Wireless Inside” for which the device OEM pays AT&T a one-time royalty fee per device with wireless access purchased. The billing model may be one that the operator manages on a prepaid or contract basis, but I believe to simply the solution for the consumer, a one-time added cost to the device with unlimited access and no contracts is the best solution.
A good recent example of this type of model is the Kindle device by Amazon, where unlimited wireless access is included in the device and book download pricing, and the operator makes monthly incremental ARPU per device sold. Financial modeling (LTV) will be required to determine the lifetime usage cost of the device to the operator and hence the ideal royalty fee to the device OEM, who in turn should be able to charge a higher average selling price to the consumer for the benefit.
Act as an innovation platform for devices & their applications
The operator that will be successful in moving to this new model will be the maven in opening up their network and creating standards to collaborate with all device OEMs to ensure that wireless access is powered by their network and brand. Think of this as a time to market and market share race similar to the likes of Blueray vs. HD-DVD, where the winner takes all.
Operators are in the best situation to understand the practical features and limitations of wireless technologies and can use this information to also provide developmental and testing services to device OEMs. This innovation platform will not only create a wider market for devices and applications, but if done successfully, will also create another link in the chain of differentiation for the operator, very much like Apple did with creating iTunes for their iPods. Operators will also be able to leverage powerful usage statistics via data-mining available from the network in order to work with their device partners to ensure that the devices are meeting the expectations and new needs of the consumer, much like grocery stores like Wal-Mart use their consumer purchase data to with their manufacturers to adjust supply vs. demand and product innovation.
In summary, I believe that operators of tomorrow can indeed carve a niche for themselves in the ecosystem of consumer mobility by providing the one part of the system that only they can provide; wireless access. But in order to do this successfully, operators will have to move from being B2C to being B2B companies, and license access of their wireless access benefit. Adopting a model similar to what I have described will eliminate some of the “net neutrality” problems that are plaguing the wireless operators today.
There is however one area of threat to the operator from the model described, and that is one from the Infrastructure OEMs deciding to vertically integrate themselves and instead of selling just equipment to operators, build and operate their own networks and do exactly what I was advocating the operator to do directly to device OEMs. They will have a significant equipment purchase and operating cost advantage, and given the operational outsourcing trend, could prove a serious threat worth considering.
In spite of the above potential threat, there is no reason why a savvy operator cannot work with their infrastructure OEM in a long-term lease and operate model, where the incentives for both parties are aligned towards growing revenue and sharing in profits. Further description of such a model was described in my article, The Evolution of the Wireless Infrastructure OEM” published by RCR Wireless on Nov. 4. Companies that are successful in adapting to change and transforming themselves are those that deliver a complete solution to the consumer that simplifies their life, provides them greater personal control and flexibility over the solution and delivers greater value. If you are in a position to achieve this intrinsically, great, but if not, external collaborations and strategic partnerships are the keys to success.
Sanjay Ambekar is the Co-founder and Partner at NGN Consulting L.L.C. (www.nextgnconsulting.com) and can be reached at sanjay@nextgnconsulting.com.