Industry Voices—Mun: Devices to compete with networks for content distribution

MWC 2017 phones
This week's MWC Americas may show glimpses of how device manufacturers and carriers will compete in the content distribution segment.
Kyung Mun

The eyes of the mobile industry will be centered in the Bay Area this week as news cycles from the inaugural Mobile World Congress Americas tradeshow compete against a presumptive iPhone 8 announcement from Apple in Cupertino. As the battle over media attention looms from the “device” and “network” camps, it is interesting to reflect on how much device and app ecosystems have become influential in the telecom and media industries.

In the early days of smartphones (pre-dating the iPhone and Android), carriers used device subsidies to capture and retain postpaid subscribers with long-term contracts. In the early days, there were many handset makers vying to capture the growing smartphone market, including Nokia, Motorola, Sony Ericsson, HTC, LG, to name a few. Carriers had plenty of suppliers to choose from. Most smartphones were branded with carrier logos and preloaded with carrier-approved apps in early days. Remember AT&T HTC Titan, Verizon Q9M? Carriers had an overwhelming leverage of which devices and apps were seen by consumers.

The increasing importance of device revenues

Fast-forward ten years, and the device vs. carrier dynamic has changed meaningfully (at least for the duopoly of Apple and Samsung/Android ecosystems). With the increasing base of smartphone devices, and an increasing number of high-speed LTE networks launching worldwide, the device now has more impact than the network for many people. Rumors of the next iPhone costing over $1000 or more reflect the growing power of a major device maker like Apple. Charging more is a rarity in the technology space. Moreover, device sales through carriers in the U.S. have tripled in dollar terms over the past ten years, making up over 20% of the overall wireless revenue. With installment plans, the device sale is a growing segment of the mobile operator’s business.

In contrast to the growing influence of Apple (and Samsung to a lesser degree), network operators are constantly looking to lower the cost-per-bit economics and to layer on additional services to grow their businesses. With waning popularity of traditional voice calls and texting messages, it seems inevitable that the growing capacity of LTE and 5G networks will be filled with media entertainment such as Netflix, AR/VR, or other types of new content. Whether media ownership (e.g., AT&T acquisition of Time Warner) or partnership (e.g., T-Mobile’s Netflix on Us) is a way forward remains a question of what one wants and can afford. As high-speed 5G networks will undoubtedly carry more and richer media content, and content owners will increasingly look to device and app players, in addition to traditional network players, for content distribution.

Everyone will move into the content game

The competition for content will not just be from traditional network providers (i.e., cable and mobile operators), but also from device and app ecosystem players. When Apple controls content (like your music library) and the platform, they’re becoming stronger than the network operators. The concept of distribution has arguably expanded from the network to the device/app players now.

Consumer behavior is constantly evolving. Preferred modes of communication appear to have shifted from phone calls to texting to video chat (depending which demographic you choose), and people are consuming media content differently (i.e., away from linear TV viewing to on-demand video on wireless devices). Network operators are changing their strategies as well. AT&T’s diversification strategy of acquiring Time Warner, a traditional media company, contrasts sharply with the Netflix partnership strategy of T-Mobile. Meanwhile, Verizon’s online media acquisitions seem to replicate the old “walled garden” concept. The cable guys are trying to break into mobile, because mobile data commands a premium.

Whichever strategy is best suited for upcoming days of the mobile-cable-media reshuffle remains hotly debatable. Two things are certain: The networks will be faster, and devices will be more powerful—with more sensors and more ties directly between the device and the content. How those elements will be pieced together will be exciting to watch. Hopefully you will see glimpses of that this week.

Kyung Mun is a senior analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provides market analysis on the mobile infrastructure and mobile handset markets. Over the course of his 20+ years in wireless and cable industries in a dynamic range of roles from engineering to product management and technology strategy, Mun has contributed to the advancement of mobile communication while working at leading companies in the mobile value chain including Motorola, Texas Instruments, Alcatel-Lucent and a few startups in between. He holds undergraduate and graduate degrees in electrical engineering from the University of Texas at Austin and Georgia Tech, and studied finance and strategy at Southern Methodist University.