By Frazer Bennett and Markus Hochenbleicher, PA Consulting Group
Mobile network operators have never felt the pinch like they do today. Alongside a persistent pressure on price and a spiralling demand for bandwidth, they are now caught in a pincer movement within the mobile business. From above come third-party applications and the rise of the open platform. And from below, comes the ongoing commoditisation of network infrastructure. They are starved of value and customer access from above, and have differentiation taken away from below.
To where, then, can the operators move? How should they play? Where in the ever-changing mobile value-chain will they derive most value?
A service sandwich
The value in a mobile network lies in three distinct layers--infrastructure, service, and applications. Where it was once possible to excel in all three, network operators must now focus on one. And as the pincer continues to bite, there may be little choice in which one.
Each layer operates individually and within each the opportunity exists for an agile player to respond to particular market drivers. Further, each layer is profit centre in its own right, ensuring best value is derived across the board.
Network infrastructure--it's more than just reducing cost
With more than 300 million mobile customers in Europe using the services of an outsourced mobile network, network outsourcing is now the norm for the mobile industry. Indeed the last decade has seen a variety of different approaches to outsourcing evolve. For example, within Europe there are now in place more than a dozen network sharing agreements--joint ventures that provide efficient capacity for a number of operators or brands. Alternatives to this most important of relationships will continue to arise.
The rise of the all-IP network has increased competition, reducing network deployment cost and complexity and enabling a greater degree of interoperability within the network. These are all advantages from which the managed services provider has benefited. But these advances have also resulted in increased demand from network operators to roll out new services - and to do so more quickly. Having relinquished ownership and management of the network, the mobile operator risks having insufficient control to be able to deploy such services in a timely manner.
This is just one example of why the relationship between the network operator and the managed service provider will be forced to evolve. We can expect relationships that are focussed on similar goals of customer experience, operational profitability, and in the end improved shareholder value. A much closer relationship will be required than has traditionally been seen.
As Jan Frykhammar, head of global services at Ericsson, said: "If the customer wants us to cut the lawn, we cut the lawn."
Applications and content: innovate or integrate
Within the space of just a couple of years, the world has become awash with mobile applications, and the software and hardware platforms on which these run. This has happened largely without the direct involvement of the network operator. Equipment vendors and platform providers have both stolen a lead in the provision of applications. In doing so they threatened further the close relationship between operator and consumer.
With the rise of the open platform and improvements in underlying technologies (processor speed, battery life, network speed), the application store has become the new shop in which to be seen.
But while this application marketplace is young and growing fast, it is still a wild west out there. Questions of quality, reliability, and being ‘spoiled for choice' persist. And here, perhaps, lies a chance for the network operator.
The traditionally close relationship between operator and consumer, as well as the operator's unique position of having access to important customer data both present the opportunity for the operator to enhance their scope of services. Smart services for the home, transport, health or mobile payments in the financial services sector are all examples of ‘vertical' application segments in which a network operator can build a better, and customer-stickier, applications experience.
Network Operators--champions in service
And so to what PA Consulting Group believes will become the heartland for mobile network operators within the next decade--the service layer. In transitioning their business away from ‘network centricity' to ‘customer centricity', network operators will win through innovation in this layer. An operator's business is not the tangible of infrastructure but the intangible of relationships.
Innovation in the service layer will mean offering enhanced value to customers through improved convenience, choice, and of course, cost. As networks migrate to being principally about data, the opportunities for new service types abound, and the expectation of customers will only grow.
By focussing on the service layer, operators derive the ability to streamline the innovation process. This delivers new products to market within weeks instead of months, enabling them to be nimble and take advantage of short range opportunities.
So, the time when the role of the mobile network operator was clearly identified and all-encompassing is long behind us. But can they escape the jaws of the pincer movement? Only if they establish long-term, profit-led partnerships in infrastructure and also help their customers to navigate the good, bad and ugly of the applications arena. All this whilst fighting fiercely through constant innovation in the battleground of the service layer. For us consumers this can only be good news.
Frazer Bennett and Markus Hochenbleicher are analysts with PA Consulting Group. www.paconsulting.com