Who is best placed to deploy new services?

When it comes to deploying new mobile services such as location based offerings it would seem obvious that the best companies to do this are the mobile operators. After all, they have access to the network, access to the customers, a strong brand and enormous financial muscle and leverage over others in the supply chain. And yet, their track record is very poor. For example:


  • Attempts to introduce email services failed until Blackberry arrived, effectively bypassing the operators by installing devices in the corporation and software in the handset and just using the data facilities of the operator’s network.
  • Attempts to introduce Internet access using “walled gardens” such as Vodafone Live gained little traction, it was the introduction of the iPhone and associated browser which translated any web page into a form ready for use that revolutionised the mobile internet – again only using the data facilities of the operator.
  • Attempts to introduce location-based services by the operators mostly failed, it has again been Apple that has achieved much in this space using simple information such as cell location, bypassing the operator.
  • Although it is early days, it appears that watching mobile TV is more likely to occur via a download from the iPlayer to a podcast suitable for a mobile device than through anything offered by the operator.


Indeed, it is hard to think of a single example of a service that the mobile operators have introduced that has become successful despite many years of trying, not just with the examples above but including picture messaging, home zone tariffing, push-to-talk and other user group services, mobile payment, music services and so much more.


What the mobile operators have done well at is the provision of “bit pipes” – basic carriers that transfer voice and data from one place to another. Voice and SMS have been hugely successful and more recently 3G data is starting to take off now that prices have fallen and operators are concentrating on bit pipe provision.


So there is something of a theme emerging here. Operators are very good at providing voice and data transfer but very poor at delivering services to run on top of these. This is despite their fear that they will be marginalised if they just become a bit pipe provider and that the only way to continue to grow and be profitable is to “move up the value chain” into service provision. Indeed, in a number of recent presentations by major operators they have stated that they do not think they can survive unless they start to capture some of the revenue from services.


So why, despite all their efforts and strengths, have operators failed so conspicuously to deliver services? Perhaps, firstly, because it is not their core expertise. For example, they have less understanding of location-based services than mapping companies or organisations like Google that have integrated mapping data and location into much of what they do. Secondly, because they are trying to extract more revenue from the service than is viable, or that consumers are prepared to pay. For example, operators sought to impose a “per transaction” cost for location services whereas consumers preferred free services, often funded by advertising. Thirdly, and more controversially, perhaps they do not have the right image with consumers. While they have a very strong brand it is associated with being a bit-pipe – with the provision of voice and data to a mobile phone – and not with innovation, with being cool or even with being a trusted entity. That is why individuals are much more willing to try a new service from Apple or Google than they are from Vodafone or Orange. Equally, they probably would not want Apple to deliver the voice service that they rely on as a core part of their life. Brand can be critical in these areas.


So we have a conundrum for operators. They want to avoid at all costs becoming a bit pipe because they perceive that this would result in lower profitability and growth and yet they are extremely good at bit pipe provision with a brand and organisation well matched to delivering this. Operators would prefer to deliver services but their track record is awful, they are routinely out-manoeuvred by organisations like Apple and they do not have the right brand or skills to achieve this. But is bit pipe provision such a bad thing? Without it no services can operate and hence it will always be required and will always generate reasonable return. It may be that at present operators under-price the delivery of bits and cross-subsidise from other revenue sources, in which case this may need to be gradually reversed so that bits are delivered at a price that enables a reasonable profit. If operators really wished to deliver services then perhaps they should split themselves into bit pipe organisations and service organisations, enabling separate branding, skills and focus, but it is hard to see this happening.


The implication is that operators should leave the development of services to those better suited, such as Apple, Google, Microsoft or even entities such as Amazon. By working with them and making various network parameters available they could stimulate demand, leading to great bit traffic and hence increased revenues.




2 Responses

  1. Fascinating.

    I’m sure this depends on particular market circumstances (and regulation), but I think there’s no shame in being a ‘bit-pipe’. Some argue that infrastructures attract a better valuation than operators anyway, and I do believe there is increasing scope for operators to distinguish their bit-pipe by the quality of service it offers – indoor coverage, throughput, customer service, devices supported etc.


  2. On further reflection, I think the real answer is a financial rather than ‘philosophical’ one. Service providers have the opportunity for rapid growth via addition of subscribers and services, but are likely to face greater competition and greater volatility in their revenues. High risk, high (potential) return. Infrastructures have greater predictability over longer periods, but relatively less scope for increasing their revenues. Lower risk, lower return.

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