Back in the early ’90s I happened to do a piece of research in relation to the UK government’s intention to award mobile phone wireless spectrum and accompanying PCN licences. At that time there were two mobile phone incumbents, Cellnet (now O2) and Vodafone, who both had licences and operated on the GSM network at 900MHz. The new licenses were for the PCN (GSM 1800) technology network which operated at 1800MHz, which due to the higher frequency had lower penetration power and therefore required more masts to create the coverage. The licences were awarded to Microtel Communications Ltd (which after the Rabbit network became Orange) and Mercury Personal Communications Ltd (which became One2one and eventually t-Mobile).
So why is all this technology detail of relevance to business models? Well, last year saw Orange and t-Mobile come together to create Everything Everywhere from a network perspective and this week we saw Vodafone and O2 announce a network share also. Back in the ’90s when the UK government auctioned the PCN licences it was partly about raising revenue, but it was also about increasing competition and at that point in the growth of mobile telephony they needed to create competition at the network level and the retail level in the model.
Over the years we have seen the market grow and mature in terms of voice and then as with Schumpeter’s Theory, the next technology wave was related to data usage with the advent of 3G network technology and smartphones. With this new data based wave the traditional incumbents are being challenged on multiple axes.
Firstly, their traditional voice and text revenue streams are being attacked by the likes of Apple with Facetime and Messenger, Microsoft Lync, Skype and a raft of other start ups who are all making a play for ‘unified communications’. We all want to receive our communications on which ever platform we are using at the time and therefore mobile phones are but one device and this puts the traditional mobile players at a distinct disadvantage.
Secondly, with the increase in data hungry consumers, the demands on the network infrastructure is ever increasing. Good network performance, both in terms of bandwidth and latency (which is more important with the increase of streaming video) becoming a competitive differentiator. The impact of this is that despite having invested invested heavily in their networks since paying a rich premium for the 3G licences, the current networks are at times overwhelmed by demand and the service drops noticeably for the users. To get to a quality 4G solution undoubtedly further heavy investment is required.
Thirdly, with smartphones comes richer and more diverse apps and content. All of which is an opportunity for value creation but also a challenge in terms of distribution through the existing networks.
So having learnt from the 3G wave, what we are seeing is a realignment of the various solution components in advance of the next technological wave which 4G will likely bring. What the current network operators are dealing with is the understanding that to bid for the 4G licences, and upgrade their networks to give at least acceptable performance would probably be uneconomic. We are currently in a world where users expect and omnipresent network service but where users currently value content and hardware higher than the underpinning network architecture.
So, whilst the consolidation of the network layer could look like an end game it is likely that it is merely a single move in a re-engineering of the business model and will likely see more subtle moves as each of the operators now positions to differentiate their offerings using other types of innovation.
It leaves open questions such as:
- will we see either of the network groupings go one step further and outsource the network operation in totality, buying back bandwidth at a performance;
- whilst the network operators have bricks and clicks retail networks they tend to only sell physical products or services that include physical products, so will they try and move out further into content?
- will consumers wake up to the importance of distribution and be willing to pay a premium for better performance, possibly giving the network operators the ability to bundle and differentiate their content in a different way?
What is certain is that we will see various approaches between the operators and possibly new entrants. You only have to look to India to see the art of the possible with Bharti Airtel which has become, in its own words, one of the top 5 global mobile service providers. It has grown to over 246 million customers across 20 geographies in a relatively short time and it has achieved this without owning a network.