March I 2007

Fredric Morris, Editor-In-Chief, Connect-World
Fredric Morris

The Wall
The 3GSM show, in its second year in Barcelona, has been constantly growing since its years in Cannes. The movement, and the number of exhibitors, is greater each year year. Vendors and operators vie to show off their latest and greatest equipment, services and plans. The talk is optimistic, hype – bull – abounds. The bull must have moved across the plaza in front of the 3GSM show from Barcelona’s now closed Monumental Bullring – currently shrouded, top to bottom, in 3GSM related advertising.
Bull apart, the major presence at the show was neither much noted nor commented; it was the Wall, with the chilling word, COMMODITY, writ large upon it. It might even have been the same wall upon which the biblical warning to the Persian king was written – Mene, Mene, Tekel, Upharsin – roughly, you have been weighed and found wanting, your days are numbered and your kingdom is done.
Wireless operators, like it or not, will soon be facing the same fate as fixed operators; they will, as well, inevitably become purveyors of a commodity. Wired and wireless operators alike both tend toward becoming BFDCP – big, fat dumb, cheap, pipes. There is nothing wrong with BFDCP; lots of money can be made providing them, but competition is tough, the margins are low and growth – if any – after a given point, is predictable.
Services, applications and content they say is the way to go, to build relevance, market share and a bullet-proof future. Content is king! Kinging, is good work if you can get it, but from Ozymandias to today’s mostly ornamental monarchs, it has not proved to be as good a job as legend would suggest. Kings die, are killed, deposed or just sort of run out of steam – they generally don’t have much of a future.
At the 3GSM show, content and multimedia had a hall to itself this year. With a number of notable exceptions, the representatives were too often more seedy than kingly. The problem with content over the long term is that it suffers from some of the same problems as the ‘pipe’ – people can spend just so much. There is always pressure for fixed commodity priced solutions that users can pick and choose among to ‘personalise’ their experience. Over time, given competition, and the need to keep the churn down, prices will drop and more and more content will be bundled in fixed-price packages. The BFDCP will be filled with BFSCP, big, fat, smart, cheap (content and application) packages, a truly nice commodity fit that will get, smarter, fatter and cheaper as time goes by.
Businesses will spend what they must for the services they need until another provider – as always happens – does it better or cheaper. Network owners, though, are uniquely positioned to provide a number of user management and security services, among others, that only the network controller has the ability to provide. The key word is control. Today, the big operators control their networks, but equipment manufacturers are pushing the day when users will have seamless access to whatever networks happen to provide the best (commodity) service, and (commodity) price for whatever users need wherever they happen to be at the moment. When this day comes, the network operator’s current advantage in this domain will vanish and a host of new management and security problems will appear. Protecting intellectual property rights, and controlling seamless access rights and security over a constantly changing network configuration, will bring especially challenging problems I can barely begin to imagine.
Mobile operators do well, despite the need to heavily subsidise handsets in many major markets to ‘buy’ and keep subscribers. The subsidies let them control the handsets and the services that can be accessed by their subscribers; operators often disabling access to services and applications, such as Skype, harmful to their revenues. Although subsidies cut the subscriber’s initial investment, at times to zero, it also means operators must charge more; none could survive at the US$7 ARPU (average revenue per user) that some of India’s mobile operators are said to make a profit on.
The push by handset and network equipment manufacturers toward seamless interoperability and WiFi enabled handsets has most wireless operators worried. Few, for example sell WiFi enabled handsets and most are betting their future – at least short term – upon finding network strategies that will allow them to maintain their control over mobile access.
To give their networks the competitive edge they need to survive, operators are placing their hopes upon newer, faster, versions of mobile technology, such as LTE (Long Term Evolution), to outperform the WiFi and WiMAX services they will compete with. Vodafone’s CEO Arun Sarin, made the stakes clear with his keynote speech warning that, “We need to make sure that LTE is not still at the standards stage, while WiMAX is a commercial reality.” Mr Sarin also threatened to consider using the promising OFDM (Orthogonal Frequency-Division Multiplexing) technology if LTE did not move faster.
WiMAX, especially the newly standardised mobile version, is a greater threat to mobile operators than WiFi because of its much greater range, its mobility and flexibility. Fortunately for the mobile operators, WiMAX, according to a number of engineers at the show, is having teething problems, mainly with network element interoperability that will delay its full scale deployment until they are all sorted out. Apparently the much heralded standardisation of its mobile features left a bit too much room for interpretation. Differing interpretations have caused problems when integrating equipment from diverse manufacturers.
Despite their attempts to block handset access to WiFi and WiMAX, the operators know they are only fighting a delaying action. Recent court challenges in the USA based upon the Carter decision that loosened AT&T’s monopoly over the equipment used on its network will probably force the mobile operators to let unblocked handsets access all the services and features of their networks. Similar efforts are underway in Europe.
The use of unblocked equipment – including, in the future, software configured ‘cognitive radios’, which automatically make the best use of whatever spectrum is available – and IP across-the-board for all communications, will make possible seamless access to almost any network. It also might destroy the mobile operators’ current, lucrative, revenue model. This won’t destroy them, any more than the fixed operators have been destroyed by mobile, but their world will never be the same.
Seamless access will be truly disruptive to all; there is hardly a facet of the business that will be left untouched. It will even disrupt the business models of handset providers accustomed to sell specially configured, blocked phones to providers. The changing business models will increasingly force handset manufacturers to sell directly to a very price sensitive public. The growth of this sort of model for handset sales will tend to force prices down. Still, recent experience with ultra low cost handsets (ULCH), handsets that cost less than US$30 ex-factory in developing markets proves there is a lot of fat to cut not only in basic models, but in larger screen, full keyboard, broadband capable models. It may take a few years, but we are sure to see under US$100 and, eventually, under US$50 full keyboard, colour screen broadband, WiFi, WiMAX, and GPS enabled handsets.
These low cost handsets will certainly become the developing world’s primary access to the Internet, and might well become our primary access as well.
One thing is sure; although not all those in the sector believe the handwriting on the wall, few are very comfortable about the looming industry shakeout.

Our next Connect-World Europe Issue will be published later this month. This edition of Connect-World will be widely distributed to our reader base and, as well, at shows where we are one of the main media sponsors such as: MVNO (27-28 March, Madrid), Sviaz / Expo Comm (14-18 May, Moscow), FT Mobile Media Conference (15-16 May, London), Wimax World Europe (29-31 May, Vienna), and Von Europe (11-14 June, Stockholm).

The theme for this issue will be, The network business – strategies for tomorrow.
When speaking of networks, conventional wisdom and traditional business models no longer work as they did. The lines are blurring in the fixed, mobile and even broadcasting markets. Wired networks now handle traffic once thought suitable only for wireless and wireless is substituting wired in a broad range of applications. Seamless handoffs between wired and wireless networks –and, indeed, mergers, partnerships and consolidations bringing together networks and players of all sorts – further confuse the once prettily organised networking landscape.

This issue will examine what these changes in technologies and the market mean for the sector. How can the residential and business consumer best be served? What does the future hold for network operators of all types?


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