OEMs, retailers poach operators' data customers

There will be 2.5 billion connected data-centric devices in use worldwide by 2014, but more than half will not be mobile phones, and many will not be sold by carriers, according to new research from ABI Research. These devices, including laptops, netbooks, eReaders, portable navigation devices (PNDs), mobile media players, mobile gaming devices and digital cameras, will make up 1.5 billion of the wirelessly connected devices on the market in 2014.

This non-handset category of devices will blur the service provider line even further, giving wireless operators a run for their money, according to senior analyst Mark Beccue. While the network connectivity will have to be provided by carriers, most of the devices are not typically sold by them. As a result, original equipment manufacturers and large retailers selling these products will adopt the mobile virtual network operator (MNVO) distinction and become major provides of the cellular connectivity they use, he said.

Beccue spoke with AT&T, Sprint, Verizon and Clearwire, all of which were amicable to taking a backseat to the retailers and OEMs, he said. While they are all pursuing the fourth-screen opportunity, they realize the business models are murky and there are forces working against them in terms of owning the customer. Most will pursue wholesale agreements instead.

"They look it and go, 'If I have a personal navigation device, does it make sense for someone to come to me as a carrier and buy the connectivity? No, it doesn't,'" Beccue said. "They think they can't necessarily front that customer the best. They can't give them the options for how they want to pay for that the best."

Beccue said he expects data plans offered by retailers and OEMs to focus on pay-as-you-go services or to follow the example set by the most successful fourth-screen device, the Amazon Kindle. Amazon wholesales connectivity from AT&T (originally Sprint), and the connectivity cost is built into the price of the content. The consumer typically does not know nor care where the connectivity comes from, although issues could emerge around stipulations that books are downloaded at off-peak times, Beccue said. Other possible business models are still being imagined, including an option that could bring the business back to the carriers.

"If you can do multi-device subscriptions and it gets parsed out a bit so you have all these things and they are connected, then you'll want to go to AT&T or another carrier and ask for a plan and a subscription that makes sense for you," Beccue said. "So it could go back around to that. Maybe the models shake out a bit."

That being said, even a subscription model of this sort supports the strength of a retailer as the service provider. A neutral third-party would be best able to aggregate devices that run on multiple networks into one service plan. Furthermore, a big box retailer like Best Buy already has an understanding of the devices, relationships in place with multiple carriers and a growing presence in mobile phone sales. When Beccue raised the possibility of an exclusive carrier distribution agreement to Best Buy, they balked at the idea. Multiple carrier relationships puts them in a good position to cobble together multiple service plans and networks for an attractive customer offering built around choice, Beccue said.

"The retailer is in the best position," he said, adding that overseas in fragmented addressable markets that lack dominant retailers, OEMs are the more likely candidate. Especially with netbooks that use agnostic Gobi chips, a consumer could even have the option of what network to use, and the retail outlet would then negotiate the deal.

While this trend will span all developed consumer societies, Beccue expects it to be particularly strong in North America. Here consumers are already accustomed to multiple device ownership and huge retailers. As a large integrated market that also has several wireless operators with established customer relationships, new service providers won't dominate, but they will make a dent. Beccue said they would provide as much as one-third of the 595 million expected mobile data connections in 2014.