Carriers' evolution to integrated service providers

One of the harsh realities of the telecom world is that margins have increasingly shifted away from network operations to service and content provisioning. A recent study by Deloitte & Touche found that in the future, only 15% of telecom revenues would go towards network provisioning. The main reason is that bandwidth has been commoditized. We have already seen this in the wireline world and the collapse of the long-haul bandwidth providers (Williams, 360 Networks, Qwest long-haul, Global Crossing, etc.). The wireless arena will be next, mainly due to intense competition, market saturation, declining prices and the success of unlicensed spectrum, mainly Wi-Fi. In Europe, of course, the 155 MHz of additional spectrum allocated for 3G has added salt to the wound. Being a transport carrier will not pay off for long.

Although mobile data as a value-added service has been touted as the savior of this doom-and-gloom scenario, wireless service providers are wary of the success of wireless data as an independent business since to date there has been no successful wireless data service model. The only large-scale wireless data operation was implemented by Metricom, which--despite the millions of dollars raised--ended up in bankruptcy and wiped off the wireless data map. Omnisky, a smaller operation, has succumbed to the same fate. Consequently, the nagging question for wireless carriers is "Will wireless data fly without the support of voice revenues?" The simple answer is that a single-network company with closed content and application will not thrive for long, and mobile data, once again as a transport service, will be a failure. Offering 100 Kbits of vanilla data per month for $39.99 is equivalent to offering 400 minutes of voice for the same price; it is still in the realm of transport services. The margins of mobile data will be derived from a variety of wireless networks with a variety of content, applications and value-added services.

Deloitte Consulting had estimated that in 2003 and in the initial stages of the launch of 3G, content and applications would only account for 10% of the mobile telecom market. This forecast is not far off (the majority is coming from simple SMS), since wireless carriers are still in the Middle Ages of the cellular market, protecting their domain, not allowing a share of the revenues for content developers and therefore robbing themselves and the market of interesting content or ensuing revenues. For mobile data to really take off, it has to leverage the Internet. Wi-Fi, whose primary role is to be the main access conduit to the Internet, will facilitate this paradigm shift. Millions of consumers use the Internet daily, and with proven success. Because WLANs by their high-speed nature imply content-rich applications, they are a very potent introduction to the value of wireless data for customers and a valuable experience for carriers. Wireless data offerings up to now have revolved around creating an artificial need rather than providing a product or service that helps customers execute an important process in less time, more efficiently and for less cost. NTT DoCoMo, who has demonstrated great success with wireless data, always played down the high-tech capabilities of mobile phones to make sure that ordinary consumers used the phone for its simple functions rather than access to the Internet.

Offering Wi-Fi services in the three markets of consumer/SOHO, enterprise and hot spots allows carriers to gain data experience, gives them enough time to establish relationships with application developers and systems integrators and, more importantly, has many lessons in store for them. In provisioning access, which party takes care of the customer: the ISP, the venue owner, the network provider or the enterprise--and who will manage the service? Who provides the customer care? How do all the different wireless devices and access methods tie into each other and communicate? Who bills for the service and who takes what percentage of the revenues? Who provides the security and the corporate VPN? These are all tough questions that can only be answered through assembling a wide array of content, software and application developers and middleware service providers and integrators, and facilitating their cooperation. To be able to assemble all these different third parties, a new and improved organizational structure that is less focused on the network and more focused on third party and customer relationship management is necessary.

>The real advantage to offering public Wi-Fi is that carriers will be exposed to a fast-moving segment of the market which, by its nature, requires less emphasis on network provisioning and QoS and more on anytime/anywhere access to data, requiring the ability to operate on all segments of the wireless value chain, managing partnerships, placing more emphasis on owning and managing customer relationships and even content development rather than "only" worrying about the network.

Wireless carriers have had difficulty with public Wi-Fi's concept since the business model is different than their customary vertical investment structure. Wi-Fi comes from a networking Ethernet background and therefore requires horizontal and distributed investments which are viewed on a cost per connection basis whereas cellular service is more telecom oriented where a few players centrally invest the money and pricing revolves around cost per bit or per time. Carriers need to keep in mind that the Wi-Fi model ultimately brings in more bandwidth at a cheaper price.

(For more information on other areas of the WLAN market, please refer to eTinium's study Seamless Mobility: The Marriage of 3G and Wi-Fi.)

Goli Ameri is the President of eTinium, Inc.,  a telecom consulting and market research company specializing in wireless and switching technologies. She can be reached at gameri@etinium.net or (503) 968-8437.