The network is the phone

It's time for operators to dust off one of the more insightful aphorisms of the 1990s and apply it — with a bit of a twist — to the coming expansion out of the mobile data network.

“The network is the phone.”

At the heart of Scott McNealy's original “The network is the computer” declaration was the assertion that infrastructure, rather than end points, should be the repository for the intelligence and control of communications systems. Though McNealy was addressing the development of high-speed fixed connections to the Internet and private networks at the time, the emergence of the Apple iPhone and other intelligent end devices attached to mobile networks should induce operators to breathe new life into the old slogan.

While the iPhone and App Store are unquestioned successes for both Apple and the operators working with Apple, carriers would be better off in the long run to apply the App Store model to their own networks instead of relying on partnerships with handset providers.

And that's where “The network is the phone” mantra comes in.

If operators are going to insert themselves into the revenue stream of third-party content and service providers, which tap into the operators' unique resources — such as payment systems, customer information and telephony functionality — they need to open up their networks for use by these third parties. The key, however, is for operators to expose these network resources in a manner that will attract the same developer community that has been prolific in building applications and services that run on the iPhone and other smart devices. If operators can make their networks as accessible or nearly as accessible to developers as the iPhone, they will be able to offer their own versions of applications stores.

The added value of a network-based App Store, however, will be the incorporation of network-based features, such as presence and location information, as well as other contextual information about the subscriber and his or her habits and preferences. But the major differentiator of a network-based application store is the ability to execute those apps on any device attached to the network, not just a specific brand of handset.

While a network-based application store is by no means a simple proposition for carriers to pull off and is subject to the 80% rule — applications, even in a best-case scenario, are likely to be compatible with about 80% of devices attached to the network — the dividends could be significant. Though the sale of applications will generate additional revenue — probably not a tremendous amount at a dollar or so a download — the real competitive benefit would be the stickiness generated by an operator that could boast of providing all subscribers with access to thousands of inexpensive applications and services.

The destination of a network-based application store can be reached by multiple routes, which are often overlapping. Accordingly, most operators are likely to pursue a combination of options: service delivery platforms, industry standards and initiatives, and outsourcing.

Regardless of the blueprints operators follow to construct an application store, the finished project must provide the carrier with the ability to attract and retain subscribers and to capture revenue beyond that realized through basic transport services. Adopting “The network is the phone” business model, along with other approaches to monetizing their unique assets, represents the best bet for operators to push into a strong competitive position among 21st century communications providers.

Joe McGarvey is principal analyst covering the carrier-based voice-over-IP and multimedia services markets.