[By Duncan McLeod]
Mobile operators are desperate to associate their brands with Apple and its iconic iPhone smartphone and iPad tablet computer. It’s ironic, because the business model the US electronics giant employs threatens to turn wireless carriers into little more than “dumb pipes”.
Cellular network operators worldwide are feeling the squeeze. Intense competition in some markets is putting pressure on voice margins as tariffs come down. In markets such as Kenya and India, the cost of a voice call has fallen so far that some operators are warning their investment in new infrastructure, including wireless broadband networks, could be imperilled.
On the data side, the squeeze is also on. The cost per megabyte for cellular data has plummeted in the last decade and some industry executives believe it could tumble another 90% in the next five years. Ten years ago in SA, cellular data cost R50/MB. Now, in some cases, it’s down to as little as 2c/MB — and falling.
Wireless operators the world over are pinning their hopes on broadband as pressure on their voice revenues shows little sign of letting up. Data is making up an ever-increasing proportion of their revenue mix.
But there’s a problem. Competition in data services is intense. It’s unlikely the operators will ever make the same sort of margins they enjoyed from their voice businesses.
The hope and expectation, then, is that the cost of building mobile broadband networks will continue to come down. Intense competition between network equipment manufacturers is helping: it’s cheaper than ever to build networks and get broadband modems and smartphones in the hands of consumers. That’s leading to exponential growth in demand for data in all its forms.
As the per-unit cost of data comes down, the fervent hope is that consumers will continue to consume more and more data and so keep revenues afloat.
But this is a big and risky bet. Operators know they need to find new revenue models to keep their profit margins from tanking in the long term. The problem is, finding these new models is not going to be easy — and it could put them in direct competition with other industries, including media and financial services, for the first time.
Though they’re keen to associate themselves with Apple — and who wouldn’t, given the incredible consumer demand and sex appeal associated with that company’s products? — the truth is they’re also watching Apple with a wary eye.
For it is Apple, more than any other company, that has perfected a business model that threatens to turn network operators into little more than low-margin dumb pipes on top of which others profit.
To be sure, the operators would love a slice of the billions of dollars in revenue that Apple and other software and handset manufacturers make through their application stores. Apple sells ring tones for its iPhone handsets, for example, cutting the operators out of a potentially lucrative market. Most mobile phone manufacturers are developing similar online marketplaces, hoping to cash in on consumer demand for applications and services. In the process, the operators are cut out of the loop, having little to offer but bandwidth — in other words, relying on the dumb pipe — for their revenue.
Local technology entrepreneur Stafford Masie — a former country manager at Google — believes the operators have missed a trick. As their traditional voice businesses have come under pressure, they’ve refocused their energies on building faster and cheaper data connections. What most of them have failed to recognise, he believes, is that the real moneymaking opportunity of the future is in facilitating transactions on the mobile phone. But that, necessarily, will put mobile operators on a collision course with banks. Masie says such a “digital clash of civilisations” is inevitable.
Whatever happens, competition to the mobile operators is coming from unexpected quarters. And the operators themselves are going to have to start competing (partnering, where it makes sense) with other industries.
Already, the lines are blurring between traditional mobile operators and fixed-line providers. In SA, the two big incumbent mobiles, MTN and Vodacom, are increasingly playing in the space traditionally occupied by Telkom. The two companies are building fibre as fast as they can and offering IT and data services to business customers. And Telkom is entering the mobile industry, last year launching 8ta and later this year planning its first bundled and converged mobile and fixed services for the enterprise.
But it’s in the consumer market where Masie’s real “digital clash of civilisations” is going to take place. Mobile operators aren’t going to sit idly by while other companies profit by turning them into providers of dumb pipes. They’re going to fight back. And that’s going to put them on a collision course with the likes of Apple and Google and, ultimately, with the banks.
- Duncan McLeod is editor of TechCentral
- This column was first published in MTN Business’s customer magazine, Di@logue
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