If you think the debate about how operators can avoid becoming “dumb pipes” is some sort of academic exercise, then this week would have put paid to that. The ability of operators to actually apply QoS-based “service enablers” as part of a monetisation strategy is now paramount.
If you think that net neutrality would only concern people in hipster trousers with large Torrent addictions, this week showed that the application of net neutrality regulation has the potential to stymie European operator’s best laid plans for revenue protection and generation.
Exhibit A: French regulator ARCEP says mobile operators in the country have to stop blocking or limiting usage of OTT apps and services. One snippet here: in France there is one operator who, on five of the seven internet packages it sells, is still either blocking or limiting “OTT” IP services such as VoIP. This has not pleased the regulator, who has advised that operators be told to stop such goings on, or face the consequences. (Governmental intervention) Whether the government will intervene is, of course, a moot point. One of the paybacks for “tolerating” the fourth entrant Free Mobile, has been a more forgiving approach on net neutrality and the floating of items such as the “Google Tax” than in The Netherlands, say. Even so, ARCEP’s report is now before parliament and government, and its recommendations are clear.
Exhibit B: Analysys Mason’s Rupert Wood, a man who, two years ago, was correctly pooh-poohing the more aggressive data usage forecasts, returned to his theme to warn that there really seems to be little way out for mobile operators other than accepting their role as low margin, low investment companies, managing decline to its inevitable, consolidated, end.
The issue for Wood is not of reams of OTT data clogging networks and remaining stubbornly “unmonetisable”. It is that there is not enough data flowing over cellular (as opposed to WiFi) networks.
Wood’s thinking is that the price per bit delivery is coming down so low, and competition is so intense, that there’s not much operators can do but manage margins. That leads to a lack of investment in new networks and services. His headline grabbing sentence (and this is in an analyst note titled “Crisis ahead”) was, “it's not getting dangerously expensive to cater for demand; it is getting worryingly cheap to transport what little demand there is.”
How can that be, then? After all, if it’s very cheap to transport traffic, then margins must improve as a result. Here’s his reply.
“What I'm arguing is that mobile networks will be suffering because they will have too little traffic. At our projected traffic levels the total cost of transport will fall (unit costs erode faster than traffic grows). Wi-Fi is the largest factor influencing this low level of growth. You are right that the response from operators will be to reduce costs, but if they all do this, the revenue derived will be reduced too (only a cartel or monopoly would stop this happening). The result is an industry that keeps some margin, but which shrinks at the top line, and ultimately shrinks in terms of investment (a bit like fixed has done).”
So what are the possible responses? Wood said:
“MNOs should attempt to drive all sorts of mobile traffic harder (which drives down rev/GB), [or] MNOs should attempt to increase the proportion of traffic that carries a premium (basically handset traffic) – the danger with this is that they will probably have to invest in margin elsewhere to pay for this, basically the distribution part of the business."
“The truth is that mobile operators in developed economies are going to have to get used to being the victims, not the perpetrators, of disruptive substitution… Whatever happens, we believe that mobile operators will have to re-adjust to higher-than-expected unit prices and lower-than-expected volumes. At worst, they will have to think about managed decline.”
Exhibit C: In the M2M value chain, a key strategic area for many mobile operators looking for new revenue lines, the biggest value opportunity lies in "service enablement", according to one key analyst. Revenue growth from connectivity and provisioning is limited, and will be flat. Only one major European telco is even "theoretically" lined up to move into the "service enablement" area. Telefonica is trying but isn't there yet. And only two M2M vertical sectors are ready for "breakthrough" from the trial and error phase.
Exhibit D: A bad week for Håkan Dahlström and Julio Linares, shown the exit door at Telia Sonera and Telefonica, respectively. In a tough week for an operator fighting off corruption charges, and seemingly considering some sort of exit from a market in which it is driving high growth in, Telia Sonera still found time to axe Dahlström, the head of its mobility services unit. Happens all the time? Well, the issues we outline above contributed to his demise, as his division is charged with not delivering the sort of performance shareholders and boards require. When the Telia Sonera CEO talks of “increasing challenges”, these are exactly he sorts of things we are talking about. Telefonica, with its specific Spanish macro-economic difficulties is a slightly different case, but companies don’t change COOs with 40 years in the business lightly.
Meanwhile, from the opposite corner comes a blog post from Compuware’s Richard Stone. Stone offers some sort of path towards the QoS-based future, where operators offer value back to content providers and application developers, for mutual benefit.
Yet as the debate rages about iOS and Apple’s new location and mapping app, there is a voice that is conspicuously silent: that of the operators, who are now viewed as utterly irrelevant in the great mobile service debates of our time.
Some are taking action to change that, of course. But it’s telling that in a week when we have seen one of the great OTT lunch-eaters fail, there can be no response from the operators to “add value” for consumers. The option is to move to another hungry OTT app or provider.
Keith Dyer

Editor

Mobile Europe