Smartphones and mobile apps – the future of mobile operators?

Probably quite a few of you telecom professionals follow various industry news services and technology blogs, like I do. Browsing through my standard set of web sites, I started thinking about the topics highlighted and their relevance to everyday telecom business.

The sites I follow concentrate on news about mergers and acquisitions (usually speculative or busted ones), the latest and most wonderful smartphones, and of course, the industry revolutionizing app-business. I have to say that I do find the news interesting,  but the relevance to everyday telecom business…

Now, some fun facts for reference. The app-business total revenue 2011 is forecasted to be in the range of USD 15 billion and will grow to be around USD 50-60 billion in 2014. Apple’s impressive total revenue  for FY2011 is forecasted to be in the range of USD 100 billion. Current estimates for the total revenue of telecom business vary roughly between USD 2 000 billion and USD 4 000 billion. Wait, did I add a zero or two there? No I did not.

Today, and in the not-so-near future, the vast majority of telecom operator revenues will continue to come from traditional telecom services. One person talking to another, one person texting another, one bit being transferred from point A to point B. Maybe we can scrap the old rule of thumb for mobile operators: 90 % of revenue comes from voice and of the remaining 10 %, 90 % comes from SMS. Today mobile broadband does contribute significantly to revenue, however, the content business only contributes marginally.

I’m not saying smartphones and apps aren’t significant from telecom operator perspective. They are, but we need to understand what is their impact on the telecom operator business and how they can be used to drive the business. Taking into account total volume of the businesses in question, there’s not much money for operators to make directly from apps or smartphones. Thus, the business impact must be indirect. It is easy to recognize at least two ways telecom operators can see a positive impact in their business.

Number one: operators are in the business of transferring bits. They fulfill a customer need, be it talk to someone or update Facebook status. Smartphones and apps rely on this service. How smart would an unconnected smartphone be? Naturally, anything that increases this need for operator services would be good for the operators.

Number two: many customers do not recognize that their operator is actually offering them a service, and even less the essential nature of the service mentioned in my first point above. Rather, they see themselves as customers of Apple, HTC, or Nokia. By offering a selection of the sexiest smartphones, operators will be able to increase the sales of their subscription packages. Selling a subscription bundled to a handset is nothing new, but at these times the handset is seen by customers as an even major contributor of value than earlier.

Becoming a bit pipe is being feared by the vast majority of operators. However, a bit pipe business is good business has been since A. Graham Bell and will be also in the future. As in any industry, only the best – the most effective and efficient – players live long and prosper.

One way for an operator to be effective in the smartphone and app world would be to make sure the service they are providing, should we call it smartphone connectivity, is on a sufficient level. It would be bold to say that an operator could differentiate itself from the competition by offering a superior smartphone connectivity service, but certainly no
operator can afford offering a sub-par service.

The efficiency perspective is quite obvious: how to minimize the CAPEX and OPEX related to the production of the aforementioned quality. I believe the modern term for this would be the monetization of the network. In practice optimization of the production cost would mean optimization of the way additional mobile broadband capacity is implemented in the network.

Operators would do well by getting their traditional act together and continue prospering for another century and a half.