Matt Bancroft argues that an open wireless marketplace drives huge benefits for all participants. First among these is that the marketplace as a whole becomes larger; the availability of a broader and richer set of devices and services drives more mobile activity from more types of mobile users. Not only do service providers benefit from this overall market growth, but a host of opportunities are created for partners and third-party vendors as well. End users benefit from a broader set of compelling, competitively priced services
Discussions about openness in the mobile arena have, for the most part, centred on the operators. How open are the major mobile carriers like Vodafone, Orange, T-Mobile and others today? When will they become more open? How open will they get?
There are three other key elements to openness in the mobile marketplace:
- Open devices - devices that can be obtained through multiple channels, will run on multiple networks, and can be personalised with services, features and applications that are added after the device is in use.
- Open services/applications - services, features and applications than can be easily obtained and enabled after the device is in use, and that can come from either the primary service provider or from third-party providers (eg off-deck/off-portal services).
- A wide set of more "open" contractual relationships - options to enter into longer - or shorter - term relationships with service providers, depending on the needs of an increasingly varied customer base.
On the device side, mobile devices can have open or closed operating systems. They can be locked to one network operator or be usable on multiple networks, and can allow access to additional services, features and applications or not, once in the hands of the users.
The iPhone, for example, could be considered a completely closed mobile environment. The device is normally only available through one operator in each market and comes with a service contract lasting at least 18 months. When the iPhone first launched, the only services and applications you could use on it came with the device; you could have any flavour of iPhone you wanted, as long as it was vanilla. However, with the successful launch of the App Store, services are now available from third parties. The phone and service plans for the iPhone are still mainly only available through one operator in each market and usually require a long-term contract. But even though new applications are only available via one source, the App Store, they do now come from a wider range of third-party application developers, who are free to determine the features and prices of their offerings.
Google's Android and the Open Handset Alliance (OHA) project comprise an initiative that is meant to specifically address the openness of mobile devices. The goal of this initiative is to develop a completely open mobile operating platform on which vendors will be free to develop applications and services that will work on all of the devices employing the Android platform. Leading this charge on the operator front was T-Mobile, which was first to field a mobile phone using the Android platform at the end of last year. Many other operators - like Vodafone - are launching Android-based phones as well.
Interestingly, the vendors involved in the Android and OHA initiatives are touting Android devices as "iPhones for the masses". Because the platform will be on a number of different devices from different handset vendors, the vendors claim that it (and the services and applications that run on it) will be able to capture a much larger market share than Apple could possibly do with a single (relatively expensive) device.
In terms of mobile services and applications, most mobile devices are sold in Europe with a limited set of services. These are preloaded on the device. A more open system would allow more - and more diverse - services, which could be tailored for mobile devices and accessed directly by the subscribers. Some services would be delivered directly by the operator, while others would be supplied via a range of models, from partnership, co-branding and joint delivery with the operators to wholesale models where the operator facilitates access for the mobile subscribers. This more open model would broaden the available services and drive up overall mobile activity as a consequence.
Open contractual relationships
In Europe there is a mix of customer types. Many are contract customers in longer-term relationships where they are locked into one- or two-year contracts with the service provider. By contrast, pre-paid customers have shorter-term relationships, literally buying "airtime" periodically to support their mobile needs.
In the contract model there are conditions to lock in the customer, including financial penalties for breaking these contracts. Customers are unlikely to switch operators in the middle of a contract, regardless of their support or service experience. An open marketplace has a broad mix of relationship types to meet the differing needs of an increasingly diverse set of enterprise and consumer subscribers.
Macro trends driving toward openness
Network operators will execute a number of strategies that will continue to open the European wireless marketplace further. The fact is that the mobile market is becoming saturated - many European markets are running at well over 100% penetration - putting enormous pressure on the operator to look at new strategies to keep stimulating revenue growth. These strategies include: driving increased usage, particularly advanced data usage; going after new customer segments, including lower-ARPU customers and customers from competitors (who may want to bring their phones with them); and finding new ways of managing acquisition costs and a changing blend of customers.
These strategies will lead toward more open business models. Operators are already broadening the set of services that can be delivered either through them or with partners. They will also promote and differentiate new contracts that are tailored to meet the needs of different segments of the customer base. These will necessarily include a mix of subsidised and unsubsidised devices, with explicit policies for devices sourced independently from the operator.
As next-generation networks such as LTE and WiMAX roll out, we expect to see fundamentally open access models where there is a wider set of devices using the network - not just mobile phones but also computers and netbooks, mobile Internet devices, and other consumer electronic devices. Some service providers will expand the pay-as-you-go category to include the more nomadic type of user who may want access to the network for a specific period of time.
Mobile customers are demanding more flexibility. Enterprises want to be able to directly control and manage the devices used by their employees - and the applications on these devices - regardless of where they come from or what network they run on. And consumers want an "Internet-like" experience on their mobile devices wherever they are. As mobile devices become less like phones and more like portable computers, it is difficult for many users to understand why they should not be able to use their mobile devices on whatever network is available to them. Nor do they understand why they should not be able to access the best and most relevant applications and services out there, wherever they are or whomever they come from.
Openness - opportunity or challenge?
We believe that openness will support a larger wireless marketplace - period. And there is an inevitable trend towards more openness in the European mobile market. This openness is coming in a variety of flavours - more open network access, more open device platforms, more open service provisioning and more options for contractual relationships with service providers. Forward-looking operators will manage this change and find ways to capitalise on more open commercial models that can deliver higher revenues and margins. Delivering devices, services and experiences that are tailored to subscriber needs will naturally lead to improvements in ARPU, customer satisfaction and ultimately, customer retention.
Matt Bancroft is Vice President, Mformation