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What the wireline Internet has taught the world is that eventually power shifts from the ones providing the pipes to the ones providing value-added service. For example, the world has gone from on-deck, walled-garden environments — where the carrier was king — to the off-deck world, where companies such as Google ended up making more money than the carriers that built the infrastructure. Unless net neutrality goes away, I expect this same phenomenon will take place in the wireless domain. The entity that owns the user experience and the user information will hold the power, and increasingly in the wireless world that is becoming social network companies like Facebook, value-added service providers like Amazon or search sites like Google.
Carriers need to keep their businesses differentiated through unique value-added service offerings so that they can compete with one another even in a highly commoditized environment and also compete with giants such as Facebook, Amazon.com and Google.
With these perspectives in mind, here are my top five predictions for 2012 and beyond:
1. Commoditization = consolidation
I believe that, similar to the airline industry, carriers will undergo a significant amount of consolidation as commoditization sets in. However, also in comparison to the airline industry, there will always be some carriers that stand out because of their differentiated services offered or value for money. It will be interesting to watch and see who will become the Southwest or the Virgin of the carrier world.
2. Blurring lines between feature phones and smartphones
I was recently in Shenzhen, China, and was meeting with the various mobile handset makers there. They showed me a number of devices that were to be launched within the next 30 days. These devices had touch screens, an app store and the ability to play video. I was told that the market for these feature phones was going ballistic … wait … what? These were not feature phones in my book, but rather smartphones. However, these device makers were selling them for less than $100 and viewed them as feature phones. Nokia also launched its CX series as well as its Asha series.
What is fascinating is that the affordability of these devices is similar to the feature phones of yesteryear. This is blurring the line between feature phones and smartphones. The significance from a carrier point of view is the that almost every device being sold now will be data capable, thereby helping increase the overall revenues for carriers because of the surging role that data is playing. At the same time, the strain put on the mobile networks will increase dramatically because each of these feature phone users are now capable of consuming north of 1 gigabyte per month.
3. Video as key to positive user experience and differentiation
One example of how carriers can differentiate themselves is to figure out how best to manage the massive amount of video data flowing through the pipes in a way that they can support a good user experience while balancing profitability. There are a number of alternatives for approaching this, whether it’s relationships with content providers that offer premium content exempt from counting towards consumer data caps or a focus on technology that compresses video without compromising user experience.
4. Continuation of regional pricing models
You might consider that carrier pricing models could unify globally — continuing with the airline metaphor, as airline tickets work the same way everywhere. But the fact is that the competitive pressures in different markets vary significantly. As an example, in India, there are more than eight big carriers and both voice and data pricing are amongst the lowest in the world (about 1 to 2 cents per minute of talk time and $2 for 2 GB of data) whereas in the United States, there are really four main carriers and data is priced significantly higher at $25 for 2 GB. Voice plans are also significantly more expensive relative to India. This will lead to the continuation of region-specific pricing.
5. Watch for freemium consumer models
There are some standout models that are blazing the trail for delivering value to consumers without breaking the bank. In the non-mobile world, you have Comcast as a cable provider offering some channels that are ad supported and then others that are premium channels for which you pay extra. Skype has also done an excellent job of applying this model here. Once the business expanded beyond peer-to-peer calling from one computer to another, Skype announced that while computer-to-computer calls would remain free, a “low per-minute rate” would be charged for using Skype to call landlines.
Watch for carriers to consider this same model when it comes to content. There will be a lot of user-generated content and some amount of premium content that will be made available in an ad supported model. However, based on observing the user’s browsing and viewing behavior, it will be possible to provide targeted premium content in a pay per download model or as a paid alert model to the user that increases the probability of the user purchasing that content. As an example, say a user visits a site looking for the latest soccer videos. There are a number of interesting soccer goal videos all over the user-generated content sites. If the user then hones in on watching goal scoring videos for Manchester United, there is a perfect opportunity to sell the user a “best of Manchester United goals” video pack from someone like Manchester United directly or ESPN for 99 cents. This video will be a high-quality video as opposed to the user-uploaded video quality and will put all of the goals in one place, making it a more enjoyable experience for the user. If the targeting is done well and the quality of the premium paid content is really good, one could expect to see anywhere between a 5% and 7% freemium upsell rate. This gives the carriers a way to generate more revenue from a data user on a flat-fee model.
The carrier market is a fascinating one with many different interests coming together to make up a complex ecosystem – the carriers, content providers, advertisers, consumers. I look forward to the coming year to watch the various story-lines and events unfold.
