Making pipes smart

In-Stat last week touted a new study with the observation that “Competition in mobile video could threaten mobile operators.”
Duh.
But the fact that In-Stat’s conclusion is self-evident doesn’t minimize the risk mobile network operators increasingly face in the broader digital entertainment arena. Carriers are on the brink of devolving, falling swiftly from telecom behemoths to armies of plumbers ensuring data moves efficiently through their dumb pipes.
The In-Stat study found that place-shifting devices services from Sling Media and Orb Networks are already finding their way into carriers’ walled gardens, and established TV broadcasters are considering free-to-air mobile video that would compete with both the network operators and partners such as Qualcomm’s MediaFLO. Meanwhile, users are generally uninterested in the video stuff that can currently be found on carriers’ decks, the market research firm found.
But it’s not just third-party video providers that are giving carriers nightmares. Some new threats have appeared on radar screens in just the last few weeks:
–Apple not only introduced the Wi-Fi-enabled iPod Touch, it launched a Wi-Fi storefront for its iTunes service delivering full tracks and ringtones to both the new device and the iPhone, which operates on AT&T Mobility’s network. To add insult to, well, insult, Steve Jobs announced a deal with Starbucks that provides free access to the iTunes store when in the coffee chain’s outlets. That Wi-Fi connection, of course, is provided by T-Mobile USA.
–Nokia outlined a surprisingly ambitious move to connect directly with consumers on both cellphones and computers. Ovi, as the Finnish company dubbed its initiative, will serve as a single brand under which Nokia will offer everything from full-track downloads to mapping data, games and social networking offerings.
–The Federal Communications Commission has introduced new rules for the upcoming 700 MHz auction, leading to speculation that either-or both-Apple and/or Google will launch branded wireless services.
It seems a mobile network connection is becoming a commodity. But carriers mustn’t necessarily be relegated to the role of highway maintenance workers in a Robert Heinlein tale. (Yes, it’s a little obscure, but it’s a good analogy. “The Roads Must Roll.”)
Some operators are positioning themselves by forging alliances with high-profile partners. Verizon Wireless is sacrificing its singularly-branded mobile music service, opting instead to join a cross-platform triumvirate with MTV Networks and RealNetworks. And Sprint Nextel has cherry-picked Google to power features for its WiMAX network slated to come online next year.
But the smartest tack for carriers may be making sure their pipes stay smart. Only network operators own the infrastructure, after all, as well as all the information they can glean from their traffic. Carriers alone have granular information such as a customer’s age, location and mobile behavior patterns. So carriers alone can leverage such data, using it to offer content and services to targeted users with unprecedented accuracy, or monetizing it by sharing the valuable information with content partners.
A new report from Juniper Research underscores the importance owning a network-and knowing how to use it. The firm predicts carriers around the world will generate $58 billion annually in non-messaging mobile content revenue by 2012 by employing a “smart pipe strategy,” up from $20.7 billion this year. Those figures contrast starkly with Juniper’s dumb pipe scenario, which would see revenues climb from $24.1 billion this year to only $44.7 billion by 2012.
“Juniper Research believes that by chasing [average revenue per user], MNOs (mobile network operators) are perpetuating an unsustainable business model, since ARPU does not reflect the true picture of revenues generated by end users form mobile content consumption, and it does not reflect MNO’s true business proposition,” the company noted. “The focus needs to shift away from ARPU towards management of profitability such as subscriber acquisition costs, churn management and the effectiveness of the network and services delivered.”
Neither scenario is as cut and dried as that, as Juniper points out. Carriers are already scrambling to compile usage information and create user profiles, and outsiders are already affecting the mobile ecosystem in a major way. But as the garden walls continue to erode, the smartest carriers will make sure they have the smartest pipes.