Opinion by Jonny Evans

Will mobile carriers escape a dump-pipe fate?

Mobile carriers are getting squeezed by OTTs. There might be a way to survive, but there’s a chance none of them will be agile enough to follow through.

Water pipes in the UK

Mobile carriers are struggling to avoid becoming nothing more than dumb-pipe utility companies.

Credit: Copyright Chris Heaton and licensed for reuse under this Creative Commons License

Mobile carriers are worried. Voice revenues are falling. Over-the-top (OTT) services such as Dropbox, Spotify, iTunes, Netflix and Paypal are delivering the digital services the carriers thought they would be making money from but aren’t. The OTT services and the many purveyors of millions of apps are insisting carriers invest in capacity to handle increasing demand for bandwidth, but consumers have made it pretty clear they aren’t prepared to pay too much for the improved connectivity.

The carriers need to find a way to survive, but there’s a chance none may be agile enough to do what’s necessary.

AT&T, Verizon, Sprint and the other carriers are struggling to avoid becoming nothing more than dumb-pipe utility companies, destined to carry other people’s services for a pittance. Desperate to find new and profitable businesses, every asset at their disposal is for sale, but their attempts to introduce services are constantly undermined by more fleet-of-foot tech firms.

“Facing continued price pressure driven by the competitive mobile market, mobile carriers have had to take on higher subscriber retention and acquisition costs to support their market positions. This has affected profitability,” said Marina Lu, a research analyst at ABI Research.

Not so loyal

Carriers are attempting to leverage their existing relationships with customers. They hope to use their back-end billing infrastructure, deep customer insights and customer loyalty to build new businesses, but they forget that customers already hate them. Every mobile user has at least one horror story of roaming charges and bill shock, and customers aren’t so stupid that they don’t know that the only reason things have become a little better is because of legislation to limit that kind of bad behavior. Value-conscious customers aren’t that loyal, either; they’ll switch networks at the drop of a contract renewal to get a better deal. These customer relationships aren’t sticky enough — and carriers want sticky relationships.

Some carriers are exploring the potential of big data insights into their customers. Some may even be forging relationships to share such information with other companies, but this attempt — while it may have some success — has huge hurdles to overcome:

For one, OTT services are already building their own big-data-driven customer insights, gathering new information daily. Do they need carrier data?For another, carriers are unable to fully explore this potential business because they do not yet know if it is legal for them to mine such data or sell it elsewhere.

And if shrinking revenue streams weren’t enough of a problem, carriers also face the prospect of revenue streams that could disappear entirely if anything comes of efforts such as Google’s exploration of balloon-based communication networks and Apple’s interest in the potential of meshing public Wi-Fi to sidestep carriers. Facebook’s WhatsApp acquisition is yet another way to undermine the carriers’ business.

Naturally, carriers are looking for a way to profit from OTT services even while those services seek a way to avoid sharing profit with them. Oh sure, carriers have had some success reaching Net neutrality-denying traffic prioritization deals with the likes of Netflix, but the truth is that carriers are playing an increasingly weak hand.

LTE — the last frontier?

So what do carriers have left?

Better security could be the answer. The best hope lies in LTE, particularly the capacity to host policy on devices while enhancing device-focused parts of the network with security for mobile devices that sit on the network itself.

These security features give mobile telcos a potential trump card to play in the enterprise. (Whether they are capable of playing it is another matter, but we’ll get to that.) With LTE, it’s a simple matter to restrict cloud services, for example, to registered users on registered devices, and even to require that those users be in an approved location (geo-fencing) in order to access the corporate intranet. That sort of enhanced security is likely to be much appreciated by enterprises.

It may also give carriers some weight to throw around in the Internet of Things. You see, the kind of connectivity required by the IoT will impose huge security challenges, as hundreds of connected devices become potential attack vectors.We don’t want connected devices enabling criminals to steal people’s cash by exploiting vulnerabilities in their air conditioning systems. Thecarrier advantage is that they can offer easy-to-deploy, purpose-built networks with baked-in, automated security settings for the most common connected IoT devices. They may be able to convince enough customers that keeping all those connected home, health and automobile devices securely online is worth a small monthly fee.

And carriers will see additional benefits with LTE:

  • They can deploy big data analysis to track how customers use their connected devices, enabling them to warn users if something unusual is happening to a device.
  • They will be able to deploy the most recent security advances via their networks, which could well please customers.
  • They will gain a degree of lock-in, since consumers will be less willing to switch carriers if it means they must reconfigure all their connected devices.

Can they do it?

This is what carriers could do, but I don’t think they will manage the transition. They have become too corporate, too slow and cumbersome to manage such agile steps. And if carriers are unable to find new ways to survive, then we will see further market consolidation. This makes it logical that more agile OTT service providers, such as Apple and Facebook, will begin acquiring carriers in key markets. One day, your iPhone might ship with a 4G network included. How much would you pay for that?

Jonny Evans is an independent journalist/blogger who first got online in 1993. He's author of Computerworld's AppleHolic blog and also writes for others in the U.S., the U.K. and Europe. Winner of an Azbee Award in 2010, Jonny enjoys new and disruptive technology and likes music almost as much as he likes his large and shiny dog.

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