At the Mobile Broadband World conference in London, the industry was well represented by a broad cross section of operators, vendors and content providers. It was a pleasant surprise to see that, despite the economic doom and gloom, the mobile broadband community is optimistic. The big questions were being asked and answered: how to reduce backhaul costs, and how to manage network access and the ‘greedy’ user. Of course, there was healthy concern about mobile broadband profit margins, although the mood was generally upbeat. Perhaps the main reason for optimism, however, is that the mobile operators seem to be prepared to discuss their role in the mobile broadband value chain.
The two schools of thought about this role can best be described as advocating being a ‘dumb pipe’ or being a ‘smart pipe’. In the dumb pipe scenario, the operator merely provides the physical means to convey the data to the customer: the core network, access network and transmission connectivity. In the smart pipe role, the operator also provides the content, or, at the very least, aggregates content from third-party content providers. There are arguments for and against being a smart pipe, one of which was overheard in the restaurant after a busy day at the conference.
The Detractor. "Operators have never provided content – even in the voice days, the content was provided by the users at either end! They don’t know how to turn content into money. So the bottom line is: operators don’t know how to make money from mobile broadband. If they try to hold onto the value chain from end to end, they will lose out and effectively own 100% of nothing. The alternative strategy is something they can’t seem to accept: surrendering control to content providers and content aggregators who know how to make money from mobile broadband. Instead, [the MNOs] should focus their attention on what they do best and deliver the data as cheaply as possible. Instead of 100% of nothing, they would then have 50% of something. It looks as if some consolidation may need to take place before they are forced into following this strategy."
The Champion. "Your argument of the dumb pipe leaves us MNOs very vulnerable. We know that, in order to make mobile broadband profitable, we need to drive down costs, and outsourcing and sharing is a good idea. But we need to control the value chain. There is a real danger if we outsource to the max and hand over our customer relationships to MVNOs, content providers and aggregators – what do we have left? Well, we still own the spectrum, I guess, but is that enough? With so much spectrum becoming available (through the digital dividend, refarming and the broadband expansion band), clearly the price of spectrum will come down and it only takes a sufficiently wealthy consortium to come along and ease us out of the market place."
Serious debates like this, which are taking place both on and off the podium, show that the hand-wringing days of "We will never make a profit from mobile broadband!" are over and that we are now getting down to the serious business of making mobile broadband work, and making a profit. This is largely as a result of the MNOs not only doing what they are good at (solving the technical problems), but also reviewing their roles in the value chain. Mobile operators seem to be coming around to the idea of sharing the value chain and the profit. This can only be good news for the operators, because part of something is better than all of nothing. The question now, of course, is how to divide up the pie and who gets a piece of it. The operator that solves that dilemma is likely to prosper.