The days are over when networking meant point to point links
over shielded cables leased from BT and backed up with a dial-up
modem on a telephone line. Not entirely perhaps, because these type
of links still make up the central nervous system of many
organisations. But the thrust now is outwards, towards a customer
that is, to a growing degree, mobile.
Mobility is the key to speed, efficiency, productivity,
competitiveness, economic growth, and even, in wilder dreams,
climate change. That is why CIOs should be planning how to extend
their enterprises' reach and range into the ether.
A couple of milestones uncovered by market researcher Analysys
Mason mark the turning point. First, people now spend more money on
mobile communications than on fixed wire and broadband
combined. Second, the UK mobile phone market is supersaturated:
there are 120% more active connections than there are people.
Third,
data traffic already outstrips voice traffic on at least two
mobile networks.
Big changes in the basic technology are also in the offing. One
is the internet's imminent switch to 32-bit network addressing,
which will vastly increase the number of autonomous networks that
can route messages. Then there is the introduction of IPv6 routing
for all internet traffic. This will expand the number of internet
addresses to billions. Next is the steady shift from circuit
switching to packet switching for carrying all communications
content. Together they are destroying the distinction between
voice, data and image content. Soon everything on the network will
be a digital bit-stream.
As UK communications regulator Ofcom notes, this has already had
a profound effect on telecommunications companies' revenues and
profit margins. It notes that 84% of UK residents over eight years
old have access to mobile services. Individuals are spending more
on mobile calls than on fixed line calls, and spending more time
doing it. This is squeezing margins available to fixed line
operators, but internal market competition is squeezing margins
available to mobile network operators.
Ofcom notes that phone users no longer care how they get
service, only that they get service where, when and how they
prefer. "The distinction between fixed and mobile networks is
starting to blur," it says. This opens the door for Ofcom to
increase the level of competition in the market by bringing in
data-based content and information service providers as key
players.
Analysys Mason says, "As mobile broadband networks proliferate,
certain content players and applications developers will be able to
exert a degree of control over premium-price content delivered
through the mobile channel. However, this control will be
constrained by the abundance of entertainment content in
particular, and restricted to a small number of leading
players."
Newcomers face big barriers to entry. These include available
spectrum, technical standards, infrastructure, incumbents' market
share, and how much money one needs to get into the game.
Given the above, Ofcom is consulting on how to develop the
communications market. To guide thinking it asked Analysys Mason to
come up with four scenarios that describe potential futures, given
certain policies.
The "business as usual" scenario sees a steady decline in the
industry's contribution to gross domestic product, and the network
operators' profitability drops as they spend more to increase their
distribution catchment area. A "mobile voice wins" scenario
postpones the "eventual decline" in revenues and leads to the worst
profitability forecast, it says.
The "internet on your mobile" scenario continues present trends
except for network operators investing in more capacity on both
air-side and backhaul (terrestrial) capacity, and a user preference
to access the net via a handset rather than a laptop, as now. The
extra broadband capacity will attract content providers,
application developers and equipment and handset suppliers, say the
analysts. However, this does not stop the long-term decline in
operators' margins.
The "Sims everywhere" scenario anticipates ubiquitous
communicating devices. Network operators and new entrants will
develop and deliver new applications. New entrants include car
makers, insurance companies, publishers, systems integrators and
healthcare organisations, it says.
Key to this scenario is the absence of a direct on-going
relationship between the end-user and the network operator that
delivers the content. "This outcome requires significant evolution
of the market and is contingent upon a number of other
developments," says Analysys Mason. But it leads to long-term
growth in the sector and in margins for all the players, it
says.
The analyst says for this scenario to become reality, mobile
call costs will have to drop to those of fixed line calls. The
industry will also have to sort out who regulates and enforces
content conditions. It will also have to agree conduct rules for
handling personal data.
Ofcom says it will maintain its policies of increasing market
competitiveness responsibly and of staying neutral on technology
issues. However, its auction in 2000 of 3G licences took £22.5bn
out of the market. This ensured call prices stayed high and reduced
operators' capacity to invest in new mobile broadband applications.
It is about to auction more spectrum in the 2.6GHz band. It would
be a blow if history were to repeat itself so soon.