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.
This was first published in September 2008