MNOs face big squeeze on cost, bandwidth and regulation

CIOs should be wary of mobile network operators' (MNOs) claims to offer access to customers and staff anywhere, any time using mobile apps.

MNOs face...

CIOs should be wary of mobile network operators' (MNOs) claims to offer access to customers and staff anywhere, any time using mobile apps.

MNOs face traffic congestion, technology change, regulatory pressure on competition, margins and cash flows, and loss of control of the supply chain, all of which will make it riskier to exploit mobility in corporate applications.

The explosive growth in the use of smartphones has already led to congestion, dropped calls, slow connections and deteriorated service on AT&T and O2.

Ericsson CEO Hans Vestberg says traffic will increase by a factor of 50 in the next 10 years. This will be driven partly by an explosion in machine-to-machine communications over mobile networks, and partly by new content-driven apps, such as streaming video.

CIOs want guarantees

MNOs know that CIOs are unlikely to mobilise business-critical applications without guaranteed service levels, or put their employers' reputation at risk if customers cannot buy their products because the network is slow or inaccessible. So they are desperate to increase their bandwidth to cope with traffic growth.

But they face growing financial pressure because content aggregators, led by Apple, Google and to a lesser extent Nokia with its Ovi Store, are winning consumers' hearts, minds and wallets. This is turning MNOs into "dumb pipes" - mere carriers of bits.

Vodafone CEO Vittorio Colao acknowledged this at the Mobile World Congress, warning that Google's dominance of search and content delivery threatened consumer choice of content providers. Regulators should do something about it "before it's too late," he said.

Google CEO Eric Schmidt, speaking separately, tried to show that the interests of Google and MNOs were aligned. "We need them to go ahead and invest these enormous amounts of money at great risk, and in return they need us to continue to build powerful new reasons to upgrade your connection, get a new phone and so forth," he said.

Capacity problems

MNOs face other threats. Air congestion can be fixed fairly quickly using smaller cells, but capacity problems in the core fixed-line networks, which are essential for backhaul, remain.

This is because fixed-line network operators have been slow to install as much optical fibre as MNOs need. This is one of the reasons Google in the US and TalkTalk in the UK are threatening to lay their own fibre networks.

More than 100 MNOs have indicated their intention to upgrade their network capacity by moving to faster 42Mbps HSPA+ or even 100Mbps LTE technology. Even so, they may be hard-pressed to meet the demand for bandwidth.

To moderate demand, some MNOs want the right to segment traffic and to charge for different "tiers" according to how much bandwidth apps consume and how time-critical the traffic is. In the US MNOs are already seeking to ditch net neutrality (the idea that all bits are equal). If the apps explosion happens in Europe, MNOs are likely to lobby Brussels for permission to do the same.

Advocates for net neutrality include US president Barack Obama and the founders of Skype, now the world's biggest international carrier of voice and video calls, as well as most consumers.

Radio spectrum auctions

Some MNOs soon face potentially expensive auctions for radio frequencies that will allow them to deploy faster technology and to reach more remote areas where traffic flows are likely to be less and therefore less profitable.

These pressures are likely to lead to consolidation in the sector wherever there are three or more mobile operators in a national market, as in the UK, where Orange and T-Mobile are merging operations. But this will prove disruptive as MNOs bed down acquisitions and work out network sharing arrangements.

MNOs also hope to restore their margins by developing products for corporates and businesses. These aim either to replace wires in buildings or to attract and lock them in. Key here will be support for business applications and the ability to customise and integrate mobility into enterprise applications.

It is not easy to make money writing software, even for fixed-wire operators. Their outsourcing divisions, such as BT's Global Services and Deutsche Telekom's T-Systems, have shown losses or marginal profitability in recent times.

So what should CIOs do now? The answer is, very little. With consumers fickle as always, and technology and regulation disrupting business models, business customers can afford to wait, and then to demand a high price for their loyalty.

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