Regaining mobile’s grip on network connectivity
While
mobile operators struggle to tap into adjacent pools of value, they could be
overlooking real threats to their core business.
Consumers on the go may soon no longer need mobile
operators to stay connected with the wider world. Wi-Fi networks, frequently
offered free, are becoming much more commonplace, and emerging low-power and
satellite systems could provide other ways for users to bypass traditional
mobile networks entirely.
Recently, many mobile
operators have shifted their strategic focus toward capturing value in adjacent
revenue streams, such as mobile payments and advertising, with limited success
(see sidebar “Adjacencies deliver limited results”). But in pursuing these
elusive cash flows, operators risk overlooking a growing threat to their core
connectivity business. Left unchecked, this trend could relegate mobile
networks to the option of last choice—the one used only when others aren’t
available.
New connectivity threats emerging
For decades, mobile
operators have been the sole option for connecting to the world wirelessly, but
new technologies have rapidly demolished this monopoly. Over the past two
years, over-the-top applications have captured a large share of the voice and
messaging businesses, offering better quality in many developing countries than
traditional mobile networks.
Beyond these
applications, which piggyback on fixed and mobile data networks, other threats
to the mobile industry’s core offering—the “network”—are also emerging as
potentially significant contenders in the connectivity market. For example,
Wi-Fi networks have become widely available and already carry about 70 percent
of the traffic generated on mobile devices. Developments still in the pipeline
will likely make these networks even more pervasive. Furthermore, many
municipalities worldwide have launched “smart city” programs that often include
publicly available Wi-Fi.
These and other
developments will likely expand Wi-Fi coverage through new network rollouts,
increased spectrum, and better technology standards. As one example of the
threat to mobile operators, video streaming—the fastest-growing use for mobile
data—will probably rely most heavily on Wi-Fi since the bulk of viewing takes
place in stationary settings.
What’s more, low-power
networks will soon compete with traditional mobile operators in connectivity.
Companies outside the telecommunications industry, as well as some operators,
are developing these low-cost networks that, for instance, allow users to
tailor their configurations for Internet of Things (IoT)
applications. These networks can
radically reduce the energy consumption of IoT systems, providing a lower-cost,
easy-to-integrate alternative to mobile service (see sidebar “Mobile’s bleak
IoT opportunity”). More radical technology solutions such as balloons, drones,
and satellites are also emerging that could take traffic away from mobile
networks.
Avoiding ‘last choice’ status
Because of these
emerging alternatives, mobile operators risk being downgraded to the channel of
last choice, the one used only on those rare occasions when Wi-Fi, low-power
networks, satellite coverage, or other options are not available. Among the
developments that could signal this shift are the launch of new Wi-Fi standards
that provide higher speeds, longer ranges, and additional management options or
a breakthrough in newly announced satellite initiatives.
The eclipse of mobile
telephone numbers, however, would be the clearest indication that mobile
operators have lost their hold on connectivity. These numbers constitute a
direct link between customers and mobile operators, but many over-the-top
applications bypass them in favor of individual user names and passwords. If
mobile customers no longer need telephone numbers, mobile operators will have
lost a crucial link to their markets.
Ironically, mobile
operators that have invested heavily in building blanket coverage in major
markets will now have to take aggressive action to remain relevant in
connecting the mobile market.
To prevail in this
changing market environment, mobile operators should begin by addressing three
critical questions.
1. How can the value of connectivity be
increased?
Operators can put a
price on universal mobile connectivity by assessing fees to access the network
instead of charging for usage. They can also take steps to combat small-bundle
arbitrage moves from third parties. This strategy requires a shift in
thinking—the product is less about megabytes and more about the ability to
connect anywhere, anytime. Key measures include the following:
·
Position mobile as the
premium connectivity option. Promote
an industry-wide campaign to position the mobile network as the premium
wireless access channel, based on quality of service and functionality,
especially given its superior end-to-end cybersecurity compared with current
Wi-Fi networks. Potential targets involve applications such as self-driving cars that
put a premium on having secure macro network coverage. This move should also
placate regulators, providing greater assurances regarding potential
cyberattacks.
·
Ensure superior customer
experience. Operators need to understand their customers’ perceived experience and ensure superior connectivity and network
quality. By taking a broader role in monitoring and optimizing connectivity
options, companies can maintain a central customer-service position. For
example, many operators now measure individual customer experience regarding
handsets across both applications and geographical locations. Doing so allows
them to react to network errors quickly and adapt their network planning at
more granular levels.
·
Provide enhanced
functionality. Operators can assume a more advanced
role in shaping customer experience by offering greater functionality to users
and content providers. One example would be to optimize video streams for
individual users based on better compression technologies. Operators can also
focus on situating content delivery networks (CDN) at the edge of the network
to provide a wide variety of services cost-effectively, from video streaming
and software downloads to services that measure CDN performance.
Several prominent
mobile operators are already experimenting with unlimited data offers, tapping
the power of video-codec software, which compresses and decompresses digital
video to deliver unlimited digital services at a lower cost. Another example:
some US operators are working with content partners to offer customers
unlimited video streaming that does not count against the limits of their data
plans.
The question is, why
stop here? Intelligent policy control could do much more to create an excellent
user experience—from prioritizing voice over Internet Protocol (VoIP) or
video-call connections to, for example, stopping larger background apps or
content downloads in busy cells. Several regulators have shifted their position
on net neutrality to allow for such policy control—for instance, the Dutch
regulator Authority for Consumers & Markets decided not to appeal the court
ruling that stated that zero rating is allowed.
2. How can other connectivity technologies
like Wi-Fi be beaten?
Mobile operators have
several ways to close the gap with new connectivity players, ranging from
innovative cost-down techniques to big data analytics to asset sharing.
Examples of effective approaches:
·
Reduce
costs. Operators need to
reduce their cost per megabyte to a tenth of current costs, among other
reasons, to support new market plays such as unlimited data plans. To meet this
difficult goal, companies should aggressively pursue spectrum licensing to
create a stronger cost position and rework their network design by exploring alternatives
such as microcells or Femtocells. For example, Femtocell features a portable
mobile device that connects users directly to a standard broadband DSL or cable
service and connects handsets to 3G networks indoors, such as in businesses or
homes. Operators can also lower operating costs using software-defined
networking and network function virtualization.
Ultimately, operators can drive a
radical simplification of their network operations through initiatives such as
optimizing operations-support systems and business-support systems and
collapsing the radio-access network and transmission systems to reduce costs
while retaining quality and reliability performance. Other actions include
simplifying products and productivity improvements.
·
Increase granularity and
bolster data analytics. Operators can improve
their cost efficiency by planning and operating their networks based on deeper
insights obtained from advanced analytics. Instead of homogeneous “carpet
coverage,” operators can adapt network planning to individual locations. One US
operator used small cells to address quality issues in specific areas instead
of broadly expanding capacity throughout the network.
·
Pursue network-sharing
models. Many operators already share parts of
their passive—and in some cases, active—equipment with others. Network sharing
allows operators to strengthen cost efficiency significantly, while also
improving network quality. Passive sharing, such as sharing towers, is the most
widespread arrangement, but by extending the concept to active network sharing,
including base stations, transmission, and even spectrum, operators can further
increase efficiency.
3. Which regulatory issues are vital?
Regulations play a
crucial role in shaping the telecommunications sector. Areas that are
especially vital include industry structure (for instance, fiber wholesale
regimes, tower and spectrum sharing) and competition, spectrum allocation
(especially low-band spectrum-allocation principals and the emerging
spectrum-sharing options), and net neutrality. As a result, operators should
put more effort into proactively shaping the regulatory agenda. While
priorities will vary across geographies, the overall sector struggles with many
of the same core issues. For example, should operators be able to use customer
data to create experiences, similar to methods used by over-the-top players, or
can they gain additional support for accessing and potentially sharing new
spectrum? Current regulatory themes that have the potential to impact operators
substantially include the following:
·
Wireless spectrum. Operators should thoroughly understand 5G-spectrum
policy, both in the United States and globally, as well as future high-priority
spectrum bands, to sustain wireless-and-satellite-industry growth, including
millimeter wave and midband. Other areas to watch include international
spectrum coordination and allocation in the International Telecommunication
Union (ITU) and World Radiocommunication Conference (WRC) process, especially
concerning competing uses for satellite and terrestrial services.
·
Spectrum auctions. Operators should seek lessons from the world’s
first incentive auction, recently completed in the United States, including its
applicability to future spectrum bands. Reviewing other, innovative auction
methods used for regulatory allocation, including reverse and clock auctions,
would also be worthwhile. Operators should additionally investigate best
practices in governments’ use of auctions.
·
Consolidation and M&A. Antitrust and competition authority approval are
among the most sensitive regulatory issues. Other challenging trends and
innovations include pro-competitive horizontal consolidation arguments in areas
such as wireless, wireline, and cable services.
·
Net neutrality. Given the renewed levels of uncertainty surrounding
net neutrality, operators must understand their options given the US and global
outlook. The active US regulatory and legislative discussions on net neutrality
are especially relevant. Operators should also work through the potential
impact and interplay of regulatory decisions on business models and the mobile
industry’s structure, especially with regard to their impact on broadband and
wireless over-the-top video distribution.
With other technologies
and solutions nibbling at its core business, the mobile industry faces a tipping
point for which it may be unprepared. The companies that position themselves to
maintain the primacy of their networks today will benefit from stronger brands
and improved cost positions tomorrow.
By Ferry Grijpink, Klemens Hjartar, Suraj
Moraje, and Halldor Sigurdsson August 2017
http://www.mckinsey.com/industries/telecommunications/our-insights/regaining-mobiles-grip-on-network-connectivity?cid=other-eml-alt-mip-mck-oth-1708&hlkid=5e54c701c75e41309789448621848e8c&hctky=1627601&hdpid=bc8b0b0c-ddb7-4324-9f97-adc7f02c45f6
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