How Mobile Network Operators Must Evolve as Data Ramps Up

It wasn’t long ago that the path to success one a simple one for mobile carriers: Offer compelling handsets at competitive prices and maintain a top-notch network to keep your customers happy. And manage a competent customer-care division for those customers who aren’t happy. (Yeah, Sprint, I’m looking at you.)

That model is rapidly changing, though as we reach the saturation point. Carriers in Western markets have precious little room for growth, aside from poaching customers from their competitors. Cell phone penetration in the U.S. stands at 89 percent, according to CTIA, and Chetan Sharma pointed out earlier this month that mobile’s market penetration in America is 99 percent for people over than the age of five. The increase of machine-to-machine connections and the coming wave of connected consumer electronics (non-phones) will help, but carriers will have to evolve beyond being simple network operators if they’re to thrive in the coming world of mobile data.

Which is one reason why carriers are beginning to experiment with what consultant Dean Bubley calls “over-the-top” offerings — applications and services from carriers that can be targeted at users on other networks. Vodafone U.K. may have been the first carrier to deploy that strategy last year when it launched an iPhone app for anyone carrying Apple’s iconic device – even if they’re not Vodafone customers. The simple widget delivers users to Vodafone’s portal where they’re presented with news and other content aggregated by Vodafone. Users can drill down to find more content from media brands such as CNN and BBC News, they can perform Google searches and get other widgets from Vodafone’s content partners.

Another factor beyond market saturation is at play here, too. Mobile is no longer just about being a provider of wireless phones and connectivity, it’s about adding value with applications that leverage Web 2.0 features like presence and community and combining them with mobile’s unique characteristics, like portability and location awareness. Such features are at the heart of a host of popular new apps including Google Buzz and the friend-finding offerings Foursquare and Gowalla — all three of which are offered free, leaving carriers completely out of the revenue loop.

While the rise of mobile Web 2.0 is a looming threat for network operators, it also presents an opportunity to develop and market more compelling “over-the-top” offerings. AT&T is hoping to do Vodafone one better with Buzz.com, which serves as a kind of no-frills Yelp. Users can leave brief comments on local businesses and grant “favorite” status to chosen locations, and can broadcast their location via GPS and participate in polls. Buzz.com, launched in closed alpha in January, is easy to dismiss as a pointless, me-too offering like Coca-Cola’s Sprite Yard, which seems to have disappeared (to almost no one’s surprise) after an over-hyped launch at a Mobile Marketing Association event three years.

But AT&T isn’t coming to the table empty-handed: the company has a massive database of business information and a substantial local advertising operation through its Yellow Pages business, and the operator has years of expertise in mobile content. I’ve taken Buzz.com for a quick spin on the PC and come away reasonably impressed. (My bar for carrier-branded services is pretty low, admittedly. I blame Verizon Wireless’s horrid Vcast Music, for starters.) User content is bare-bones, which isn’t surprising considering the tiny base of members, but the site sports a Facebook-like interface and is clean and easy to use. And while Buzz.com will be available to users with competing service providers, AT&T’s 85 million-plus subscriber base should be fertile soil for Buzz.com – which is why the carrier must make the site mobile-friendly on a wide range of handsets and embed it on every appropriate model when it goes public.

The odds are stacked against against Buzz.com, of course. And just as a variety of potential business models will emerge over the next few years, there will be lots of failures as carriers attempt to make a very difficult transition beyond their established business model into uncharted waters. But a handful of savvy carriers are already recognizing the need to experiment with those new models. That’s a healthy sign from an industry that often has difficulty seeing beyond next week.

Question of the week

How can carriers thrive in the era of third-party apps and services?
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Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

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