Are faster mobile networks worth the effort?
We were asked to present on a panel at the private marketing innovation conference of a UK mobile carrier last week. The subject was the "Need for Speed": what are the real drivers for network capacity and speed, and thus where should an operator focus its investments?
Since our answers are generic to all mobile carriers, we thought we'd share them with you here. The format was five questions, addressed by all the speakers:
- What user behaviour is driving the demand?
- Which access technologies to invest in?
- What kind of devices will absorb this capacity?
- Does wireless displace fixed access for data?
- How does the customer relationship evolve?
What user behaviour is driving the demand?
The first question noted that customers' demands for increased speed and capacity appeared never-ending. But what exactly is driving the customer's seemingly unquenchable thirst for more speed?
We took the view that you have to examine this issue from the perspective of value, not volume. There are three fundamental modes of communication: information-based applications; real-time personal communications; and entertainment (more depth, as always, in our Voice & Messaging 2.0 Report).
The Internet, and especially the Web, is shifting in role from a way of distributing stored information/documents (i.e. hypertext) to a way of interacting with applications. This is evidenced by the general "cloud" trend of software-as-a-service, Akamai's Edge Computing initiative, online multiplayer games and virtual worlds. Related to this, the bandwidth requirements of common applications are storming up. This is particularly true for the uplink: every photo and video captured disappears into the cloud at full resolution, but not all are ever viewed, and those that are may only be viewed in thumbnail or extract form.
However, it's not primarily about information, but about 'presence' -- the sense that you're with someone despite not actually being physically there. Communications systems try to replicate this 'being there'. It should feel very strange talking to a lump of plastic at the side of your head that whispers back in your ear. Yet our brains are surprisingly good at smoothing out audio and video artifacts, and the illusion we're really talking to someone else is maintained. However, consider when you want to share that 10Mb Powerpoint deck half way through the Skype conversation. This is the digital equivalent of pushing a document across the table in a meeting room. To make the illusion work you can't have a pause. Therefore we tend to need very short bursts of high speed.
Entertainment is all about filling the void in between bouts of communication. It might be able to absorb network capacity, but it won't be what drives the business model. Furthermore, such traffic is often best delivered by other means -- broadcast, edge cached, or sideloaded -- and competes against low-cost distractions such as games. Tellywood alone won't pay your bills.
Which access technologies to invest in?
Next we considered the plethora of different technologies available to fixed and mobile operators (e.g. 3G, HSDPA, ADSLx, Femtos, WiFi, Wimax, LTE, Fibre etc.). Which ones should mobile operators care about most?
Here, the job of the telco splits into two: the wholesale telco, that aggregates networks and provides the 'logistics platform'; and the retail services provider who integrates and promotes the end user experience. Defining the products and services themselves is slowly migrating away from today's operators towards other players (e.g. Nokia Ovi, Apple iPhone, Amazon Kindle). Many of today's operator functions such as billing and customer care may become white-label inputs into these other businesses.
In choosing a network strategy, operators should prefer breadth over depth -- coverage always wins. Verizon Wireless trounced Sprint, with identical technology, by emphasising network coverage and quality, whilst Sprint pushed advanced application services. Customers care little or nothing about network data speeds per se. Since femtocells and home hubs extend in-building coverage, and boost speeds too, we'd say that's where the future lies. Furthermore, most of the 'dead time' filled with bulky low-value entertainment also occurs in the home, which makes it all the more important to lower your network costs there.
The wholesale platform needs a wide range of delivery capabilities, just as a physical-world logistics company needs road, sea, rail and air freight assets. This again points towards building 'edge' assets through the retail side, which can then be used to create wholesale solutions for partners wishing to cheaply and effectively deliver content and services to users.
The trick is to integrate all the various access technologies to present an experience to users that matches the capabilities and limitations of the different bearer technologies.
What we certainly wouldn't be doing in mature, highly teledense markets, is rushing out to build new WiMAX macro networks.
What kind of devices will absorb this capacity?
Next we considered what kinds of devices that customers will use to quench their thirst for increased speed and capacity.
The hardware form factor of user devices will change least of all -- because much of their design is determined by human ergonomics. Their software, however, is a different question.
The focus will slowly move away from the device onto the data it carries and can capture or display. Wireless Grids is an example of a company that lets you use the displays, input devices, printers, and other resources around you. For this to work, there will be an increasing emphasis on short-range communications and personal area networks. Synchronisation between devices is current a nightmare part of the user experience - solve this and print your own currency. Your 'phone' might be a primary source of data, identity, authentication etc. to lubricate these interactions.
Does wireless displace fixed access for data?
For the fourth question, it was noted that the last decade had shown that the "gap" between fixed and mobile networks in terms of data speed and capacity of retail propositions is closing fast (even if the fundamental technology gap remained, as optics leap ahead). The same decade saw an equivalent trend in quality and convenience of voice calling gap close, and displacement occur. So, will the need for fixed broadband data products "disappear" in the same way?
In general, we think not. The comparative advantage of fixed networks will, however, slowly erode without a fibre build-out. In some rural and dense urban areas we may see a switch to fixed wireless. Yet absent some leap in mesh networking, wireless doesn't look like having the capacity or economics for video delivery. As we noted before, there is also more dead time in the home and therefore the consumption of fat video products will always be higher there.
The focus, however, needs to be on getting a lot more out of the infrastructure we have. Femto roaming, for example, could become a big deal -- where carrier A recompenses carrier B for using your neighbour's femto when you're down the end of the garden.
How does the customer relationship evolve?
Finally, the mobile business is shifting from selling voice calling and text messaging to connecting customers to the Internet in better and faster ways. Where does this leave the operator's role in the customer relationship in the future?
Ask your customers -- do any of them want a 'relationship' with their phone company? Consumers don't get excited about who supplied the batteries in their phone, so why should they be worked up about the radio network?
Ideally telcos should become better retailers -- category management, packaging, promotion, segmentation, distribution. This is hard, as they lack many of the necessary skills and assets. For example, the 'one size fits all' mobile retail store doesn't match the segmentation needs of an increasingly fragmented marketplace.
In reality the game is all about gaining a larger slice from the device makers and upstream players. This will only be done by offering services they both value and struggle to replicate in scale. This is best done by creating two-sided markets (see our report here for more information) to exploit the telco assets better. (It was clear in discussion afterwards that they see limited mileage in trying to squeeze consumers for more value-added content services, and that the growth will have to come from elsewhere.) Otherwise, the best relationship is no relationship, and become a specialist wholesale-centric carrier.
[Ed - We'll be covering some of these issues in more depth at the 4-5 November Telco 2.0 event in London. Agenda now available here]