 | Issue: | Asia-Pacific II 2005 |
| Article no.: | 5 | |
| Topic: | Mobile IP, data services and strategy | |
| Author: | Doug Barre | |
| Title: | CEO | |
| Organisation: | Tira Wireless | |
| PDF size: | 104KB |
About author
Doug Barre is the CEO of Tira Wireless. He is also a board member and has been selected by the board to fill the role of CEO for an interim period based on his extensive industry experience in the software and mobile industries. A technology industry veteran, Barre most recently held the role of Chief Operating Officer at Borland. Before that, Barre held senior management positions with Compuware Corporation in North America and Europe and technology leadership roles with Bell Mobility and AT&T/ Cantel (now Rogers Wireless). During his 25-year tenure with Texaco, Barre held a number of senior positions including CIO.
Article abstract
The migration of mobile networks to IP based systems will bring users many advantages, but represents a challenge to operators. Operators need the data revenues that IP enabled services can bring, but subscriber access to the Internet will bring competition from Internet Service Providers. ISP portals can offer most of the services the mobile operator can, including voice, often at a lower price. Mobile operators need to develop business models and services that protect their position in the value-chain.
Full Article
Some claim that the migration to an IP-based telecommunications infrastructure is critical to the successful deployment of IP-based ‘Internet services’ for mobile subscribers. The same pundits claim that mobile operators in Asia have been dragging their feet in making this transition. Ross O’Brien, in an article for VON Magazine entitled ‘Fear and loathing on the IP trail’, for example, claims “IP network infrastructure has taken a bit of a back seat in carriers’ network development plans”. He particularly singles out Asia as a market of ‘failed promise’ in this area. While the debate rages about how and when to implement IMS (IP Multimedia Subsystem), operators are nevertheless steaming ahead with Internet-based services, earning over 20 per cent of their ARPU (Average Revenue per User) from the sale of SMS (Short Message Service), downloadable games, wallpaper and ring tones which currently don’t require an IMS upgrade. According to a March 2005 report from Yankee Group titled ‘Asian mobile operators won’t survive on voice and text alone’, “in 2004, mobile data generated US$34 billion, or 21 per cent of total mobile service revenue in Asia-Pacific (…). It will reach US$77 billion and account for 36 per cent of the total wireless services market by 2009. However, this growth is dependent on operators creating a rich data services marketplace and building strong demand for content services (…). Operators must develop successful mobile data strategies to offset the decline in mobile voice revenue and to improve customer retention through service differentiation.” While it is clearly recognised that data services is the chosen path to replace declining voice revenues, it is not clear that abandoning the SS7 protocols that provide the backbone for SMS messaging is necessary to meet that objective. Informa Media estimates that by 2008 the data services market for mobile content and applications will reach US$126 billion, US$84.4 billion of which related to messaging. Operators recognize that they have to be careful with this goose that lays golden eggs and ensure that any move to an open IP-based system is a net revenue win, and not a passing of the keys to the store to content providers. IP-based applications over wireless Before making the migration decision, it is important to first understand today’s environment for the sale and revenue distribution for mobile data services. Naturally, only an equally secure future revenue stream will prompt operators to adopt a more open IP-based environment. However, the ability to bypass operator-supported data services in favour of independent service providers of IP-based services is a major risk to those future cash flows. Despite the network efficiency advantages a complete migration to IP would offer, the risks to key revenue sources first have to be eliminated. VoIP (Voice over Internet Protocol) is a primary example of an IP-based application that threatens to deplete key voice revenues from operators, leaving them with all of the costs of network ownership, but few of the benefits. SMS revenues are, however, facing the biggest risk as messaging users could opt for free instant messaging services from Internet providers, leaving operators with a potentially huge revenue hole to fill. In the mobile gaming world as well, this tendency to bypass operator services is also growing. According to a 2004 Ovum report, 16 per cent of mobile game earnings derived from channels other than the operator’s portal. While this shows operators are still firmly in control of the market, it also indicates that operator bypasses for IP-based services are having a decided impact on revenues. As IP-based mobile applications enter into greater use, operators risk losing complete control of the revenue streams from the new data services. Although MMS (Multimedia Messaging Service) promises the operator significant revenue from the capture and transfer of image based messages, how does an operator control the transfer of those images in an open IP environment? Can they prevent the subscriber from sending the image to a print shop for an enlargement? Yet how can they bill for this transfer, if it is merely a package of bits attached to an email, without becoming the feared ‘commodity network’? These complexities will escalate as the networks become more open and the technology limitations of handheld devices begin to disappear. In order to better understand the implications of IP-based applications in wireless devices, we need to first examine the nature of these devices and their evolution over the long-term. Mobile applications environment in 2003 Only two years ago, mobile devices were equipped to handle basic download services. This was in large part because of the size, processor speed and memory constraint of the devices, until then, on the market. Most device functionality, such as address books, browsers and call control, was protected in a ‘sandbox’, all under the control of the operating company’s jurisdiction. The application environment side of the device provided rudimentary download capabilities and did not provide access to voice, PIM (Personal Information Management) or SMS networks. Mobile applications environment today As the capacity for devices grows and processor speeds and memory improve, the ‘sandbox’ security model of the previous generation devices is starting to ease to the delight of the device manufacturers. Operators, on the other hand, are not as enthusiastic. Today’s devices integrate camera and video capabilities, among other advanced features. More importantly, we are witnessing the breaking down of the borders between application environments and traditional phone functionality. The potential mobile applications environment of tomorrow Internet-based resources will expand significantly. Devices will have the power and flexibility to let users move beyond multiplayer and look-up functions to directly access their desktop applications, console game and video servers and other third party content provider applications. Processing speed and memory will continue to be pushed by more complex applications. The ‘sandbox’ security model that, so far, has separated voice and data applications will give way, providing open access to IP servers, communities and desktops. The left and right sides of the phone ‘brain’ will merge into a powerful computing and communications device, a device that could potentially drift out of the mobile operator’s control. For the industry to reach this level of integration, however, three things need to ‘open up’. Devices must have the APIs (Application Program Interfaces) to allow crossover between the phone and application functions. Operators must be willing to allow more data to flow freely onto the Internet, and network speed must be fast enough to allow devices to manage the new generation of IP-based applications. The challenges go beyond network concerns. Device fragmentation and the certification of content will continue to plague the mobile applications industry and will become even more difficult as end-to-end testing on operator networks becomes a requirement before these applications can be delivered to customers. Operators will need to dedicate network resources to a testing environment. They will need to give developers and content publishers access to this environment. Early device availability is important so that, as content hits the market, it can be ported to each new device. Companies focused on delivering technical solutions to the device fragmentation and testing challenges will become of even more significance in this rapidly expanding world. New models, new approaches This evolution is definitely putting a strain on mobile operators to rethink their business options. Proprietary voice and text services will no longer be the mainstay they once were, as Internet-based public services continue to erode usage and revenues. As the industry moves towards VoIP, the threat is even greater. Users opting to reduce monthly charges will naturally migrate off the Public Switched Telephone Network (PSTN) to IP-based voice services. Unlike PSTN, IP services, to date, tend to charge only a monthly hook-up fee – they do not charge for the number of packets delivered or the time spent. Mobile operators must recognize now that for them IP is shifting away from being a value-added service to becoming either their bread and butter or their downfall. To date, voice is the number one revenue maker; charges for data services, generally, are separate. While operators have certainly enjoyed the incremental revenues that data services have brought, those revenues remain at high risk for the reasons mentioned earlier. Carriers will have a major challenge ahead of them, unless a model is found that can drive billable revenues for data to the same levels as those for voice services. What needs to be resolved on the part of carriers, ISPs and content providers combined, is defining the boundaries and establishing measurable parameters that will impose tariff structures that meet the requirements of all players concerned. As the industry moves inexorably to an IP-based model, however, carriers must grapple with a number of key issues: √ Unlike voice services, customers do not intrinsically understand data volume measurements; √ Traditional mobile carriers can no longer control end-to-end communications; √ Users can potentially bypass operator portals and services completely; √ Moving off the PSTN traditionally moves services to ISPs; √ In the IP world, everything is ‘fair game’, with the advances in switches and routing and the blurring of the lines between IP and telephone services, anyone can now provide the services of a phone company. Cashing in on the IP migration Mobile operators today need strategies that will allow them to gain control over network usage and find ways to charge for those services in a way that balances losses in voice revenues. More importantly, this needs to be done without significantly affecting the overall cost to the consumer. One strategy is to form alliances with content providers and application publishers in a revenue sharing or sub-contracting arrangement, while remaining the ‘face’, or single point of contact, to the customer. Mobile operators could also build safeguards within devices that block access to public Internet sites. However, this solution is a short-term one at best, since there is a high likelihood that regulatory bodies or market forces would drive them to unblock IP-based application usage. The challenge is to find a way to facilitate open networks yet ensure operator supported applications remain the primary solution choice of subscribers. The real answer is that mobile operators have to become the best at creating and delivering mobile data services and not just providing the underlying network infrastructure. The means to achieve this is through leveraging existing customer billing relationships, providing flawless service and creating differentiated content comparable to that of the Internet content providers. The migration of the underlying network infrastructure to an all IP infrastructure may or may not be necessary to make that happen. No matter how the migration to an IP-centric telecommunications infrastructure unfolds, the first step for operators is to gain a clear understanding of where IP fits into the mobile environment and the impact it will have on their business models over both the short and long term. The operators’ challenge is not network migration to IMS (IP Multimedia Subsystem); it is to develop business models that deliver ‘must-have’ services and protect the operators’ position in the value chain. IP in mobile is not without its challenges, but it will dominate the industry over time – and carriers must be prepared to deal with the consequences.
