|Issue:||Europe I 2012|
|Topic:||Studying the secrets of climate relicts|
|Title:||President and CEO|
Rami Hadar is President and CEO of Allot Communications. Previously Mr Hadar founded and served as CEO of CTP Systems, co-founded Ensemble Communications, and served as CEO of Native Networks.
The mobile industry may be resilient by nature, but is it too big to fail? Increases in available bandwidth have spawned a new generation of bandwidth-intensive applications that were previously insupportable. Operators face major challenges in designing appropriate charging and pricing models for such services. Inspiration could come from analogies with climate relicts – living species that have been proven to survive extreme climate change and persist even within an inhospitable regional climate.
If you were stranded on a desert island and could only bring one thing, what would it be? This question used to be so tricky it was the bane of any job interviewee’s life. There was hardly any one item that could help you survive and in good health; well entertained and in touch with civilization. In today’s reality there is. It is called a broadband enabled mobile device.
According to a recent comScore report, mobile devices currently account for 6.8 per cent of the world’s web traffic. IDC predicts that in just a few years, more people will access the Internet through mobile devices than desktop computers. In developing economies where mobile broadband is often the only widely available broadband, it has created whole new markets and, for the first time, makes possible a mobile money based economy with bank-like services for previously ‘unbanked’ populations. In more developed regions, smartphones have put the Internet into the hands, literally, of everyone and every company.
‘Traditional’ mobile broadband uses such as on-the-go information, mobile healthcare, price comparison, group buying, mobile wallets, cost-saving VoIP telephony and streaming video have all become part of modern-day living. So much so that the damage caused by the October 2011 worldwide Blackberry outage was estimated at about €7.6 per customer (that would be about €532 million for RIM’s 70 million customers worldwide). Employees at the U.S. House of Representatives alone own about 9,000 Blackberries and 1,500 other smartphones. Just imagine what chaos would ensue, should they all fail simultaneously.
More innovative mobile broadband applications are emerging daily. Some churches in Los Angeles have recently tested systems that allow their members to use cellphones to make their Sunday-morning offerings virtually, instead of dropping coins in a plate passed down the pew. This seed of innovation, coupled with the ‘chicken-and-egg’ effect of a ubiquitous high-speed broadband, have turned mobile data into the modern-day steam running through our economic engine.
One of the companies having the most impact is Apple Inc, the once niche company known as Apple Computers. Apple has become the world’s most valuable company since the launch of its game-changing iPhone in 2007. The smartphone revolution and the resulting US$7 billion application ecosystem that flourishes around it, has driven unprecedented growth in the mobile industry. A growth that is likely to persist even through some of the most economically trying times Europe has known since the 1950s. By 2015, Research2Guidance estimates the mobile market will be worth US$22.8 billion.
Mobile broadband: love in the time of cholera
It is no surprise; therefore, that the European sovereign-debt crisis, a second wave of the 2008 Global Financial Crisis, finds Europe’s top five operators; Deutsche Telekom, France Télécom, Telecom Italia, Telefónica and Vodafone more recession-proof than the equivalent Tier-Ones in most other industries. Boasting more than €10 billion in cash each, Europe’s top broadband operators, once known as telecom operators are the climate relicts of our economy.
Borrowing from biological research terminology, climate relicts are living species who have been proven to survive extreme climate change and persist even within an inhospitable regional climate.
Indeed, the mobile industry has not only weathered, but also prospered, in times of major socioeconomic and geopolitical changes. The 2010 earthquake that devastated Haiti was supported in part by millions of dollars in donations by people who used mobile phones to text US$5 or US$10 to disaster aid groups. The August 2011 London Riots were said to be largely coordinated over Blackberries, not to mention the live reporting from the Arab Spring revolutions and the Occupy Wall Street movement. And guess what, there’s even an app for it.
Mobile operators: too big to fail?
The mobile industry is indeed resilient by nature, but is it really too big to fail? With 77 per cent growth in mobile data usage in H1 2011, it seems that broadband, more than any other link in the mobile value chain is the one generating most growth. However, it often seems to be the weakest link in the chain.
While mobile broadband is a booming business, we must also remember it is still a young market in which usage models are still in an early development stage, and they are evolving in response to pricing and plan features, as well as bandwidth, content and application availability.
The increase in bandwidth has spawned a new generation of bandwidth-intensive applications that were previously insupportable. We already see video applications shifting to higher definition models, given the right access availability. Consequently, content providers are seizing the opportunity to offer even more HD, 3D and other premium video content. Finally, tethering is proliferating (to the extent that it is now separately charged for by some operators), unleashing bandwidth-hogging andmade-for-fixed applications like P2P upon mobile networks.
In the pre-data era, mobile operators had perfected charging for services based on value to the subscriber, not actual serving cost. SMS is a good example; an average message ‘weighs’ about 100 bytes and is priced at a few cents. That’s a few hundreds of dollars for one megabyte. This pricing is obviously unsustainable, as it would mean charging about US$500 for every megabyte of video data delivered.
The cost per unit of mobile data has only decreased over time. In June 2011, Nielsen reported that for smartphone users in the USA cost per megabyte decreased by 46 per cent between 2010 and 2011.
Mobile data charging is a challenge for most operators and a major pain-point for subscribers. When offered quota-based plans, subscribers react with confusion (not at the least alleviated by data plan calculators and other visualization aids). Frustration comes next, when they are offered ‘unlimited’ data plans, but those are too slow or get throttled. Selling bits and bytes simply doesn’t cut it anymore. Strand Consult is already predicting pricing model failure, suggesting that “any operators that believe they can increase prices by [simply] introducing LTE are in our opinion naïve.”
Climate relicts: some tips for survival
Darwinism is never as evident as in times of climate changes. Only the fittest will survive the economic storm approaching Europe.
For mobile operators, this is a crucial time to play an active role in shaping win-win usage models that allow subscribers to maximize the value they get out of their data plan, while increasing the utilization of network resources – as these usage models are still being formed.
Imposing restrictions like data caps may fail to achieve the desired outcome – i.e. limit growth in data traffic to manageable levels – and in fact have negative effects, such as alienating subscribers with no apparent relief in peak-hour congestion. Can the mobile industry survive and still avoid killing broadband – the goose that lays the golden egg?
Going back to climate relicts, operators might have a thing or two to learn from their survival techniques.
• Phenology is the changing in timing of an animal’s behaviour due to climatic circumstances. Canadian red squirrels for example are reproducing earlier in the Spring; thereby, capitalizing on earlier spruce cone production.
To survive Europe’s coming storm, mobile broadband operators must be quick to market with innovative, personalized services like parental control and VoIP plans that carry a differentiated value. Operators also must not be complacent and move fast, when regulation is involved. Bill shock prevention for example, is not only a compliance issue, but the path to happy customers.
• Broad climatic tolerance is the ability an animal has to withstand a large range of conditions. The kangaroo for example, has a very broad climatic tolerance.
Operators too, must be able to withstand a large range of conditions and market demands. Their networks must have the flexibility to support peakhours, while monetizing off-peak hours with ‘happy-hour’ plans. It must be able to save traffic costs by caching popular videos, while offering HD video to premium customers.
• Wide dispersal areas allow animals to migrate and move to a moresuitable environment in an effort to handle climate change.
European operators like Orange that are able to capitalize on the opportunity for unique services such as Facebook-dedicated phones in emerging markets, will be better equipped to weather the local climate change.
• Opportunistic species adapt to many changes.
Operators too should view the recession as a great opportunity to offer cost-saving content and applications like GPS (Waze) and telephony (Skype) alternatives. They must also develop revenue-sharing models and partner with suchover the top(OTT) applications without rolling the cost onto subscribers.
Finally, history has taught us that all species must evolve to survive. When the economic climate sees mobile operators’ ‘golden-egg’ services like SMS pushed towards extinction by a new generation of OTT WhatsApps, and many consumers opt into VoIP and data-only networks, operators must consider the future of their core services like circuit-switched voice and remember that even the mighty T. Rex might have met its end by a mere parasite.