There was a time when each mobile carrier had full control over its delivery chain, integrating service provision, content provision and user device distribution. However, the progressive increase in the number of subscribers and the diversification of services and market segments forced operators to accept direct implication of other players, such as content providers coming from the fixed market, user device vendors and even new operators making use of their own assets (MVNOs). The eventual success of 3G devices is putting traditional mobile carriers under pressure, since they are quickly running out of resources in a progressively less profitable business and threatening to turn their once pivotal role into what has been called “dumb pipes.”

Today any smart programmer can make money just by creating an application with a standard PC and then distributing it all over the world at negligible cost. The need to provide appealing content and devices has led to a technology landscape forged by device vendors and software companies. Operators want to recover control of the industry for example by charging content providers for their traffic being carried along cellular networks. Partnership between carriers to form alliances such as WAC (Wholesale Applications Community) to compete with software and equipment companies like Apple and Google are also in place. However, it remains to be seen whether operators will be successful pursuing any initiative that leaves content providers or vendors aside, since both have developed stronger links with end-users.

In a first attempt to react to the growing mobile market, mobile carriers started to establish partnership agreements amongst each other years ago. Scandinavian countries, which have been recognized cellular innovators since the first networks where deployed, were great exponents of the Joint Venture strategy as far back as the first 3G deployments. In those days operators like TeliaSonera and Tele2 in Sweden already realized that besides network deployment there were other differentiating factors that could allow them compete, even when were using the same network. The Net4Mobility joint venture between Tele2 and Telenor is the latest example, having launched its LTE service commercially a couple of weeks ago.

However, partnerships do not need to involve the whole network, but rather just parts of it, such as backhaul, radio access or even the core network. The strand-mounted BelAir100SP picocell launched by BelAir Networks this summer is a great proposition in this sense. Cellular carriers will need to find thousands of sites to deploy new small cells in order to provide ubiquitous broadband wireless coverage. Cable operators have cabinets, pedestals and vaults distributed all over the world where broadband backhaul, power and mounting are available. Could not cable operators deploy those picocells and offer a partnership agreement to cellular carriers? Cable operators such as Ziggo in The Netherlands or COX in the US already own spectrum, so interests clearly go both ways.

Partnerships can involve parts of the network that we have never previously considered separately, thanks to the increasing importance of software components above hardware in cellular infrastructure. Network management, deep packet inspection or video compression are examples of software functions that can be shared between operators. Therefore, the cloud computing alternative that is being proposed for general purpose software such as word processors could be adopted by the most budget-constrained carriers in order to decrease ownership costs regarding certain components. Of course, clear standard interfaces will be required at every level to ensure service providers do are not married exclusively to a supplier forever. 

Considering today’s level of competition in the telecommunications market, which increasingly does not recognize national borders, the higher the successful multi-party management a carrier is capable of assuming, the higher revenues it will generate. In addition to solving current threats by openly negotiating with content providers and device vendors, that experience must be leveraged by operators so as not to fall back into unsustainable business models when accomplishing all this key virtualization. As a result, since every operator will be virtual to some extent in the future, the duality between traditional carriers and MVNOs will come to an end, and end-users of course will be the eventual beneficiaries of a more diversified offering.

MARAVEDIS is a leading analyst firm focusing on 4G and broadband wireless technologies and markets. 

Author: Esteban Monturus, Market Analyst - Europe & Backhaul