Operators Rethink Service Priorities?

The retail holiday season got off to a good start in the US according to all reports, with significant gains over last year and a particular focus on consumer electronics.  One hot space is the tablet market, where Apple cut iPad prices and where Android devices continue to gain overall market share.  A new group of tablets based on Nvidia’s Tegra 3 quad-core technology is expected shortly, and of course the new Android 4 (“Ice Cream Sandwich” or ICS) is also expected to begin rolling out, though likely not in time for this season.

Tablets aren’t the cause of the network operators’ angst this holiday season, but in our just-completed survey of operators we found that 4 out of 5 said that they believed that tablets would be their greatest future challenge.  The reason is simple; the devices have a large enough screen to be credible platforms for entertainment video.  While tablets are primarily WiFi devices and most operators believe they’ll stay that way, they still are expected to increase overall streaming traffic.  This traffic is more likely to come in through hotspots, making it a problem for the wireline network rather than for mobile backhaul.

What’s perplexing perhaps about tablets is that they don’t appear to figure as much in what I’ve been calling the “mobile/behavioral transformation” as smartphones.  The reason is that while smartphone users report their devices are with them an average of 82% of their waking hours, tablets are with their users only 28% of the time.  Smartphones are turned on for effectively 100% of the time they’re with their owners, while tablets are on only a little more than a fifth of the time.  All this means that tablets can’t be used for instant gratification; they can’t be wired into our lives as intimately simply because they’re not “handy”, meaning available.  The fact that tablet trends are decisively shifting to the larger 9/10-inch form factor is only exacerbating that issue; you can’t walk around holding one easily.

The reason all of this is creating operator hassle is that the two premier revolutionary appliances are really hitting different parts of the network and generating different risk/opportunity balances.  Operators feel they are somewhat in control in the smartphone space; nearly all phones are sold under carrier service contracts of some sort.  In the tablet space, four out of five are sold retail over the counter and WiFi, as we’ve said, dominates.  The problem is that virtually every tablet buyer is a smartphone owner, and companies like Apple are already working to strengthen the symbiosis between the device classes.  How then do operators create integrated stuff?  It probably gets back to the service layer, but how?  I had a recent illustration of the issues with the use of Verizon’s FiOS apps for Android; I can’t control my TV with an Android tablet because Verizon wants the device’s “phone number” to register it.

The tablet/smartphone dichotomy may be one of the reasons why operators told us that they were “rethinking” their mobile service and even content strategy.  In the most recent survey we found that nearly all Tier One operators now believed that they needed an integrated service-layer approach, which is only a slight change, but this time nearly all also said that they believed that mobile, content, and cloud had to advance more in parallel.  In the past, most operators said they were prioritizing content monetization; that’s no longer true.

Operators also said they were refocusing their capex, much as some Wall Street firms had suggested, on revenue enhancement and cost management.  That doesn’t tell the story fully, though.  Cost management strategies, like improving mobile backhaul efficiency, are the focus of the operations budget planning process and revenue enhancement is the focus of the board-level monetization-team projects.  In short, we’re seeing operator procurement split more affirmatively in terms of sustaining transport/connection structure on the one hand, and enhancing “services” beyond connectivity on the other.  Vendors are finding this split hard to deal with at the sales level, in part because they can’t always get access to the monetization teams and in part because they’re simply not used to selling products in support of a mission beyond moving bits.  We did see some noticeable changes in vendor influence, and those will be included in our December Netwatcher issue as well as provided in hour-long presentations on a consulting-call basis to our clients.



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