Between them, Andy Zimmerman and members of his team from Accenture’s Global Communications division had 275 meetings at February’s Mobile World Congress. With clients from all areas of the industry – mobile operators, infrastructure vendors, content and media players, service providers – Zimmerman was exposed to the full breadth of opinion on how the mobile industry will evolve. The fears and aspirations of all players are clear, he says, speaking to telecoms.com just days after the event’s conclusion.
This year the show seemed to lack the hype of previous events, with even popular topics like advertising and search monetisation tempered with a degree of realism. As the range of mobile services and business models increases, the various players within the industry are concerned with staking and protecting their claim in the value chain. This was a theme that ran through the show as it does through the industry week by week.
“There’s a healthy dose of paranoia out there,” says Zimmerman, which he attributes in part to what he calls the “iPhone experience”. The launch of Apple’s long-awaited handset last year worried the content community, he says, which had seen the impact Apple has had on the music industry. And it gave the carriers cause for concern as details of the deals the IT vendor had struck with it’s operator partners – with revenue shares of 40 per cent for all iPhone-related traffic widely believed to be flowing back to Apple – leaked out in the weeks after the handset hit stores.
The iPhone itself has achieved only minor penetration relative to other handset vendors, of course. And while Apple has shown, “a great ability to build an end to end solution that everyone wants,” says Zimmerman, “they tend to end up being a a small market share company at the end of the day”. The importance of the iPhone arrival, Zimmerman reckons, is that it has awoken the mobile industry to the way things might move.
“Everybody’s looking at this and saying: ‘Ok, if this is the future, what do I have to do to protect my role in all this?'”
And it is the device vendors that are reacting most effectively, he says. “They’re trying to imitate the Apple model, not only with the UI but also the services behind it. Right now, I feel like there is a device renaissance going on, where the device vendors are the ones that are attracting the imagination and attention of the consumers and, frankly, the carriers are not really doing that.”
Ultimately, Zimmerman believes that no one sector – be it the vendors, the internet players, the carriers – will truly be able to dominate the others. The inter-dependency is too great, he says. That said, he feels the device players have the upper hand because, “so much of the user experience around mobile tends to be hardware related.”
If the carrier community has a job ahead of it, he says, it is to learn to be comfortable with its unique attributes and to learn to effectively exploit them. Operators have assets relating to the end user – like presence, identification, authorisation and credit information – that give them a richer customer relationship than other members of the value chain, says Zimmerman. “But they haven’t been particularly proactive about bringing those to the table,” he says.
“I have a feeling that the carriers don’t appreciate what they could provide that could be enabling for a lot of different kinds of service providers. Maybe they should be thinking about getting a dollar from every ten dollar transaction, rather than getting the whole ten dollars…”
Zimmerman talks about ‘Tridgets’, a “combination of content, device and the software that is used to manage the service.” A mobile phone is a tridget, as is an iPod. So to is a wifi-enabled pacemaker, implanted next to somebody’s heart. “In 20 years there could be a trillion tridgets in the world to be managed, all of which will be network enabled, and almost all of them mobile,” he says. “If you can get a dollar a year out of each one, in terms of some information or service around the network to enable it, that’s $1tn, which is the size of the current telecommunications industry.”
Zimmerman concedes that this is a simplistic view, joking that it’s “kind of like the way people justify getting into the Chinese market,” but he is serious about the role of the network operator as enabler. Whether all carriers share his enthusiasm for such positioning is less clear, though.
“What they don’t like about this point of view is that they feel a lack of control over the evolution of the sector,” he says. “They feel like they are a participant but they worry that, particularly as they relate to the end user, that they may be giving up too much control.”
Despite this, he argues that there is a rough 50/50 split in the carrier community today, with one half ready to accept a redefined role, and the other convinced that it needs to play end-to-end to avoid being marginalised. “It depends on the individual personalities, and where their company is at the moment,” he says. “There are a fair number of executives out there who say that they’re never going to be in the [end-to-end] business, and that they should focus on the enabling business.”
These are the players that are positioning themselves effectively and pragmatically, he suggests: “Don’t you want to control the development of content distribution on the network, regardless of who is retailing it, even regardless of what screen it’s showing up on, for that matter? Don’t you want to own that before you worry about whether or not you own the end consumer?” he asks.
As carriers look to expand their repertoire, many are also involved in expanding their footprint, and Zimmerman reckons that further consolidation among the global carrier community is more than likely.
Historically, consolidation and global expansion has been led by the stronger developed market players but with players like India’s Bharti and Reliance making public commitments to overseas investment and talk of China Mobile flexing its considerable investment muscle, could the global picture be about to shift, with an emerging market player or two stepping up to challenge the likes of Vodafone and Telefonica?
“I think an emerging market player could do that,” says Zimmerman. “They have great credentials and this DNA of working in very low cost, low price markets successfully. So I can definitely seem them sharing in the penetration of the emerging markets because they have more cultural sympathy with emerging market government and regulatory environments.
“The disadvantage they have is that, when you’re in a high growth area like they are, it is a little hard to develop a diversification strategy geographically at the same time as you’re in an incredibly fast-paced race in your existing market. One little miss could really hurt you in terms of your market capitalisation.” These players also face competition from wealthy regional carriers, says Zimmerman, whose interest in low-penetration neighbours is driving prices up, he says.
There has been plenty of consolidation among the vendor community as well, but Zimmerman is not sure it has all been successful. “There have been mixed results. Some of these transactions have scared people a little bit because they didn’t realise much in terms of synergies. Whether or not there will be any more M&A activity among the mega-vendors, I don’t know, because there’s so much volatility now in terms of those companies themselves,” he says.
“This might lead to more transactions, but more out of firesale desperation than any kind of real strategy,” he says.
“My sense is there’s still some room for consolidation among around software and among second tier vendors. Cisco has done a tremendous job in terms of M&A but they have a particular focus on emerging tech and much smaller companies. It’s interesting that they have chosen not to do a big merger, even when there have been assets out there which, when you look at the relative valuation, would have been easy for them to pick up.”
At the Mobile World Congress, Vodafone CEO Arun Sarin made a plea for consolidation in the handset operating system space, arguing that there are too many options to allow for the creation of an ecosystem in which interoperability and universal application development thrive. Zimmerman is no more optimistic about the chances here:
“With smartphones, there’s so much still to be determined in terms of who’s going to dominate. So I can’t see the leading players gravitating around particular standards to help world hunger, as it were, if they think there is still a chance of picking up market share with their own products. The dynamic right now is not quite right for that sort of thing.”
Zimmerman’s assessment of the structure of the industry may not be what everyone wants to hear. But he’s not the first observer to suggest the carrier community might be heading up a blind alley. Whether any of his consulting customers heed his advice or not remains to be seen.