The great dictator

At the end of November, Telecoms.com broke the news that Apple does not allow mobile operators to offer the iPhone 5 as an LTE device until it has tested the performance of their LTE networks. The practice had been leaked to Telecoms.com in October but, as is often the case with stories involving Apple, caution and NDAs kept all sources off the record.

Confirmation of Apple’s approach to LTE came in the end from Swisscom, shortly after the operator launched its LTE network on November 28th. In its launch release Swisscom said that the iPhone 5 would be available on its LTE service “in due course,” after a software release from Apple. When asked by Telecoms.com for more detail, a Swisscom spokesperson said: “Apple only enables 4G access after testing their device on an operator’s live network.”

When Apple is at the hear t of a stor y you can be guaranteed a certain level of emotion from the responses. The firm’s fan base is notoriously devoted—but there are just as many people who resent Apple and the shift in the balance of power that it has brought about in the industry.

In line with this, and broadly speaking, there have been two perspectives on the news. First is the belief that this is a Good Thin g, and a natural step for Apple; a company that wants to control the user experience from end to end. Operators dominated the market for long enough, holders of this view suggest, and the fact that they were unable to exploit their power to bring to market the kind of experience that Apple has created is nobody’s fault but theirs.

Second is the suggestion that Apple has accrued too much power for one company and that its network vetting is a Bad Thing for operators that have invested heavily in bringing LTE to market. Apple is secretive, closed and dictatorial, this view holds, and its dominance threatens an industry built on open standards and collaboration.

Both views confirm two things that we already knew: The mobile communications ecosystem is no longer fundamentally operator-centric—and only Apple has the power to boss the networks in this way. But the situation is not nearly so simple as the Good and Bad readings that the news generated.

Marcus Weldon, CTO at Alcatel Lucent, suggests that Apple’s policy is a positive development for operators because it underscores the importance of the network at a time when its importance desperately needs underscoring. As operators have ceded power to device, OS and OTT players, says Weldon, the perceived value of the network among end users has dropped below that of the device and the application. “The network needs cheerleaders,” Weldon says. “And Apple is essentially saying that the network is important. That’s a good thing.”

While this could be construed as positive for The Network as an abstract element of the service, it does not follow that it is good news for all operators. Life for tier two and three operators, and those that lack the scale of large groups, is becoming increasingly difficult—and Apple’s selectivity is likely to hit them hardest, says Informa analyst Dimitris Mavrakis.

“Apple would not do this to the tier one pla yers, to AT&T , Verizon or China Mobile,” Mavrakis says. “But for smaller operators, or European players with a limited subscriber base, Apple has the a udacity to do this and I’m not sure all operators will even make it to the testing phase.”

The experience of Jafar Asimov, head of the automation department at Tajikistani operator Babilon- Mobile, seems to support Mavrakis’ observation. Asimov says that he has been tr ying to get in touch with Apple in a bid to get his LTE network approved by the handset vendor, but to no avail.

Babilon, which leads the Tajikistani market with three million subscribers at the end of September, activated its LTE network in October after re-farming 2G spectrum in the 900MHz and 1800MHz bands f or 4G. But the operator only realised there was a problem with Apple’s latest smarpthone when iPhone 5 o wners began complaining that LTE connectivity was not working on their devices.

Mobile operators in Tajikistan do not subsidise handsets, Asimov says, so users often bring their own devices to the network. It was only when he got hold of iPhone 5 handsets for testing, he says, that he discovered there was no way of activating LTE connectivity without Apple’s intervention. “There is no information available about activating LTE,” he says. “We got no help and no response from Apple on this.”

So how is Apple managing this process? With the vendor unwilling to comment the answer is not entirely clear. “According to our research, the iPhone 5 talks to a server at Apple, which keeps a list of approved PLMN (public land mobile network) codes,” Asimov says.

Every operating network has a PLMN administered by the country’s regulator; a unique code identifying the operator. If the code is present in Apple’s database when the device comes online, then an LTE switch magically appears in the iPhone settings panel, Asimov says. Operators invested in LTE on the understanding that they would be able to support compatible devices, and users buy devices on the understanding that they will be able to use compatible services. If operators in situations like Babilon’s feel they are at the mercy of Apple’s strategic planning, it is understandable.

“Apple has acknowledged its dominant position and is using it as leverage over the one part of the user experience it doesn’t control—the network,” Dillon says. “The key take-away for operators is the importance of maintaining healthy competition in the handset market, as this is a clear illustration of what happens when you have a dominant player.”

But could this dominance have wider ramifications for the operator community than the distribution of competitive advantage? Bengt Nordström, founder of industry consultancy Northstream, certainly thinks so. Nordström, who admits to being “shocked” by the discovery that Apple is vetting LTE networks, suggests that the increasing power of the device vendors, Apple and Samsung in particular, could begin to affect the entire direction of the industry, threatening the operator’s role in a truly fundamental way.

Over the last eight years, Nordström says, the handset sector has more than doubled its share of global telecom industry operating profits to 11 per cent. Almost all of that has gone to Apple and Samsung in 2012, he says. One consequence of this is that these two firms have significant resource to put into innovation, R&D and standardisation at a time when the historical drivers of that work are more financially challenged.

“With this comes a considerable risk of less open standards,” Nordström says. “Operator- and infrastructure driven R&D/standardisation promoted a wider industry evolution, while device manufacturers instead push for and prioritise standards that help them to close gaps in their particular highly vertically integrated value chain and to benefit just their own devices. This has the obvious risks of bringing interoperability issues to bear and encouraging a lack of harmonised solutions.”

Two trends should concern operators, he suggests: the enthusiasm of device vendors for wifi offload (evidenced by Apple’s decision to support only a subset of global LTE bands and Samsung’s SIM-based wifi authentication solution) and what he describes as the “on-going battle over the future of the SIM card.”

Operators are in danger of being recast as “disposable, wear and swap access providers,” he suggests, warning that they and their network suppliers should “take charge of the wider industr y open interface R&D and standardisation efforts.”

Apple’s approach to operator relations has never been in doubt. The nature of its distribution agreements is tightly guarded, although the revenue share deals struck with operators for early iPhone models are an open industry secret. There is no denying the extent to which it has changed the game, or to which it has managed to succeed where operators did not.

And yet it is still to early to hail the end of the operator era. History tells us that leadership in the de vice market is a lot easier to lose than it is to win and ther e are no guarantees that Apple’s dominance is sustainable indefinitely. Recent problems with Siri and Maps ha ve revealed frailties that are at odds with the firm ’s self-styled infallibility. The question is whether operators will be able to cla w back a greater degree of control, or whether it will simply pass to the next ascendant device or OTT player.

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