Mobile operators won’t find safety in content deals

Mobile operators need to look at reinventing their operations instead of content deals if they want to guarantee future success.

AT&T wants to acquire Time Warner and Verizon Communications wants to buy Yahoo because they believe delivering news, sports and movies to the small screen is the best way for mobile operators to ensure their long-term success. Mobile communication service has become a commodity and operators have known for a long time they need to do more than just provide “dumb pipes” if they want to continue prospering.

On the surface, everything appears to being going well for the U.S.’ four largest mobile operators. Both AT&T Mobility and Verizon Wireless have more than 100 million subscribers each, while T-Mobile US and Sprint have more than 50 million customers each. However, the mobile industry is in constant flux. Within the next five years, mobile operators are expected to begin deploying fifth generation wireless technology. And mobile operators know from experience that innovative companies can disrupt their businesses. When Apple burst into the mobile phone business with the iPhone in 2007, it broke up the handset makers’ exclusive club, and put operators in the unaccustomed position of having to negotiate for sales rights.

Threats to mobile operators’ businesses are very real. Cellular telephone was originally developed for automobiles, but today mobile phones are mainly used indoors. Competitors offering low-cost service relying primarily on Wi-Fi hot spots and only secondarily on cell towers are springing up everywhere. These include small independent companies such as Republic Wireless, Google’s Project Fi, cable TV operators and city governments offering “municipal Wi-Fi” service.

Another threat comes from so-called “over-the-top” providers. These companies have found ways to use mobile operators’ networks to deliver the same services for less – or even for free. For instance, Messenger allows Facebook users to make international phone calls from within Facebook, avoiding international phone charges. Other OTT companies have cut into operators’ messaging revenue.

A subtler threat comes from new smartphone-based services. Uber’s ride-sharing service is a prime example. The service lets you choose the type of vehicle you’ll be riding in, tells you the estimated charge, shows the approaching driver’s progress on a map and handles the payment automatically using your stored method. Currently valued at around $60 billion, Uber is generating significant revenue in cities all over the world while the mobile operators that provide the underlying communication service receive only pennies.

What should mobile operators do? There is only one way for technology companies to ensure their long-term success: they must continue to innovate. Amazon.com is a good example. The company that created the “Earth’s biggest bookstore” did not stop there. It developed e-book readers that now threaten to make printed books obsolete. Amazon Founder Jeff Bezos understood that it’s best to cannibalize your products before someone else does.

The biggest obstacle to innovation for mobile operators is found in their mobile information technology systems. These are the systems that store the customer account data, define the service plans and handle the billing functions. The problem with these mobile IT systems is that most were developed in the early 1990s – when mobile phones were used exclusively for voice calls. As mobile phones and networks evolved, operators created new services by patching their mobile IT systems rather than replacing them.

Ironically, while other businesses are leveraging smartphones to enhance the customer experience, mobile operators continue to rely on call centers and storefronts. As mobile IT provider ItsOn puts it, operators must “fundamentally change how mobile services are delivered and consumed.” The customer experience for activating new devices, purchasing usage, subscribing to content and setting family controls should be like requesting rides on Uber. Customers should be able to do these things right on their devices via a simple and intuitive app.

Mobile operators need modern mobile IT systems enabling them to quickly design and launch new services, to present customers with timely information and offers, and to interface with third parties. These capabilities will make operators more agile competitors, allow them to shape and enhance the customer experience and permit them to work more closely with business partners.

Sure, mobile operators can beef up their offerings by acquiring exclusive content. But what they really need is a culture that encourages creativity and the tools to deliver innovative new services.

This post is based on commentary by Ira Brodsky that first appeared at RCR Wireless. Brodsky is a Senior Analyst with Datacomm Research and is the author of five books about technology. Brodsky focuses on mobile solutions for payments, retail automation, and health care.