Wednesday, 13 January 2010

A conceptal operating model for future mobile Telcos

A colleague and I have been thinking about some of the developments in mobile and have come up with an idea about the structure the mobile industry seems to be heading towards and the strategic issues that could result from the journey towards it. Conceptual at the moment, but it might be interesting, so I thought I'd share:

  • We started with the premise that consumers have become ever more handset-centric, particularly post-iPhone. Operators have therefore moved from subsidising the expensive handset to enable consumers to access their service, to financing their access to devices;
  • We wonder whether this leads to a different view on the operating structure of mobile Telcos. The long anticipated netco/ servco model may be an intermediate state, but perhaps a more apt analogue of the operator’s future model is that of an automobile manufacturer;
  • Why do we say this? Well, the modern auto manufacturer is as more of an assembler of components into a product than a vertically integrated factory, just like the modern mobile Telco. Furthermore, the industry regularly finances the consumer’s access to an expensive product (the car), and differentiates itself not only by its product (which is a commodity to many buyers) but by the terms of access to the capability (mobility, via the petrol station), by retail experience and, moreover, price and terms of finance;
  • Similarly, the smart phone is a pure luxury item that is expensive for most consumers and offers access to increasingly vital multi-dimensional high end communications (via the network – as commoditised as the petrol station...);
  • Operationally, auto manufacturers have a shared, integrated supply chain. They are heavily consolidated into a small number of global groups and share many of the same suppliers. Notably, they also tend to run a finance arm as a separate business;
  • Some of these characteristics are already beginning to emerge in the mobile industry. For example, the growth in the service businesses of Ericsson, Nokia and the nascent throes of network sharing (not to mention ongoing consolidation within and outside core territories). We may also be seeing finance businesses developing, such as O2’s recent foray into retail banking in the UK;
  • Despite its scale, the industry is still very young – 25 years at most, whereas the automotive industry has been going for over a century and has trodden much of this ground before. A couple of lessons that we think are interesting from their journey are:
  • The importance of financial products as value generators in a commoditised industry – what is the difference between “handset subsidy” and “handset finance” – could the latter be used as a tool to ensure the return of the asset for resale or recycling, just as many cars are leased, not bought outright...
  • The importance of building an industrial commons, not simply “outsourcing” – endlessly squeezing suppliers to support margins has ultimately back-fired on the US majors, particularly as their Japanese counterparts did the opposite and are thriving;

  • Both of the above have significant implications on the structure of the operator, far more so than netco/ servco, which simply puts today’s functions into a separate business

That's about as far as we've got so far. Any thoughts then feel free to comment :).

No comments:

Post a Comment