Dumb pipe: mobile operators know the term, but how do they climb out?

Pipes
Edith Yeung December 30 Software

Mobile technology has come a long way since Motorola demonstrated the first cellular call in 1973. The first commercially available devices retailed at the low cost of $3,500 — more than four times the cost of the 64GB iPhone 5s.

Flash forward to 4G. Networks are now struggling to overcome a new problem: dumb pipe syndrome. Operators such as AT&T have watched their SMS, Locker, and Radio services lose out to third-party apps such as WhatsApp, iCloud, and Spotify. Now, they’re wondering how they can adjust to a playing field where core network services like voice and text are being overtaken by external apps.

 

Why it’s happening and what to do next

The main reason consumers tend to gravitate toward third-party apps, rather than those provided by operators, is that users are looking for apps designed to provide the best experience for small screens, an expertise mobile operators lack.

What operators should remember is that, in reality, they aren’t in competition with app developers. Operators running a network have different DNA than software companies developing apps. So what can operators do to add value to their product that will continue to draw in customers?

  • Provide faster bandwidth.

Users now spend nearly 40 percent of their total Internet time on mobile — streaming video, using social media, and reading their email. Operators that want to stay competitive should focus on providing a faster experience (think LTE).

 

  • Listen to consumer needs.

In the third quarter of 2013, T-Mobile eliminated international roaming data charges and dropped international voice costs, which led to a rapid increase in subscriptions. This is a great example of how listening to customers can pay off.

 

  • Get out of the way.

Instead of loading a phone with operator services, work with third-party developers to load up on the apps your users actually want. Many overseas operators have also begun to provide unlimited data plans for apps specifically chosen by users. It doesn’t take a high degree of market research to determine which apps an operator should be partnering with. All you need to do is check the App Store or Google Play for the most popular apps.

 

Moving forward

To stay competitive, operators need to realize that third-party apps are going to continue to make built-in services redundant. If they won’t listen to consumer demands, they’ll begin to meet an increased churn and lose customer loyalty. Operators will still bring in revenue through their voice services, data plans, carrier billing, and phone sales, and those that succeed will be the ones that can provide a more personalized user experience, such as offering unlimited data for a customer’s favorite apps.

Operators that embrace the best apps can benefit in three ways:

  • They differentiate their companies by including apps that users already know and like, making them more relevant to smartphone users who are tired of built-in services.
  • They can increase revenue by having app developers adopt operator billing.
  • They will get new products to market faster by including the most popular offerings, instead of developing their own services.

The bottom line is that operators are all about infrastructure and network. They never really have made money off their apps, and they probably never will. Now, operators need to focus on their core competency of building faster networks that provide flexibility for users — and leave app development to the experts.

Written by Edith Yeung

Edith Yeung is the VP of International Business Development at Dolphin, a Sequoia-backed mobile browser with over 80 million downloads on Android and iOS. She is also a founding partner at RightVentures, a venture capital firm focusing on mobile and consumer Internet investments. Connect with Edith on Twitter @EdithYeung.
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