TMCNet: 31 Flavors of Openness - What Makes Up An Open Mobile Marketplace?
TMCNet Column - Mobility Matters: Device Management Insights
by Matt Bancroft
Discussions about openness in the mobile arena have, for the most part, centered on the carriers. How open today are the major mobile carriers like Verizon, AT&T, Sprint, T-Mobile and others? When will they become more open? How open will they get?
Verizon has announced it will be opening its network to any compatible CDMA phone, whether purchased from Verizon or elsewhere (as long as the devices are tested and certified by Verizon’s engineers). Not long after Verizon’s open-access announcement, AT&T announced that its network has had an open-access policy in place for years. Any handset that adheres to the GSM standard can, in theory, run on its network, though this fact was never much advertised because of the potential effect on new device sales and service contracts. Sprint’s recently announced Xohm WiMAX service will allow open access to its high-speed broadband network from almost any source.
However, while open-access networks are a large part of the open equation, there are three other key elements of openness in the mobile marketplace:
- Open devices—devices that can be obtained through multiple channels, will run on multiple networks, and can be personalized with services, features and applications that are added after the device is in use
- Open services/applications—services, features and applications than can be easily obtained and enabled after the device is in use, and that can come from either the primary service provider or from third-party providers (e.g., off-deck/off-portal services)
- Open contractual relationships—options to enter into longer- or shorter-term relationships with service providers, depending on the needs of an increasingly varied customer base
Open Devices
On the device side, mobile devices can have open or closed operating systems, can be locked to one carrier or be usable on multiple networks, and can allow access to additional services, features and applications or not, once in the hands of the users.
Google’s Android and the Open Handset Alliance (OHA) project comprise an initiative that is meant to specifically address the openness of mobile devices. The goal of this initiative is to develop a completely open mobile operating platform on which vendors will be free to develop applications and services that will work on all of the devices employing the Android platform. Leading this charge in the U.S. will be T-Mobile, which has announced plans to be the first to field a mobile phone using the Android platform later this year.
By contrast, the iPhone, when it first came out, could have been considered a completely closed mobile environment. The device was only available through one carrier (in the U.S.) and came with a two-year service contract. The only services and applications you could use on it came with the device. And the only updates for it came only from the supplier. In other words, you could have any flavor of iPhone you wanted, as long as it was vanilla. However, with the release of the iPhone SDK and the subsequent availability of hundreds of new applications from the iTunes Apps Store, the iPhone is now more open. The phone and service plans for it are still only available through one carrier in North America (AT&T) and still require a long-term contract. But even though new applications are only available via one source, they do now come from a wide range of third-party vendors, who are free to determine the features and prices of their offerings.
Interestingly, the vendors involved in the Android and OHA initiatives are touting the coming Android devices as “iPhones for the masses.” Because the platform will be on a number of different devices from different handset vendors, the vendors claim that it (and the services and applications that run on it) will be able to capture a much larger market share than Apple could possibly do with a single (relatively expensive) device.
Open Services/Applications
In terms of mobile services and applications, most mobile devices are sold in the U.S. with a relatively limited set of services. These are usually preloaded on the device, as well as delivered through and controlled by the carrier. A more open system would allow more, and more diverse, services, which could be tailored for mobile and accessed directly by the subscribers. This would drive up overall mobile activity as a consequence. Some services would be delivered directly by the carrier, while others are supplied via a range of models, from partnership, co-branding and delivery with the carriers to wholesale models where the carrier facilitates access for the mobile subscribers.
Open Contractual Relationships
In the U.S. marketplace, the most prevalent contract is long-term, with the customers locked into one- or two-year contracts. In this model, which includes financial penalties for breaking these contracts, customers are unlikely to switch operators in the middle of a contract, regardless of their support or service experience. A more open marketplace would have a mix of contract types to meet the differing needs of an increasingly diverse set of enterprise and consumer subscribers.
A more open wireless marketplace drives huge benefits. First among these is that the marketplace as a whole becomes larger—the availability of a broader and richer set of devices and services drives more mobile activity from more types of mobile users. Not only do service providers benefit from this overall market growth, but in addition, a host of opportunities are created for partners and third-party vendors as well.
Macro Trends Driving Toward Openness
Carriers will execute a number of strategies that will open the U.S. wireless marketplace further. The fact is that the U.S. mobile market is becoming saturated—recent estimates place market penetration at about 85 percent—and this will force carriers to look at new strategies to keep stimulating revenue growth. These strategies include driving increased usage, particularly advanced data usage; going after new customer segments, including lower–ARPU customers and customers from competitors (who may want to bring their phones with them); and finding new ways of managing acquisition costs and a changing blend of customers.
These strategies are likely to lead toward more open business models. Carriers are already broadening the set of services that can be delivered either through them or with partners. They will also promote and differentiate new contracts that are tailored to meet the needs of different segments of the customer base. These will necessarily include a mix of subsidized and unsubsidized devices, with explicit policies for devices sourced independently from the carrier.
At the same time, mobile customers are demanding more flexibility. Enterprises want to be able to directly control and manage the devices used by their employees—and the applications on these devices—regardless of where they come from or what network they run on. And consumers want an “Internet-like” experience on their mobile devices wherever they are. As mobile devices become less like phones and more like portable computers, it is difficult for many users to understand why they should not be able to use their mobile devices on whatever network is available to them. Nor do they understand why they should not be able to access the best and most relevant applications and services out there, wherever they are or whomever they come from.
Regulatory bodies are also reinforcing these supplier and customer trends. For example, part of the FCC’s order for the recent U.S. 700 MHz spectrum auction adopted an “open platform and application” mandate as part of the service rules for a large block of the spectrum being auctioned. The winner of this block, Verizon, had already announced its intent to open its network.
Openness—Opportunity or Challenge?
We believe that openness will support a larger wireless marketplace—period. And there is an inevitable trend toward more openness in the U.S. mobile market. This openness is coming in a variety of flavors—more open network access, more open device platforms, more open service provisioning and more options for contractual relationships with service providers. Forward-looking carriers will manage this change and find ways to capitalize on more open commercial models that can deliver higher revenues and margins. Delivering devices, services and experiences that are tailored to subscriber needs will naturally lead to improvements in ARPU, customer satisfaction and ultimately, customer retention.