Larry Bellehumeur |
I always found it kind of ironic that cellular network providers are referred to as "carriers". For most of us, we grew up with our local postal delivery person being called "a letter carrier". The reason I find it ironic is that carriers (of the cellular kind), who offer email and text messaging services, are a major reason why the other carrier (the postal kind) is having huge drops in business....I mean, when is the last time you sent something to someone by mail when you had the option of emailing it instead? Now, another kind of "carrier" is doing the same to cellular carriers that they helped do to the postal carriers. The term "OTT" refers to those who provide "Over The Top" services. By definition, that would be the delivery of content without the use of a multi-system operator (thanks to Wikipedia for that terminology). Examples of such a service would be Apple's iMessage, Facebook and other chat services, but it also applies to content providers such as Hulu and Netflix. While the cellular carriers can still have an involvement in the delivery of those services (by providing the transport), they are becoming reduced to the role of "a dumb pipe", which brings in a larger threat of commoditization and margin erosion And....we are not talking about small change here. Recent articles have pegged the potential loss in revenue at $14B, just in 2014. Even worse, those numbers are just for the wireless side of the house. Most large wireless providers also offer some sort of consumer services that are also affected, such as cable and even home phone. I know from a personal standpoint that I am not missing the reduction in channels that I recently did from my local provider, as my kids are much more prone to watching Netflix and Youtube. One only has to look at the overpayment for various sports television rights to see how desperate the situation has become (since live sporting events are still mostly covered on broadcast TV).
In this area, wireless carriers need to own the "end to end" experience of the customer. If you look at the success of companies like IBM (on the services side), it tends to be done by offering a higher level of expertise in conjunction with the "I'll take care of everything" sales approach (we used to call it the "IBM comfort hug" when I worked there!). Carriers have definitely started to do this (and have done it for a while), but they need to do it more.
Selling M2M hardware and connectivity is a good business to be in....but managing the data is likely better. By providing more data-oriented solutions (and, billing it in such a manner), it allows for one to be much tougher to replace. With the ability for customers to move devices between carriers much easier than ever before, it is more important than ever to increase the stickiness that one has at a customer.
One of the biggest changes in the past few years at the carriers was the introduction of the Apple iPhone. For the first time, a vendor had such a powerful position and clout (while negotiating with the carriers), they were able to dictate conditions much more than ever before. Unfortunately for the carriers, this trend may be one that is continuing and not dissipating. So, it is unlikely that the carriers will see huge growth from the consumer side of the house any time soon....So, will M2M fix it all by itself? Unlikely....M2M is (and will be) huge, but it won't be all on cellular. A large proportion of M2M will be using existing landline/Wifi networks/cellular connections, so the gain will be not as greatly felt (in the area of activations anyways) by the cellular carriers. The trick will be to get more out of every existing/new customer and that will take moving up the chain (as we mentioned above).As well, the rate of erosion of their traditional services is not slowing down....landline phone connections are being terminated at a great rate, and it looks like companies like HBO (with their announcement of their own streaming service) are going to become more of a threat than they are today to the cable/satellite TV part of the business. It will take a big shift in the carriers thinking of M2M to come close to replacing the revenue today, let alone revenue declines in the future.
So, is it all doom and gloom for the carriers? Hardly. These are companies with extensive reaches into the consumer/corporate world, incredible billing and customer service capabilities, some of the smartest people in business running them....and, oh yeah, billions of dollars in annual profit. I think they will make some pretty good decisions and will "right the ship".....they just better start doing it soon!