Mobile Execs Don't Like Some IP Network Implications

By Gary Kim February 25, 2013

Mobile executives said they want “a more equitable share of the spoils” from mobile ecosystem value, says Emeka Obiodu, Ovum telco strategy analyst, Ovum. That isn’t a new refrain, nor unusual in a business where value and revenue are being created in new ways.

As usual, the separation of access and apps lies at the heart of the concern. The “problem” is that networks are seen as providing a foundation for application businesses that service providers do not own or control. To put the matter in other terms, over the top app providers and businesses are viewed by telco executives as “riding the pipes for free.”

“This challenge needs to be overcome,” AT&T CEO Randall Stephenson noted.

To be sure, precisely how modern networks can be built and upgraded is an issue.  There is universal agreement that most of the legacy revenue that has historically funded such networks is at risk of disappearing, in large part from competitive apps that displace communication services, or because consumers simply have changing preferences.

Others might say service providers have the same obligations as other business owners, though, namely matching their cost structures to their revenue prospects, finding new sources of revenue and doing all the other things any business must do when markets change. To be sure, telco executives might more readily accept such challenges if regulatory frameworks were more encouraging.

But sometimes the telco protestations just sound like whining, some undoubtedly would say. In fact, there is some unpleasant truth to the notion that the way modern IP networks operate naturally and inevitably leads to the revenue separation problems telco executives decry.

In other words, IP operates by separating the applications from the underlying transport and network access mechanisms. That’s just the way IP works, and is supposed to work. That means applications can be created and delivered by third parties, independently of the ownership of the underlying transport and access networks.

Some might say that if telcos complain about the protocol, they should be ignored or castigated. It’s just a protocol, albeit a protocol with enormous business ramifications. Since, by design, third parties can create services and apps that run “over the top” of the transport networks, with no inherent business relationship, the tension is built into the software stack, you might say.

Telcos have a legitimate concern about their future ability to keep investing in their networks. Regulators have a vested interest in ensuring a framework where robust investment continues. So the concerns about revenue are not simply “whining.”

But some might note that a large part of the problem is simply that telco cost structures are out of line with current or future revenue. Other competitors offer similar services using networks and business models with different cost structures.

It isn’t easy for service providers to navigate the changes, but blaming third party app providers for success, when they are simply using the networks service providers themselves have chosen to operate, will at times seem a simple matter of whining.

Edited by Brooke Neuman

Contributing Editor

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