A new report from advisory and investment firm Delta Partners sheds some new light on a key question that communications network operators have been debating for some time: Are network operators relegated to being simply the providers of connectivity, or “dumb pipes,” in the Internet era?
The answer, according to the authors, is no. But according to them, we’re not likely to see the Verizons, AT&Ts and Vodafones of the world competing against the likes of Amazon, Apple (News - Alert) or Facebook (News- Alert) any time soon. Instead, the authors argue that, for the most part, network operators in developed countries are likely to have the greatest success with what Delta Partners calls a “smart pipe” strategy focused on network efficiency and reaching a dominant local scale.
The report, titled “Telecom operators positioning in the App economy: The ‘pipe’ way or the highway,” makes some pretty compelling arguments about why network operators are unlikely to compete effectively against the technology firms. It notes, for example, that major technology firms have more than $250 billion in available net cash to finance growth and defend themselves from operator moves – and that number is growing at more than $80 billion per year. The top 10 network operators worldwide, however, have more than $300 billion in debt.
Except in developing markets where one or two operators dominate, the authors argue that “Technology firms are well positioned to corner operators in the data pipe war.”
This analysis doesn’t bode well for what are sometimes called “Operator 2.0” initiatives that aim to generate loyalty from social networking and revenues from app stores, digital content, retail transactions and advertising – although the authors do highlight a few such opportunities for network operators.
These opportunities involve targeting business and government segments by leveraging network operators’ local capabilities such as corporate sales force, field services reach, pre-paid airtime wallet and retail footprint.
The authors caution, however, that “Our experience shows that operators may be successful only if they are able to achieve a minimum scale.” They note, for example, that successful operators have been very aggressive in “establishing themselves as the market reference” in specific vertical markets such as automotive, insurance, banking, health, transport or retail.
And even if network operators only get a small portion of what Delta Partners calls the “Post-PC Era App Value Chain,” it’s a huge market. The white paper estimates the market at $36 trillion, including connectivity, digital, ICT and transactional services.
Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO West 2012, taking place Oct. 2-5, in Austin, TX. Stay in touch with everything happening at ITEXPO (News - Alert) (News- Alert). Follow us on Twitter.
Edited by Brooke Neuman