The Economics of Getting Smarter

By Marc Leclerc

This past holiday season the unit sales of smartphones surpassed those of feature phones for the first time in the United States. The trend only seems to be accelerating as the new decade unfolds, showing no signs of reversing thus far. This event is a milestone not only for mobile devices, but also for the entire telecoms value chain and has brought a new set of challenges to our industry.

In particular, I would like to point out the following. First, the total growth in new subscriptions is slowing down as markets get saturated. Second, falling rates for voice minutes are also causing associated revenues to plateau or even decrease. Third, increasing usage of data services, especially by power users, is severely taxing network capacity in high-density areas.
How does the rise of smart devices impact these challenges? Don’t they just exacerbate the problem by encouraging more data usage? Well, they may actually have a quite favorable impact on resolving all these problems!

Smart devices bring to telecoms many of the positive dynamics of the PC industry. Most importantly, they bring the benefits associated with software-based clients, including a much faster time-to-market, lower development costs, easier customization and a simplified, low-cost, over-the-air upgrade mechanism.

As a consequence of using the soft client approach equipment vendors can offer a user experience that adds value to their network enablers and can be developed in concert with them, reducing deployment time. And service providers can further customize these clients to reinforce their own brands and use the well-known Internet tactics of viral marketing and free client offerings to promote faster uptake of new services.

The pioneer and early adopter segments are eagerly leading the migration to smartphones. As they are the main entry point for the adoption of new services by other user segments, service providers now have a lower cost alternative for doing commercial user trials, allowing them to launch more services faster and at a lower cost than previously possible Service providers also have an alternative to device-based integration of services that essentially leaves operators out of the loop. Software-based clients make it economically possible to offer network-based integration of data and services that leverage and add value to the subscriber/operator relationship.

Already, many consumer electronic devices such as DVD players, gaming consoles and television set-top boxes have IP network connections. Ericsson predicts that by the year 2020 there will be more than 50 billion network connected devices. Software clients (in the form of applets, widgets and plug-ins) will be a major tool in delivering new services that tap the business potential of linking people to all their devices and devices to each other. Service providers will, of course, need to adapt network infrastructure to take advantage of the potential made possible by the use of smart devices and soft clients. They will also need to evolve their business, marketing and value chain management processes to turn this potential into revenue. This would likely include adopting a consumer service integration strategy and offering packages of services to consumers as a central element of their brand differentiation.

To compete with and co-opt over-the-top services, network operators could introduce full service interworking between different operators and networks from both technical and business perspectives, using standards such as IMS and RCS.



A final consideration: To build and fill out the expanded value chain, this model requires a genuine ecosystem approach. This means putting into place elements needed to be a more attractive channel for developers, including development tools, developer support programs and retail channels such as application stores.

The ascendance of the smartphone is both a challenge and a major opportunity. It puts into the hands of the telecoms industry the tools to deliver more value faster to our customers and delivers a significant move forward on the path to network convergence with the Internet and Web.

Marc Leclerc is manager of the Global IMS Expert Centre at Ericsson (www.ericsson.com).

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