This article originally appeared in the November 2010 issue of NGN.

Smartphone dominance continues to accelerate. As a result, application stores are fast becoming integral elements of the mobile phone user experience. Of course, many in our industry point out the fact that the vast majority of applications installed on smartphones are actually not for the purpose of communication. That most are games, utilities, personal productivity aides, document readers, media players and such. That other than for the initial download, they do not generate revenues for network operators. But is this really the case? 

Mobile device applications today are not static. They are dynamic entities, constantly evolving to stay ahead of the competition and to keep users involved long term. They often engage their users in online communities – a strategy meant to build both user loyalty and their publisher’s brand image. This is true not just for social networking clients. Games, productivity applications and media players are also offering users a chance to communicate both with the app publisher and each other to share high scores, offer user tips, get support, and buy upgrades or another one of the publisher’s apps. Even if most network providers have not played a direct role in these app stores, the volume of communications usage by the apps themselves once installed is clearly not zero. It is in fact increasing with the number of apps downloaded by the user and the sophistication of application developers and publishers.

Many of the applications themselves track usage habits, location and other user status information and forward this information to the application publisher. This information is used for a variety of purposes, including CRM, tracking demographics and of course for up-sale efforts and targeted advertising. Some applications are offered for free and generate revenues through advertising or product referrals. Many such apps also offer a paid upgrade to turn off the advertising – an interesting twist on the freemium model.

Recent months have seen controversy when some applications were not explicitly informing users that this was going on, nor were they seeking the user’s permission for transmitting this information back to the publisher. User consent is required for this to be effective and is even a legal requirement in some jurisdictions. Even so, it is undeniable that these developments are changing user behavior and creating new options for operators to monetize network assets, should they wish to become more directly involved in this value chain. 

Both of these trends point to increased usage of communications networks and to the emergence of an evolved digital marketplace with a richer set of commercial interactions. Operators have the opportunity to leverage these trends by exposing network capabilities via APIs to both Web-based services and to the client applications themselves. But then why would application developers choose this path over simply using device-based APIs? Several other key trends may be working in the telecom industry’s favor.  

First, people want all their services and content available at all times, no mater where they go and which device they are using. The number and type of devices from which they want to access their services is also increasing all the time: mobile phone, house phone, personal computer, TV, netbook, tablet, car, etc. The challenges of reliably delivering services across network and device boundaries are familiar to the telecoms industry. These include interoperability, international interworking agreements, supporting a multitude of devices, content adaptation and the global standardization needed to make all of this happen. For application developers, supporting all these networks and devices will be a cost multiplier and/or significantly reduce the addressable markets for their services. A global marketplace based on standards (IMS, OMA, RCS, OneAPI (News - Alert), etc.) working across fixed, mobile, broadband, cable networks and the Internet will significantly reduce costs and provide access to a potential marketplace of more than 5 billion subscribers.

Second, people have an intimate relationship with their mobile phones. It is the one device people always keep close at hand. This places the network operator in a privileged position being the most accessible point of sale in the digital economy. In combination with the trends already discussed, network operators have first crack at satisfying user needs and the multitude of direct and indirect commercial opportunities that come from customer attention as well.

Third, LTE (News - Alert) is being increasingly deployed around the world. This will offer huge bandwidth and significantly reduced latency. LTE is making mobile communications an effective delivery vehicle for more demanding applications in high-value vertical markets such as health care, personal and commercial security, enterprise systems, industrial controls, transportation, utilities and, of course, immersive multimedia. 

If our industry wishes to avoid becoming purely a bit pipe, we will have to make it not only easy, but worthwhile for the service providers and application developers of the world to choose telecoms as the channel for delivering value to consumers. The competition is stiff, but we have made great strides in the last year. The rise of the smartphone may yet play in our favor.

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