A better deal for operators - How Nokia/ Microsoft could go for changing the economics?


(The meeting of the waters at the source of the Amazon!)

This started life as a private letter to Nokia and Microsoft about what they could do to revolutionise the mobile industry as competing on UI, apps and shinny things are unlikely to bring about a massive share price hike.  With a few hours to spare on a flight to SFO I started but concluded that an open letter would be more fun as I modelled how Nokia & Microsoft could look to offer the operators a better deal by changing the economics and it looked to attractive to hide.

Working assumption - All you can eat is a broken model.....

When the mobile market was about voice and SMS there was a finite limit to how much you can talk and SMS and all you could eat worked based on some well presented statistical calculations.  But unlimited data, even with fair use is a problem when social media feeds and video create a perfect storm.   There are a few really limiting factors in the mobile world: battery life, network capacity, weight and price.  Everything else in a mobile world is a compromise based on these limits.  Battery life and weight is ultimately a user annoyance but the user understands it. Price can flexed by allowing users to pay over a contract period, however we have not yet worked out how to break the laws of physics and therefore network capacity is a real problem as there is only a limited amount of spectrum and permissible transmission power.  Assuming users don't understand things they cannot touch, networks constraints in the radio access network is not something users are going to understand other than why does it not work.  Worst still is that they will probably never pay to make it work.  If the problem is all you can eat, can the handset guys change the dynamics?

Model 1 (current)

User pays for access (voice, SMS & data), handsets (depending) and we pay a small one-off for applications.  Value from applications is taken out of the pure mobile industry based on where a users data/ content is generated/ stored/ abused

Model 2 (change the game)

User pays for voice and SMS and handset then a tiny monthly fee for each separate application that chats to the network.

In this case each application is priced on a basis of how chatty it is to the network.  Why does this become interesting as it moves applications from one off to annuity and allows the operator to build based on the motivation of recovery of the investment of the new capacity and not on hope. 

Model 3 (Bundle of model 1 and 2)

Expect the user to pay a fixed amount for key applications that may be "free" as there data is taken away to be exploited somewhere else and this fee allows the operator some recovery but have limits on amount of chat to the network. Other apps are on a monthly retainer.

Who can make this happen?

The application ecosystem - slim chance but would love to.

The handset providers - probably as they provide the apps store and some control/ integration -  shinny new kit with new monthly contracts for apps

The network guys - not on their own as needs integration into handset and apps eco-system, but requires them to move.....

Big Risk?

  • Nokia/ Microsoft need to do something that changes the game and model 2 or 3  would mean there is a reason for application companies to develop to the Nokia/ Microsoft platform. Value is that application companies can move from one off to retainer
  • Networks want to recover investment based on usage whilst this will never be possible or understood by the user, controlling the applications could provide some leverage
  • Users maybe more careful with what they do as there is a real cost
  • Applications companies will focus on performance to reduce their cost for the user and make their application more attractive (indeed free if below certain thresholds)
  • Network capacity grows and operator sees improving margins
  • User is happy......
  • Applications companies are happy
  • Nokia and Microsoft do something of interest to change the market and create new value and different to Google and Apple.

Suppose the operators don't want to play?

This is the best bit - Nokia and Microsoft don't need the operators to make this work, it would be easier but there is a route to deliver change without the operator......