A friend and former colleague of mine recently posted an entry on “Disrupting the Model“. This follows an article in the Dallas Morning News about 4 operators deciding what consumers can get on their phones in the States.
One of his more important assertions is that whomever buys the handsets has the power. Many people might not understand that most handsets (especially in the US) are bought by the mobile network operator (MNO) and then resold to the consumer. The operator typically discounts the price of the handset through subsidies that require the consumer to sign on for a 1-2 year contract.
This behavior creates a feedback effect that, in my opinion, is devastating to our industry. Devestating because the consumer bought the handset from the MNO & can’t use it on any other network, they truly look at the MNO as responsible for that handset. Subsequently, the MNO is required to provide customer care for that subscriber/handset and is looking for ways to reduce those costs. Typically, the operator reduces costs by tightly constraining what handsets they support and what handsets can or cannot do.
This behavior reinforces the walled garden (even one established initially to raise ARPU) since the operator does to want to support calls about some Java application that they have never tested on that handset. Ironically, while volume discounts on handsets are a nice thing, having operator-specific handsets probably increases the unit cost to the MNO.
Net: consumers have less choice in handsets, consumers have less choice is services, most handsets costs more than they need to, and operators have high customer care costs.
If consumers could buy mobile phones from any retailer and use those phones across any network, they would no longer look to the operator to service each and every issue relating to their phone any more than most people call their ISP when they have a problem with Word.
Some MNOs might argue that this is turning them into a bit-pipe. I really don’t think that is the case — they still own the billing relationship and they can still offer network value add, network exclusive content & services, and even network-unique handsets. In all likelihood, they will improve their relationship with their customers since they will no longer be the source of every problem.
Note that if operators truly believe that they need subsidies to attract new subscribers, they could always subsidize services rather than the handsets. In all likelihood, the margins on services are significantly higher than the margins on handsets. This gives the operator more profits and likely encourages consumers to try out new services.
