A new phase in the phone wars

Load and load: Google's Android is tooling up to go to war with the mighty Apple corporation

IT WAS not so long ago that life was a comparative breeze for the average mobile operator in countries throughout Europe. The great privilege of owning the billing rights to a huge number of customers became taken for granted, and the opportunities it offered were overlooked as ivory towers grew, driven by a widespread belief that that ownership of a radio spectrum licence was so key to the value chain that it would always allow control of the destiny of the majority of other participants.

To many outsiders, it appeared that the operators’ primary activities focused upon selecting and customising the phones they wanted while funnelling their income to cover the interest charged on their 3G licences, while hunting for a killer use for mobile data services to offset the declining value of voice and SMS in commoditised markets. Beyond that, the biggest challenge, notwithstanding the operational effort of maintaining the network, was to be first to market with a customised flavour of the handset of the moment in a bid to grab the largest slice of the churn merry-go-round that has become a characteristic of the saturated marketplace – or to provide the illusion that they were doing so.

One significant side effect of this activity was that many, almost identical phones were marketed under a plethora of model names and sometimes even different brands, usually with tweaks and customisations that resulted in inconsistencies in their operation. The net effects was an understandable reluctance of developers to produce applications for devices which, despite having significant technical strengths, were perceived as having miniscule market share. It was a key factor in ensuring no credible mainstream application shop ever emerged prior to the iPhone, despite the technology being available many years beforehand.

The comfortable ride ended the day Steve Jobs took to the stage for the first time with iPhone in hand. Suddenly there was a product for the mobile market that was driven by a force bigger than the operators, a company which had proven its ability in the iPod to sell a product that consumers would not only pay a premium for, but would carry on their person everyday. Here was a company that was not going to compromise its user experience for anyone.

Conventional thinking holds that in order to protect their futures, operators needed to add value to their customers’ experiences by supporting network enabled features, such as one click billing, location and implicit logging in of users access to websites and other services. However, in recent times, these capabilities have gradually crept into standard handset capabilities, without any network specific involvement being necessary, and negating much of the value as a consequence.

In parallel to this evolution, it is also becoming apparent that the average users’ tolerance of technology is increasing. The laptop generation are not only happy to manually log into their Facebook account as they sit in front of the TV, they simply expect the experience to remain consistent, whether they are at home on their own broadband connection or using a mobile device when travelling, without the operator getting in the way of proceedings.

The last clear opportunity for an operator seeking differentiation in a world of commoditised access, when the customer’s preference appears to be the consistent familiarity of a dumb pipe, is handset subsidy. As every mobile phone user in most European markets knows, devices are given away at rock bottom prices, provided you sign an appropriately-priced airtime contract lasting the right period of time. Subsidising the true cost of these handsets has been the key to allowing operators to customise the device. Whether market dynamics, combined with the unstoppable progress of technology, may be about to wring the neck of this golden goose to is now open to question.

While the iPhone is clearly the market leader in premium smartphones, the Google Android platform has steadily gained ground in the 18 months since launch. Unlike Apple, Google is not truly in the hardware manufacturing business, despite offering a re-badged HTC product under its own brand. Android is simply an operating system, which is available for free and is being adopted by an increasing number of manufacturers who are looking to launch a premium smartphone product.

The analogy is not dissimilar to the personal computer market, where you can take your choice of Microsoft’s operating system, running on commodity hardware, or buy the complete package of hardware and software all from Apple. In the main, the single manufacturer provides a more harmonised experience, although economies of scale and compromises on features make the former option available at a very attractive price and have brought computing to the masses. Likewise, it doesn’t take a great leap of imagination to picture Android running on commodity Chinese hardware in a few years that is offered at such low cost that operator subsidisation is no longer relevant, meaning users could simply port their number to whoever offered the best value service and slip the SIM into the handset they bought with their groceries.

For anyone who doubts this, just take a look at some of the phones on sale in Hong-Kong’s street markets. For $20-30 you can but the most incredible devices with a huge number of features, although generally their main failing is the quality of their operating systems and user experience. Building similar devices using Android would eliminate these.

Ultimately, in a world where the customer is happy with a generic internet service provider (ISP) at home, to whom they show little loyalty in return for a generally untainted online connection, can a mobile operator really expect to be treated any differently? Could the future of mobile operators become relegated to little more than being a widely accessible ISP?