It's no secret that data traffic has become more important to the telecommunications business over the last 10 years. Thanks to the smartphone and all its associated data-driven applications, operators are benefiting from tremendous growth in a part of their business that was miniscule a decade ago.
What's more is that, according to Randall Stephenson, CEO of AT&T, data volumes are only going to get bigger. In a forum discussion at the Mobile World Congress in February 2013 with the heads of Telefonica, Vodafone, and China Mobile, Stephenson predicted that data traffic volumes in the US would increase by 30,000 per cent between 2012 and 2017.
This huge growth, which will be brought on by cloud-based applications over high-speed, lowâ€‘latency networks, is actually small compared to the 75,000 per cent increase that has already occurred between 2000 and 2006, a boost driven by the advent of the smartphone.
As if this stellar growth in data usage weren't enough, telcos also have ambitions of becoming integral parts of value-added solutions, turnkey applications that help companies improve some of their core business processes. Solutions range from supporting platforms such as mobile device management, to automation of business processes specific to industries, such as utilities.
But this idea of operators going to market with hosted enterprise applications has been around as long as data services have been delivered over mobile telephone networks. An early version of cloud-based software as a service (SaaS), operator-hosted applications never got off the ground in a substantial way.
However, much has changed since the early forays into mobile solutions, and today telcos can stake a more credible claim on the market for full mobile solutions. For example, the demand for context-aware applications is growing, and this hungry market could be fed by mobile operators, who have for a long time tracked the positions of phones. Telcos also know when handsets are turned on and are reachable, and they can identify and authenticate users.
"It is true that telcos have seen the opportunity for extending their business model and growing from the core of communication services for a long time," says Phil Jordan, Group CIO of Telefonica.
"I think the key difference today, is that now its more about survival than strategy. The traditional business model is commoditising and the regulatory and competitive pressure is unrelenting. So now is the time for change."
Solutions and stopgaps
As early as 1999 telcos tried offering email on cell phones by configuring software platforms that served as gateways to back-end email systems. They had some success with this, but it was only a stopgap solution that no longer made sense once the dominant email software vendors such as Microsoft (with Outlook and Exchange) and IBM (with its Notes product) started making their client software available on smartphones.
Telcos also tried offering access to CRM and other legacy applications, but that didn't last either. Relative newcomers, such as Salesforce.com, had a better play by offering browser-based access to a fully-cloud-based CRM. As for offering a mobile gateway to more traditional CRM systems, the major CRM vendors, such as Oracle and SAP, eventually offered client interfaces to their own applications, thereby removing the need for a third-party gateway in the middle.
William Payne, UK CIO of Veolia's environmental services business, can see why telcos are interested in the solutions market.
"It is a logical move for telcos to want to extend further into their value chain and try to capture some more of the value for themselves," he says.
"But the question is, are they able to provide solutions that are transferable across multiple applications, as opposed to bespoke ones that ultimately anyone can build with the right partners and funding?"
It's possible that now is the right time for operators to gain ground in the solutions business. With the growing importance of context-aware computing, and given that telcos are well placed to provide some of the necessary data, such as location, presence and identity, the following questions need to be answered:
- How well are telcos positioned compared to other categories of vendor, such as cloud providers, smartphone vendors, and software vendors when it comes to providing the data needed for context-aware computing?
- Can telcos be at the centre of solution offerings or will they just be anonymous components of larger solutions?
- Can enterprises trust operators not to lock them in?
Bill Limond CIO at Qatar's Supreme Council of Health, says that while telcos have the infrastructure resources, they lack the customer' loyalty that solutions providers have spent years nurturing.
"Ten years ago the bandwidth wasn't sufficient to make hosted mobile applications easy enough to use, but now that's changed. The trouble is, there's no compelling reason to go to operators for the apps," Limond explains.
"Besides, cloud providers now do much of what operators have been trying to do for such a long time - provide software as a service to enterprise customers."
When it comes for using data such as location, Limond thinks telcos missed an opportunity long ago.
"Operators have had the capability to provide location for a long time, but they haven't done anything substantial with it. Now with GPS in most smartphones, it's difficult to say GSM location has an advantage. So I think any advantage operators had with knowing where a person is has been eroded," he says, while acknowledging a few specialist applications for location tools.
"Security, specifically identity, might be provided by telcos. Do you use identity to provide things like emergency help services? Local governments might also be able to use applications that get user identity through operators," suggests Limond.
"There are some ethical questions around this, but I feel telcos could have exploited this data. Again their advantage has been eroded because identity can be obtained through simple smartphone functions."
But operators have more than just location, presence and identity in their bag of tricks, argues Telefonica's Jordan.
"Services that have connectivity at their core, such as mobile device management, play nicely to the strengths of operators. There is also tremendous opportunity with the explosion into the Internet of Things. Somebody will need to control all the things from a central location.
"In addition - and from the perspective of the telco being the aggregator of digital and ICT services - the relationships we have with our customers should be key to creating many other opportunities to offer industry-specific services that will mean the telco should be at the forefront of the digitisation of other industries."
On the other hand, says Limond, the way applications are delivered and supported is now significantly different to how it used to be.
"The markets have changed in the last five years, with Apple iPhone and iPad, and the new ways applications are being delivered," he says.
"Consumerisation, Mobile, BYOD, and Social Networking have become big trends. So much more software has been made available, and as a result, buying behaviour is different. Expensive and complicated enterprise applications no longer have the same place they used to have in the market."
Veolia CIO Payne says telcos certainly have a role to play in the distribution and version control of these smaller apps.
"There is some attraction in the telco offering from the perspective of a solutions buyer in that they do know how to manage multiple networked devices across a wide range of geography and connectivity solutions.
"One of the biggest challenges with any kind of remote machine management is control of the firmware and software that runs on them. It is extremely easy for this to get out of sync and provide a major headache to diagnose and resolve problems. Telcos generally do this difficult task well," he says.
Many operators are looking at ways of monitoring and controlling telematic devices in vehicles. For example, Vodafone offers Vehicle Connect services, which professional services company Towers Watson is using to bring to market an offering in the insurance industry. The solution gathers data on driver perfomance, allowing automobile insurers to segregate drivers by performance and offer different rates accordingly.
Telefonica has a nearly identical offering targeting the insurance industry in partnership with professional services companies, and AT&T is applying telematics to vehicles by partnering with automobile manufacturers to integrate wireless technology into cars as they come off the assembly line.
Whatever the offering, operators can't deliver solutions alone. They need other industry players to provide many of the essential pieces. Systems integrators make the connections to other applications and configure solutions as required, while software platform vendors come to the party with the tools needed for device management and security.
Telefonica's Jordan says this co-operation will lead to increased competition, which can only be good for the buyer.
"It is not just telcos that need to partner, I believe the winners in the new digital economy will be a number of ecosystems of partners who deliver great digital and ICT services. The digital revolution we are living through has removed old boundaries, opened competition but also conversely, collaboration and co-operation between all parts of the ICT and digital service chain. This dynamic has meant that all businesses involved have to focus clearly on their unique selling proposition and then partner effectively for the rest. I cannot see any business emerging, telco or otherwise, being able to offer the component parts of industry-leading, enterprise digital and ICT services, but someone has to own the customer relationship. I believe the telcos are well placed to do this."
When it comes time to shopping around for mobile solutions, IT directors have a lot to consider. What are the different parts of a solution and what kinds of companies deliver each part? Is there a single point of contact for the overall solution, or does the enterprise have to deal with each vendor individually? What components of the overall system can be swapped out later, and which ones are you stuck with for a long time?
Whenever mobile operators are involved in a solution, this last question - on the danger of lock-in - is the most important, says Payne.
"Telcos are not the best at sharing the benefits of reducing their prices over time, and I would be genuinely concerned about this. Remember the reason they are seeking to offer such solutions is to capture more value in the supply chain, which they are currently losing to hardware suppliers in particular," he says.
While there is no keeping telcos from trying to offer full-blown enterprise solutions, the smart ones will keep their eye on their core business: providing voice and data services to consumers. After all, when it comes time to report to your shareholders, 30,000 per cent growth over five years in any part of your business is nothing to be ashamed of.