The future of carriers may lie in non-carrier moves

4 Oct 201650 Shares

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Smartphone. Image: Maridav/Shutterstock

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Mobile network operators face challenges from all over the telecoms industry, with undercutting a constant threat. So maybe some traditionally non-carrier moves could help.

Deutsche Telekom

“The system is broken.” So said Erik Meijer, who works in Deutsche Telekom’s group innovation section, on the current carrier model around the world. “We are [just] selling subscriptions to handsets.”

Speaking to Siliconrepublic.com, Meijer was responding to last year’s suggestion by Digicel to block ads on Facebook and Google on its Caribbean networks.

Owned by Denis O’Brien, the carrier’s rationale for this decision was simple. Digicel invests big time into building a network, then software companies profit from selling ads to users across that network.

Nuclear option

Why should those that did all the investment be cut out from the most profitable part?

“Because why do we buy smartphones?” asked Meijer. “If people didn’t use Google, they wouldn’t use a mobile phone. It’s an unusual partnership, but taking a nuclear option might not make sense.”

What does make sense, according to Meijer, is going ‘non-carrier’. John Legere, he said, is the man to watch.

CEO of T-Mobile, Deutsche Telekom’s US operation, Meijer credits Legere as a man leading a revolution in the mobile carrier industry, having made “13 separate non-carrier moves” already.

The most notable is T-Mobile’s decision to ditch two-year contracts in 2013, as well as reducing global roaming fees. These decisions were well ahead of competitors and, when looked at objectively, were entirely based on consumer sentiment.

Erik Meijer, group innovation at Deutsche Telekom, looking at e-companies

Erik Meijer, group innovation at Deutsche Telekom, looking at e-companies

Deutsche Telekom and T-Mobile

“So in the telecoms industry, Legere is showing that he understood customers, who were very annoyed with a two-year contract for smartphones. So he said: ‘Listen. If you want to move over to me, I can take over your breakage fee or XYZ’,” said Meijer.

It’s a business model that prioritises what the people want and, even if some elements of that seem contrary to an already tried and tested business model, consumer sentiment is incredibly valuable.

In T-Mobile’s 2016 Q2, for example, the figures were particularly impressive. Revenues were up, new customers were up (prepaid customers rose 167pc year-on-year) and churn rate was at a record low.

“We need to work with consumers,” said Meijer.

Partnerships

A good brand, with a good following, can all be attained through clever partnering. Deutsche Telekom recently launched an MVNO with Bayern Munich, meaning all related products are tailored through the guise of the football club’s colours.

“That has the effect that the customer doesn’t see us as a utility bill,” said Meijer, distancing a hobby-led product from something like energy, or heat.

Fans basically have a Bayern Munich network provider that does just what a normal network provider does, however they also get access to Bayern Munich-related content such as press conferences, competitions, vouchers and other peripherals.

“If customers see a bill as their team, their sport, it’s a different pain factor,” he said, adding customers are willing to pay more for branded products, if the brand is right.

Deutsche Telekom

Payments

And payments are obviously the key. If a carrier can get the right partnership, in the right location, it can prove to be a goldmine.

For example, if your network provider had a partnership with a particular football team, it could monetise the match day experience in ways you probably never imagined.

Do customers want to communicate, check other scores, organise travel or buy something while they’re attending a game? If so, they will look at their smartphone – a lot.

“People pull out their phone maybe 80-90 times a day,” according to Meijer. “Instead of making €1.50 for a drink, you have a €1-€5 opportunity for a service you can deliver with your brand.

“You can only drink so much in a day, but you can play CandyCrush continuously.”

To do this, perhaps partnerships that yield the tangibles can get customers interested in the first instance, with digital products as the actual profit margin. Things like free drinks at a concession stand become the equivalent of loss-leader alcohol in supermarkets.

Predators

However phone operators, just like all other service providers, can be beaten. Much like energy providers undercut established companies by clever bulk purchasing and low-overhead execution of a business model, the same is true of the telecoms industry.

Mobile Vikings in Belgium, for example, popped up out of nowhere in recent years and, in a very short space of time, started taking slices out of the national pie.

Aimed at smartphone users with no interest in making calls, Mobile Vikings could send a sim card to users for little or no money, armed with almost entirely data-based capacity.

“That was applying to the high-tech, highly affluent market, and they immediately dented telecoms companies’ revenues,” said Meijer.

“It’s the same in fintech. At the moment, banks are contemplating charging for accounts. If that happens, you will see people move out radically to new banking options.

“There is a Kodak moment. Value vampires exist. You have to be very careful if you have very high margins. There you can be Uber-ed or Airbnb-ed, because those very nice high margins attract new competitive firms.”

That is what Deutsche Telekoms, O2 and Vodafone are up against: new carriers operating in a modern mindset.

Maybe Legere’s “non-carrier” moves aren’t quite what the label portrays. Maybe they’re just non-traditional or, but for a better word, modern.

Gordon Hunt is senior communications and context executive at NDRC. He previously worked as a journalist with Silicon Republic.

editorial@siliconrepublic.com