"Smart M2M" and "Smart ARPU"

It is by no means clear what a “smart” pipe strategy really is, compared to a “dumb pipe” or capacity play, in the retail telecommunications business. To be sure, it is obvious why communications executives find the term “dumb pipe” distasteful, as it implies “low value” or “low margin” or “low gross revenue.”

In truth, virtually all “smart pipe” strategies are built on largely “dumb pipe (best effort Internet access).” In that sense, all retail strategies now are a mix of “dumb pipe (best effort Internet access)” and applications (“smart pipe”). Any service provider selling video entertainment services or voice, for example, by definition is selling an application running on top of the pipe.

Some might say the National Broadband Network in Australia, or any other wholesale-only network services business is akin to a “dumb network” business strategy. But even there, when a wholesale voice service is sold, it is an application running on the network, not a true “dumb pipe” service.

That isn’t going to stop all sorts of service providers from selling or using “smart” as part of their retail branding strategy. Nor, in truth, is the notion incorrect. The point is that service providers all over the world are seriously engaged in a pursuit of new applications to create and sell that incorporate communications features enabled by their networks.

Telefónica Digital, for example, touts “Smart M2M,” a web-based platform for machine-to-machine (M2M) communications. How precisely any active mobile device could provide communications for a sensor function, without being a “smart” activity, is a subtle matter.

“Smart M2M” provides real time monitoring of traffic type, volume and current consumption, technical supervision of lines (maps of connected devices, advanced diagnostics) and localization, Telefónica Digital says.

The service includes  fraud detection functionalities, including the ability to restrict communications between a list of given devices or the possibility to establish traffic caps.

NTT Docomo, for its part, now talks about “smart ARPU.”

Minoru Etoh, managing director with NTT Docomo, says Docomo now refers to new value added services including music and video on demand as “smart ARPU (average revenue per user),” which now accounts for about 10 percent of NTT Docomo revenue.

There already is only so much revenue service providers can earn from end users buying mobile broadband, said Etoh. Call that dumb pipe, best effort Internet access. But Docomo is pinning its future revenue growth on “smart ARPU” applications and services that are built on the assumption a customer is buying the “dumb” access services.