How to Add "Value," and "Where," Still are Debated

The advice to "add more value" to existing applications and services has been standard advice for access providers for a couple of decades now. In other words, to avoid becoming a "dumb pipe," service providers have to become "smart pipes." That advice often requires "moving up the stack." In other cases, the advice simply is to pack more value into the access service. Neither has proven to be easy, or uniformly successful.

Retail prices for voice, messaging and internet access have fallen for decades, essentially proving that the "add value" approach has either not worked, or not been tried.  

Value really has become the key strategic problem for mobile and fixed network operators, and not even the advice of the smartest consultants offers an easy path forward.

Mobile devices and users require “access” to core networks. But it is no longer a certainty that “mobile” networks are required, McKinsey consultants argue.

At the physical layer, Wi-Fi has become a key access platform. Even “mobile” access will be challenged as well, as new providers enter the access markets, using a mix of access platforms or even building separate facilities that do not rely on mobile networks at all.

Facing major competition on the applications front, mobile operators now face the new threat of full or partial substitution of non-mobile access for use of their own networks, further reducing the uniqueness and value of the “mobile” network.

Consumers on the go may soon no longer need mobile operators to stay connected with the wider world. Wi-Fi networks, frequently offered free, are becoming much more commonplace, and emerging low-power and satellite systems could provide other ways for users to bypass traditional mobile networks entirely, note Ferry Grijpink, Suraj Moraje and Klemens Hjartar, McKinsey senior partners;  Halldor Sigurdsson, partner.

Because of these emerging alternatives, mobile operators risk being downgraded to the channel of last choice, the one used only on those rare occasions when Wi-Fi, low-power networks, satellite coverage, or other options are not available, they argue.

So what must be done? Mobile operators must take steps to position themselves as the premium connectivity option, they argue. In general, that has been the “advice” given to service providers for decades, and it is frightfully hard to do.

In fact, many consultant-recommended practices already are being taken.

The path is not  revolutionary. The indicators of such “premium” status are familiar: offer higher “quality of service and functionality, especially given its superior end­-to-end cybersecurity compared with current Wi-Fi networks.”

The consultants also say mobile operators must “ensure superior customer experience.” Hardly a new thought.

That requires “superior connectivity and network quality.”

“Enhanced functionality”  also will be part of the effort. “One example would be to optimize video streams for individual users based on better compression technologies,” they argue.

Operators also should create  content delivery networks at the edge of the network, to improve experience, they argue. Unlimited data and unlimited video streaming that does not count against the limits of their data plans are other steps to take.

Since price is part of the value proposition, operators also must “reduce costs,”  offering a cost per megabyte to a tenth of current costs and use other tools such as network functions virtualization and software-defined networking, and taking other steps to simplify processes.

Analytics and network sharing can help as well, they argue.

There is one key area where McKinsey is more bearish than many leading service providers. The McKinsey consultants are not optimistic about mobile operator upside in internet of things, calling the opportunity “bleak.”

That likely is among the reasons they believe adding more value to the “access” function is the only way forward. Essentially, they argue, the hoped-for revenue upside from IoT will fail to materialize.