The choice of internet protocol as the foundation for modern networks has been fateful for application and service providers. As Verizon CEO Lowell McAdam has said recently, in 2000 Verizon could monetize the entire stack (26:58), as it was vertically integrated and created and controlled all the apps provided over its network.
Today, Verizon has to compete horizontally, monetizing apps and features “above the network layer,” since it no longer controls or creates most of the applications used by its customers.
That is the difference between a fundamentally “open internet” app platform and the older “closed” telecom platform. McAdam would say the “iPhone changed everything.”
What he means, in large part, was that, in the smartphone era, people are “customers” only for a few Verizon-supplied apps (internet access, carrier voice and messaging, the Oath ad platform or connected car and other possible internet of things apps), but “users” of a universe of third party apps and services.
So Verizon now finds it has to work much harder at creating value and therefore revenue beyond the “internet connectivity” function. That is the foundation for all thinking about “moving up the stack” (supplying actual end user apps and services, not just access to the internet).
Even access is a problem, though. With 5G, for the first time, many customers--perhaps most-- will have choices to abandon fixed networks entirely, as they earlier abandoned use of fixed networks for voice. Some users already are abandoning fixed network internet access and simply using their mobile phone accounts.
The business implications could not be more profound. As everyone now knows, in the IP framework, “usage” does not have a linear relationship with “service provider revenue.”
We are familiar with the fact that perhaps 80 percent to 90 percent of mobile device data usage happens “indoors.” But that does not have a direct relationship with service provider revenue, as much of that connectivity happens over third party facilities (Wi-Fi) most-frequently not owned by the service provider, and from which the service provider earns no direct revenue from usage.
With the rise of new indoor connectivity options--including private 4G LTE, aggregation of Wi-Fi and mobile spectrum assets, possible venue communications providers and mobile speed and pricing that is directly competitive with fixed network plans --changes could be coming.
And it is far from certain how all those changes will play out. In fact, some would predict that, in a 5G era where mobile access is price and speed competitive with fixed alternatives, many users will start to rely on their mobile connections all the time, instead of shifting to Wi-Fi when indoors.
That could reverse recent trends, where Wi-Fi offload has been hugely significant. Nearly half of consumers surveyed about their connection choices suggest that with unlimited plans and 5G performance and price, they would simply stay on the 5G network all the time, as there would be no performance or cost advantage to shifting to Wi-Fi.
That very fact (80 percent of data usage happens indoors, typically using Wi-Fi) is a foundation of retail pricing plans and strategies emphasizing “pay only for what you use” data access plans.
That also is behind thinking that some new ecosystem roles could be created, with large enterprises and venues possibly building their own “indoor” 4G and 5G networks, or integrators providing such services.
The point is that business models built on outdoor and indoor connectivity could change as 5G arrives. What is not so clear is precisely how matters change. Mobile operators could reclaim some relevance as providers of “indoor” connectivity. On the other hand, enterprises might reemerge as providers of their own premises networking, including mobile for the first time.
How all that affects revenue and perceived value remains unclear. One could argue that, in the 4G era, the value of a mobile connection remains “everywhere” connectivity, even if only about 20 percent of the actual fulfillment is from the outdoors mobile network.
In the 5G era, indoor fulfillment might shift back towards the mobile network, or could move away from Wi-Fi and towards specialized “indoor mobile” networks with varying ownership. In either case, the mobile service value proposition should increase.
The other big possible change is a shift in perceived value of fixed internet access versus mobile access. More customers might conclude that their use cases allow complete cutting of the fixed network cord.
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