A new report produced by the Massachusetts Institute of Technology Technology Review and sponsored by Ericsson argues that connectivity providers do not possess the vertical market domain knowledge to create new services for autonomous vehicle fleets, internet of things and management of fully-automated factories.
That obviously is true, but does illustrate one important fact: connectivity providers now exist in an internet ecosystem where the expected and normal course of development is for third parties to create the apps that require connectivity.
Consider the way Verizon sees 5G currencies. All relate to the network and its performance. In a closed environment, that might confer lots of advantage. In an open internet ecosystem, not so much, as app providers can use the network without any formal business arrangement. That limits the value the connectivity provider can extract from any service, application or company that requires the network to supply value.
“There is a growing understanding that operators cannot do it alone, and that an innovative ecosystem of partners will be crucial to future success, the report argues. To be sure, it is doubtful telco executives ever believed, over the last few decades, that they actually could create compelling consumer or business applications on their own, beyond voice and messaging.
“Executives interviewed for this report state that getting the full value of 5G is not something they can do on their own,” the authors say. That sounds simple enough, but has proven to be nettlesome.
When the basic architecture of the network is that app providers do not need telco permission to operate and make their services available, it never is so clear what value a partnership with a telco actually provides. Generally speaking, the closer a third party is to the core “connectivity” function, the greater the value of the connectivity partner. Consider Alphabet’s Loon, the high altitude balloon-based internet access platform.
Loon arguably is an infrastructure supplier for mobile operators, allowing them to use “cell phones in the stratosphere” to provide the same sorts of connectivity terrestrial cell towers provide. The partnership is that Loon’s customers include mobile operators, Loon acting essentially as an independent cell tower company, providing facilities to mobile operators. Mobile operators, in turn, are anchor customers for Loon.
In other cases, as for edge computing, connectivity providers provide real estate services to edge computing firms, renting rack space, supplying energy, cooling, security and connectivity.
The point is that partnerships between app and service providers and connectivity providers will require some thought. Opportunities will be greatest when the connectivity provider is a situationally key customer or a key supplier. Very few firms are direct users of cell towers on the ground or in the sky, and direct customers. Mobile operators are such key customers for Loon.
Relatively few firms require edge computing real estate in a direct sense. Connectivity providers supply such real estate to cloud computing giants.
But you see the pattern: such partnerships make sense for infrastructure. Apps and services beyond connectivity are not so obvious.
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