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More Cracks Appearing in Mobile Market

When I wrote the BuddeComm analysis on the introduction of Apple’s iPhone I commented that the most significant element of this event was that it would begin to create cracks in the flawed business models of the mobile operators, who are desperately hanging on to their closed networks very much like the fixed operators were fighting tooth and nail against opening up their networks.

We have seen that the fixed operators have largely lost this battle and we predict that the future of the mobile networks will be no different.

Interestingly we see that the mobile operators were forced to stock the iPhone because of massive customer demand for this product, and they had to pay Apple royalties that up till then they had been able to avoid.

We mentioned that there was no going back, and that from now on the mobile market would be driven more and more by handset manufacturers rather than by the operators.

BuddeComm can’t think of any customer under the age of 25 who is interested in the portals or closed services delivery from the operators. Any user under 35 using an iPhone will have cracked the code and be using it directly linked to the Internet. So with Apple breaking open this market it is only a matter of time before others enter.

For the last fifteen years the traditional players have had a very cosy relationship with mobile operators. They didn’t threaten the operators and in exchange the operators would package their phones into their mobile offerings.

They now have a choice—stay with this cosy relationship and see their market slowly being eroded by Apple, Google, HTC and no doubt many others, or start playing their own game, independent of the mobile operators.

Last year Nokia made a half-hearted attempt with their music store, which, as we predicted at the time, failed miserably.

They have been busy for years with Symbian, to keep Microsoft CE a bit in a corner. However their top-down approach to advanced mobile devices effectively never took off; and they were unable to establish ecosystems like Apple’s iPhone and Google’s Android. They were able to build a community of application developers within a few months of their respective launches.

Nokia has lost its leadership position in innovation and it will be interesting to see if it will ever be able to regain that position. BuddeComm believes they left it too late and made a very important strategic mistake by sticking with the operators, which allowed Apple and Google capture the lead.

Nokia’s next attempt is to include Skype on its upcoming flagship model N97.

Not surprisingly some of its customers, led by O2 and Orange, are up in arms and have announced a boycott of the model. They don’t want to be relegated to dumb pipe operators—where have I heard that before?—the same argument fixed operators used to use.

For more than a decade these mobile operators had the chance to develop better business models, but instead they took the lazy way out and maintained cartel-like operations. They could have built a range of value-added mobile infrastructure and wholesale services that could have been used by others, such as Apple and Google, to deliver the products and services they have on offer. But instead—driven by greed—they failed to so and this is the price the mobile operators are going to pay. They simply can’t hold back the tide any longer.

In saturated mobile markets with a competitive environment there is no doubt that cracks will appear. Those who are clever enough to see the writing on the wall are looking at new opportunities in this market. E-Plus, 3 and T-Mobile are among the operators who are at least exploring these new models.

The others will have to try and keep up, creating a downward spiralling effect. And with no business plan in place to counteract these developments the operators will indeed be relegated to the status of dumb pipe operators.

Add to this the fact that within five years we will see fixed-mobile-convergence. By that time the fixed market will be an open market—what hope will there be for any mobile operator who has been able to hold on to their closed network operations?

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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