Wednesday, October 27, 2010

Leaving the Walled Garden: How Mobile Operators Can Survive in an Open World

The recent high-profile announcement regarding the upcoming launch of Google’s open Android mobile platform, coupled with evolving requirements in the U.S. 700-MHz spectrum auctions for open access, will serve to alter dramatically the mobile industry as we know it.

Traditionally, mobile devices have been tightly tied to a particular mobile network. All devices had to be approved by the provider through a long, arduous “black box process” before they were allowed on the carrier’s network.

Tightly coupling the device and platform to the network has served mobile operators well:

• Brand Identification: consumers associate the device with the mobile provider
• Switching Costs: contracts made it harder for consumers to leave
• Product Differentiation: exclusive offers for “cool” devices (e.g., RAZR, iPhone)
• New Revenue Sources: high-margin services such as ringtones available only from operators

It was also a beneficial model for consumers, as they enjoyed heavily subsidized devices that were guaranteed to work and be supported. The move to more open platforms and increasing customer demand for new and cool devices, however, are making many mobile operators nervous about their future.

The erosion of the traditional, “walled-garden” world will fundamentally change the operators’ business and their relationships with customers. We believe that mobile operators who embrace the new opportunities of an open world will find that the benefits far outweigh the risks.

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