Google, Cablevision mobile service a wake-up call for wireless carriers
Google and Cablevision are delivering a hard kick in the pants to the wireless carrier industry?s moribund business model with a plan to prepare new cell phone services, reinforcing a Strategy Analytics report that suggests carriers? revenue slump represents a missed opportunity to properly address customers? needs.
Google?s service would hunt through cellular connections provided by Sprint and T-Mobile US and Wi-Fi hot spots, picking whichever offers the best signal to route calls, texts and data, the Wall Street Journal reported, while Cablevision will start offering a Wi-Fi-only mobile-phone service next month. The moves support a Strategy Analytics? finding that wireless carriers? revenue growth has remained almost flat since 2007 despite a $700 billion infrastructure investment, suggesting a shakeup is needed to make carriers recognize that investment alone does not lead to increased profitability.
?We fully expect the trend to continue unless operators do more marketing,? said Sue Rudd, director of service provider analysis for Strategy Analytics, Newton, MA. ?The Google-Cablevision (moves) are an example of how Wi-Fi will play a major role.?
Google declined to comment on the Journal report. A Cablevision representative could not be reached for comment.
Cablevision?s service, called Freewheel, will offer unlimited data, talking and texting worldwide for $29.95 a month, or $9.95 a month for Cablevision?s Optimum Online customers. That is sharply below traditional cellular carriers? prices. Freewheel customers initially must use a Motorola Moto G smartphone, which sells for $99.95.
How Freewheel will look.
No annual contract is required for the service, which only works when a device is connected to Wi-Fi, except for emergency calls.
Cablevision has spent about eight years expanding its Wi-Fi system, which offers more than 1.1 million hot spots for both indoor and outdoor access in the New York area.
Strategy Analytics? report concluded that after spending more than $700 billion in infrastructure investment over the past decade, wireless-carrier revenue growth has been almost flat since 2007.
?Operators appear to be in denial that the business model has changed and unwilling to recognize that investment alone does not lead to increased profitability,? the report concluded.
As regulators encouraged a large number of undifferentiated mobile competitors, consumers were able to capture a disproportionate share of the savings from massive new technology investments, according to the report.
As network operators have added more and more broadband capacity, a race to the bottom to capture market share at ever lower prices has begun ? especially in countries where there are more than three strong competitors.
With new capacity and increased competition, average revenue per user (ARPU) has been steadily declining in every region of the world.
Lower ARPU and the slow revenue growth are leading to a steady erosion of margins since 2010 in most regions.
In the report, Ms. Rudd pointed out that despite massive cost savings per gigabyte from new investment in LTE, the total cost of operations for mobile broadband networking is projected to fall by only a factor of 3, while selling prices per gigabyte are projected to fall by a factor of 10 through 2018.
Even though network functions virtualization and software defined networking may reduce costs by an even greater factor of four to five times ? that is, by a further 33 percent to 67 percent from today's projected rate, costs will still be declining half as fast as prices, Ms. Rudd said.
Strategy Analytics president Harvey Cohen noted that until network operators develop consumer-centric businesses driven by differentiated marketing strategies their financial performance is likely to continue to decline.
Specifically, wireless carriers must rethink their fundamental business models, focus on actionable market segmentation, adopt differentiated competitive strategies, and dramatically enhance their marketing communications, he said.
A missed opportunity for wireless carriers?
The industry is at a turning point where it is unlikely that technology improvements and operational excellence alone will halt the downward trend in profitability or improve revenue growth.
?The operators have been slow to offer carrier roaming on Wi-Fi as part of a mobile bundle,? Ms. Rudd said. ?Operators now have to put together their own Wi-Fi partnerships.?
Michael Barris is staff reporter on Mobile Marketer, New York.