Operators must not blindly deploy wifi
I need to open this blog with a brief confession. Ever since immersing myself in the topic of wifi and, more specifically, in understanding and analysing operator strategies and business models for wifi, I have argued that all operators will need to integrate wifi into a holistic traffic management strategy focused on sustainable and profitable mobile data growth. Whilst I believe we have clearly explained how wifi can and should play a complementary role for operators, I don’t believe we have sufficiently outlined the risks and threats to future operator business models. I would add though that this is very much not about scare-mongering, but much more about presenting a balanced perspective on future carrier wifi strategy.
I have spent a large part of the past 12 months speaking with the industry (operators, vendors, regulators, OTT players) about a range of issues related to both wifi and the future evolution of mobile data pricing. These discussions have brought me to a new set of conclusions that I am now starting to articulate to our customers. Whilst I stand by the statement that ensuring that executives “get” wifi will be crucial to the future success of operators globally, I feel that I need to contribute new insights to the arguments for and against large-scale public wifi deployment.
One of the most important conclusions I have come to reach is that whilst wifi is indeed going to play an important role in the future development of the provision of internet access and other services in the future, it is not at all clear that the widespread deployment of wifi outside of the home is going to deliver to operators the sustainable and profitable future their shareholders and investors demand, especially if the investment into Wifi is not backed up a clearly-articulated and joined-up strategy that evaluates the overall impact of a greater migration of total smartphone-, tablet- or laptop-originated data traffic share to wifi away from the operators’ core cellular networks.
Are operators chucking away future mobile data profits?
One of the principal conclusions I have made from my research is that many operators are seemingly “blindly” deploying wifi without a clear understanding of the overall impact of their investments on their business in the future, especially with regards to the effect on mobile data usage from their 3G/4G networks.
Indeed, I am increasingly of the opinion that much of today’s investment into public Wifi from operators is led by apparent short-term thinking about the role that Wifi can play in alleviating traffic bottlenecks on their networks. But whilst Wifi can obviously play a role in a comprehensive and holistic traffic management strategy, we believe that operators are placing too much emphasis on Wifi without really investing into demand-side measures (i.e. pricing) that can allow them to build sustainable and profitable propositions to grow data traffic in line with customer demand in a way that delivers maximum value to the bottom line. There is still far too much industry rhetoric around the “challenge” of data traffic growth when the reality is that this level of demand for their service should be seen as a major opportunity to monetise huge investments made into 3G and 4G networks.
The real crux of this discussion should focus on the fact that mobile network operators make a lot more money for every MB/GB/TB of data that goes over their cellular networks (i.e. 3G/4G) than they do when the traffic goes over Wifi, especially when that is private, in-the-home Wifi where they effectively make zero revenue. Show me a single operator that can today claim they are really extracting comparable value (i.e. bottom-line profits) from their customers’ Wifi usage versus usage on their own cellular networks.
Wifi has a right time and a right place, but operators need to learn when and where
As I have argued in many places, for some operators that have perhaps under-invested into their cellular networks, Wifi has a definite role to play to help alleviate traffic concerns in certain locations or at certain times of the day and because it is the preferred, primary form of data connection used by many of their customers. But it’s important that operators realise the long-term impact that a strong migration to Wifi could have on their own opportunities to make money out of their customers. The more customers end up using Wifi, the harder it will be for operators to persuade them to shell out hard-earned cash to pay for access to their 3G/4G networks.
In the short-term, I believe the impact is likely to be that operators that have set-up tiered volume-based pricing will miss out on so-called “overage” charges when users exceed their bundled data allowance or customers deliberately choose to stay on cheaper price plans with smaller data allowances because Wifi is so freely available in the home and on the move that they feel confident enough not to purchase bigger bundles on more expensive plans. In the longer term, the risk is that there is a strong migration of smartphone usage away from cellular networks onto Wifi, which would ultimately dilute the revenue generation opportunities for operators from demand for data access.
I think there’s no question that customers will always still need access to 3G/4G networks for data connectivity for all those occasions where Wifi is not available or the connection is not secure or the experience is poor, but the real concern for operators has to be that these situations are becoming less and less frequent the more that high-quality, secure and “free” Wifi is made available to them.
O2 UK is leading a new breed of operators that “get” Wifi
That being said, I do recognise that there are some operators, which would include O2 in the UK, that have developed a clearly-articulated and comprehensive view on the role that Wifi can play in growing their other new business lines (e.g. O2 Media, O2 Wallet, O2 Money, Priority Moments, etc) and as a result have a much clearer and stronger strategy to underpin their investments into Wifi roll-outs without being fearful potential revenue “cannibalisation”. I do also recognise that in some, specific scenarios, e.g. data roaming, Wifi could actually drive incremental revenues that have not successfully been captured on cellular networks because of exorbitant data roaming prices.
But I don’t think the rest of the industry has caught up with the leading thinkers in this space. We believe more operators will need to follow O2 UK’s lead if they are going down the path of investment into Wifi. This means building a business case from the bottom up that covers all impacts of Wifi on the operator business and is not simply focused on isolated aspects of the Wifi value proposition, e.g. network CAPEX alleviation. We also think operators will have to develop much better insights into the future impact of major Wifi adoption and usage on the profitability of their own (cellular) mobile data businesses.