Phone Networks vs Web 2.0

Why the phone networks, and especially the MNOs (Mobile Network Operators), are losing the battle with Internet rivals, who did not even exist a few years ago?

Look at your own MNO. What does it provide? Voice. SMS. Data. The same services that were available 10 years ago. And there are hundreds of MNOs worldwide. They all provide the same three services. And practically nothing more. Ah yes. There are so called VASes (Value Added Services). Voice mail (who uses that nowadays?), ringback tones, and a bunch of other services difficult to explain to an average subscriber. But VASes are really marginal. I do not know the exact numbers, but percentage - wise, they probably account for some low single digits of revenue.

Now look at Google. Or Facebook. Or Twitter. Or Yahoo. And try to count the services majority of us are using. The number is high. And growing.

This is an interesting phenomena. MNOs, who were displacing the fixed line operators, used to be the richest companies. They generated (and probably still do) more positive cash flow than Google. Yet somehow they got lost with vision and strategy. Today there is hardly more they can offer, than cheaper voice and faster data.

Today I can use my mobile phone to do a great number of things, but in most (or even all) scenarios, my MNO is just a dumb data pipe to the Internet. And the services are provided by Facebook, Picasa, eBay, PayPal, Google, and others.

Why is that?

Because MNOs do not understand software. They are service companies. And their services are hardware - bound. Carved in stone. Or in silicon, should I say. They have this extremely complicated network with hundreds of functions. And every function is, in fact, a piece of hardware.

On the other hand, the Internet, or the services layer of the Internet, is entirely software defined. When Picasa introduces new functionality, they do not buy a dedicated hardware from an external vendor, to handle just that. They have an internal team of software engineers, who just develop a new piece of code. The code that runs somewhere within the Google's unified generic hardware platform. Ditto Facebook. And Twitter.

The second issue is fragmentation. There is no MNO who has unified platform for all areas of presence. So they just cannot simply work on one single new service globally and then introduce it globally. T-Mobile USA cannot technically merge with T-Mobile Germany. Or Vodafone Spain with Vodafone Netherlands. All they can have is a unified logo. Anything else is country specific.

There has been this long running debate, whether MNOs will be just dumb pipes or will provide smart services. I think the debate has been over for some time already. There is no way MNOs could suddenly and magically join forces and start introducing new services, outside the voice/data/text pipes. The world has not been asleep and has moved forward. Today we are already using new and innovative smart services on our phones. Be it PayPal or Google Voice Search / Translate or social networking. The smartphones, led by Apple, have been the nail in the coffin, liberating users from the walled gardens (or rather wastelands) of MNOs. I think today there is very little they can do about it... But they will live a good lives. With tiered data pricing and mobile data usage skyrocketing, what else do they need to milk us?