March 2, 2017

A Tale of Two Futures

What will define success for service providers in the future? Will it be their ability to integrate vertically across industries or should they stick to providing great connectivity?

Among the central debates at Mobile World Congress 2017 is whether service providers will benefit most from vertical integration in media and other domains, like telemedicine and precision agriculture, or if they are better off simply providing high-quality connectivity to domain experts and innovators.

Software-Driven & Vertically Integrated

AT&T Entertainment CEO John Stankey is clearly on the side of vertical integration—particularly in media. This approach aligns with AT&T’s ongoing strategy, as evidenced by its acquisition of DirecTV and its proposed acquisition of Time Warner Cable.

In his keynote address at MWC 17, Stankey argued that the future for service providers "is not about the G’s," a reference to successive generations of higher performing mobile networks. He also argued that "customers don't choose to spend their energy managing their network connectivity relationships."

Stankey expressed the opinion that the only way for service providers to deliver the end-to-end experience consumers now expect is if it's "wrapped in software," thus promoting the philosophy that future for service providers requires a transition to a software-centric mindset.

VEON (formerly “VimpelCom”) CEO Alexey Reznikovich argued in his subsequent keynote that service providers' "rigid culture and legacy attitude makes [them their] own biggest enemy in becoming a software-driven industry."

Reznikovich further argued that the industry is "trying to run fast, but is staying in the same place." He emphasized that service providers must become far more efficient and re-engage with customers.

A Connectivity-Driven Approach

Tele2 CEO Allison Kirkby delivered a passionate counterpoint to the vertical integration argument. Her clear, conclusive theme was "no connectivity, no revolution."

Kirkby argued that service providers can focus on what they do best—connectivity—and provide ways for people, organizations, industries and institutions to leverage and benefit from that connectivity.

She flatly rejected the idea of vertical integration across industries and the top-down approach to service development. "I don't believe we will benefit massively by branching out into all parts of the value chain," Kirkby said. She argued that because OTT players are stimulating usage on networks, service providers can focus on providing the best possible connectivity option to digital innovators.

Kirkby asserted that service providers should work with partners, but leave innovation to the domain experts. She also pointed to Tele2 as an example of a company that is focused on strong connectivity coupled with extreme operational efficiency to drive success, growth and profitability.

Choosing a Path

There is no single answer for service providers. Vertical integration is proving to be valid in some cases, while a strong focus on connectivity, efficiency and collaboration best suits others.

But the approach to driving continuous service innovation will ultimately determine the industry's biggest winners and losers. Top-down strategies have worked well in the past for service providers and may continue to enable success in certain markets.

The digital world, however, has demonstrated that an open, bottom-up approach has been the most powerful source of organic, broad-based innovation across a variety of consumer categories and industry domains.

Kirkby's argument aligns well with this concept: companies that have provided great platforms, assets and ecosystems have benefited most from bottom-up innovation. But that should not discourage vertically integrated service providers from adopting such an approach, as their own product innovation groups may benefit from leveraging and sharing their own platforms.

The key is to understand the power of the underlying platform, how to leverage it in the same way as digital pioneers and how to improve on that architecture to enhance developer experiences. It is also crucial for service providers to embrace the notion that domain expertise is difficult to replicate, but easy to benefit from, when it is the common foundation on which innovation is built.


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