#1 – Device dominance
Advent of Device sector dominance to impact evolution of Mobile industry R&D
The rise of smartphones over the last several years has caused the mobile ecosystem to gradually shift from a network centric model to a device and services based one. The popularity of Apple and Samsung smartphones has driven revenues and profits for these companies to a level where overall industry sustainability seems to be at risk. Infrastructure vendors witnessed their share of global telecom operating profits drop from 4 per cent in 2004 down to only 1 per cent in 2012. During the same period the handset sector more than doubled its share from 5 per cent to 11 per cent. Moreover, almost 100 per cent of the device segment’s 2012 profits have been split between Apple and Samsung.
As a consequence Apple and Samsung have the power to drive and finance innovation, R&D, and standardisation efforts. With this comes a considerable risk of less open standards; Operator and infrastructure driven R&D/standardisation promoted a wider industry evolution, while device manufacturers instead push for and prioritize standards that help them to close gaps in their particular highly vertically integrated value chain and to benefit just their own devices. This has the obvious risks of bringing interoperability issues to bear and encouraging a lack of harmonized solutions. Two sub-trends exemplify this: Wi-Fi vs. LTE in devices and the on-going battle over ‘Soft/ Embedded SIM’.
For iPhone5 Apple chose to implement only a subset of the global LTE bands and instead decided that Wi-Fi would substitute to secure mobile broadband “everywhere”. Similarly, the latest Samsung models employ a SIM-based Wi-Fi authentication to ease log-on for users. These are indicative of a situation in which infrastructure may have to trail device capabilities – rather than vice versa. Adding to this, a recent study on UK mobile data usage reports three quarters of mobile data being delivered over Wi-Fi instead of 3G.
The other example of device driven innovation is the on-going battle over the future of the SIM card. Apple is strongly driving the SIM card to become part of the phone, either as embedded (through smaller and smaller form factors) or in the form of a soft SIM. This could eventually disrupt the entire mobile telecommunications value chain as we know it and turn operators into ‘disposable’, ‘wear and swap’ access providers.
Northstream believes 2013 will bring insights that if Operators and Infrastructure suppliers don’t take charge of the wider industry open interface R&D and Standardisation efforts, someone else will!