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(originally published by Booz & Company)


How Wireless Carriers Will Make Mobile Data Pay

Only a few players in the wireless arena, including Nokia, Microsoft, and Qualcomm, currently demonstrate the potential and willingness to challenge the mobile telecom operators on the quality of their integrated services. These companies have their own portals, content, user interfaces, and applications. The mobile telecom companies can work constructively with them using contracts, service level agreements, and brand and service tie-ins, among other arrangements, but mobile operators need to build capabilities themselves to reap the benefits of their partner’s expertise without sacrificing returns.

“Mobile operators may not need to manufacture devices or generate content, but they must increase their influence in this area to strengthen their control over revenue and profit.”
Influence handset design. Mobile operators have historically had little involvement in handset design and configuration (except in Japan). Operators typically set prices and managed customer access, whereas handset manufacturers like Nokia, Motorola, and Siemens drive device innovations (e.g., smaller handsets, longer battery life, varied ringtones). With the spread of mobile data, cobranding between device manufacturers and mobile service operators is becoming more visible on the handset (for example, the Sprint name and logo is printed on Sanyo’s 8100 picture phone). Mobile operators also need to be involved in choosing other key elements that affect their brand, such as the operating system and the selection of preloaded software applications.

Two European mobile operators, Vodafone and Orange, are leaders in such collaborative partnerships. For example, the Sharp GX10i handset is specifically designed to complement the special polyphonic ringtones, downloadable games, and other multimedia features available through the “Vodafone live!” service. This month Orange is introducing the Motorola MPx200, which uses the Microsoft Windows operating system and is being marketed with special services “exclusive to Orange.”

In the past, mobile operators bought totally undifferentiated devices. Now more companies will look to device manufacturers to make tailored handsets based on specific hardware (memory card), software (Vodafone live! messaging), and product features (video telephony). Manufacturers could even design entire service environments for mobile operators and sell them as preconfigured integrated solutions.

Through increased cooperation with mobile operators, handset manufacturers and component suppliers should be better able to focus R&D on innovations that can be brought to market rapidly and that are likely to succeed. Manufacturers can also work with mobile operators to jointly manage inventory levels of components and finished products through demand forecasting, and lower component costs by having operators select in advance common components for different devices (e.g., two or three screen types for all handsets).

Scale Advantages
Large mobile service operators who pursue an integrated service model will spend more money on product development, have greater control of the value handsets deliver through deeper strategic relationships with a few manufacturers, and will likely establish extensive networks of relationships with content providers that deliver a variety of multimedia services. These operators will have high fixed costs, but will retain more revenue per customer. Mobile service providers that achieve global scale, as DoCoMo has with i-mode, can leverage their research and new product development cost across geographies and through alliances. 

Smaller operators are likely to earn less than the larger firms because their costs for providing mobile data services are higher, and, to compete with larger players, they will need to share more of the risks and rewards of this new market with partners.

So far, few mobile operators have actually begun to pursue strategies in line with what we suggest. But in our discussions with industry leaders, we detect growing interest in and movement toward this integrated model. And for good reason: It’s the best way to profitably deliver high-quality mobile data services. 

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  1. "Why Banks and Telecoms Must Merge to Surge,” by Wouter Rosingh, Adam Seale, and David Osborn, s+b, Second Quarter 2001. Click here.
  2. "Will Prepaid Service Be the Next Wireless Frontier?,” by Raul L. Katz, Eric J. Riddleberger, Bharat V. Sarma, and Daniel H. Yang, s+b enews, 08/15/02. Click here.
  3. "Capturing Value in the Enterprise Wireless Market,” by Carolina Junqueira, Sajai Krishnan, Gregor Harter, and Mark Page, s+b enews, 12/19/01. Click here.
  4. "Winning on the Wireless Web,” by Christian Fongern, Pierre Peladeau, and Bernhard Kerres, s+b enews, 09/25/00. Click here.
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