Behind the operators’ technical scenes on the new iPhones, new Android, or the new Microsoft deal

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As we are getting closer to the traditional yearly event from Apple next week, where new iPhone devices (most likely an iPhone 5S, an iPhone 5C, and possibly a new iPad?) are to be announced (here), Google has also announced in parallel the name of their new OS for Android (Android 4.4 Kit Kat) (here). If you live in this world, you should also know by now that Microsoft bought Nokia’s mobile phones division according to this week announcement (here). The battle of the mobile devices and OS is as interesting as every year in the last decade, and this battle has implications for all of the involved in the industry at all the possible layers, including of course the subscribers but also the Communication Service Providers (CSP’s) or operators. No matter if you work with an operator, or a vendor, or a consultancy, or are just a technology fan, you should know from the top of your head what is the current market share for mobile OS, or what is the split between the Android OS versions installed in the handsets, among others stats or facts. I give you a few ones below for feeding your knowledge hunger.

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A few years back when Blackberry was booming the smartphones’ market with their -by then- innovative products, the operators learned many technical lessons from this in the hard way. The network engineers until then focused only on delivering enough bandwidth to supply the subscribers’ traffic demand, saw how the push messages and always-communicating nature of the Blackberries boosted the number of sessions established in the networks while having the same PDP context established. This in example increased the Transactions Per Second (TPS) in the signalling plane of their network elements and business to values never seen before, leading to service downtimes and traffic outages, creating a huge change in the scaling and sizing paradigms and methods for the networks. The introduction of Blackberry devices in masses leaded to multiply those TPS for the same traffic, and the technical effects were also seen in other areas. In example after having a maintenance in the networks, and all the devices re-connected to the operator at the same time leading to transactions bursts, among many other examples I am sure any operators’ network engineer for that time can provide. All of this was traduced on massive revenue losses, which are usually the main triggers for immediate changes in the operators’ methods. As the years passed and more and more devices appeared having this same always-connected or always-communicating behaviour (e.g. pretty much all of the smartphones today), the operators adjusted all of their systems and methods for ensuring no problems were seen for this matter. Whether improving the sizing and scaling techniques, or applying Policy Management and Enforcement tools (PCRF/PCEF), or signalling routers, or traffic control agents, or simply adjusting profiles and timers for a more efficient sessions’ handling, among other methods.

Similar challenges have been seen when OS updates are made available for the smartphones. Since a big part of the subscribers tends to accept the update once the notification is received, typically happening around the same time. So again creating an unexpected increasing traffic (this time in both bandwidth and TPS) in the networks. Situations like these are also seen during important events, like the football world cup finals, etc. and most of the operators today make the scaling and sizing of the systems considering these events.

In other words, in today’s world the communication between the marketing and engineering teams of an operator is more important than ever. Announcements like the ones from Apple next week and the ones from Google must be closely monitored, as these represents new challenges, and -do not get me wrong- also new opportunities for business. In example, the subscribers are having freedom to connect liberated devices into the networks for browsing, or selecting which OS to download and install in the handsets, and this modifies the traffic and usage patterns seen in the networks. We saw this also with the introduction of the electronic books and tablets, and we will keep seeing this in the future with the new devices like the smart watches, or the smart glasses, etc. This represents challenges to meet the changing demands, but also new opportunities for monetizing the new network usage profile, etc. The role of the Business Intelligence (BI) and Analytic’s platforms are becoming critical. The extension of these towards more intelligent models like Predictive Analytic’s for performance of the networks and the systems, plus the actual business indicators of the networks, are and will be a key in the operators’ efficiency and the telecom business profitability.

A. Rodriguez

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Smartphones subsidies, no credit – no problem

Almost all the mobile operators around the world have offered or currently offer what is called smartphonessubsidies”, as a way to attract customers onto buying new handsets at cheaper prices, while engaging them on long-term service contracts with the operator. So this is like buying a smartphone on credit, and of course an exercise to increase the profitability of the handsets for the operator.

Although these offers seem quite positive for the customers, making simple math you can often discover these are not. Taking an example from one of the top carriers in USA, you find buying a subsidised Iphone on a two years contract and a decent plan can cost you at the end: $200 + ($100/month) x 24 = $2600. While a no-contract and no-subsidy Iphone on equivalent plan for the same time could cost you: $650 + ($45/month) x 24 = $1730. So in example you might end up paying additional $870 for buying a subsidised phone.

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Beginning of the year T-Mobile changed the strategy with the announcement of ending the handsets subsidies, and of course, AT&T and Verizon among others looked at this move closely trying to understand the strategy (here). To me the strategy was simply trying to differentiate themselves from the competition, by offering “lower” rates on the monthly plans while having the full price for the actual handsets. Think on the tablets market where we all buy these devices at full price with no subsidy, and consider now how successful the tablets’ market is. You would at least agree there is an irony as a tablet functionality is very similar to a smartphone, but the operators do not offer subsidies for these.

Even apart from the simple differentiation fact, the operators in general are eventually seeing how the subsidy model is no longer paying off as expected due to the apparent innovation slowness. As the smartphones are becoming more durable, and as the Sprint CEO Dan Hesse said during a conference this year “…the subsidies just keep going up… the industry cannot afford to upgrade as often…” (here). The situation is even more radical in Europe, where according to a research from Informa Telecoms & Media beginning this year “…almost 30 operators (in Europe) have already dropped handset subsidies for some or most customers…” (here). In this case operators like Vodafone or O2 are replacing the subsidies with financing and leasing plans, much more profitable for the operators and allowing them keep offering latest and originally expensive handsets at low prices. Informa’s analyst Francesco Radicati comments, “The rising cost of devices like the iPhone means operators have to pay increasingly large subsidies to offer ‘free’ phones. Financing allows operators to continue offering phones for a low up-front price without subsidizing them; as an added bonus, it makes it easier to market smartphones to consumers on pay-as-you-go.”

An interesting change will be added when the LTE-only devices are available starting next year. As the voice will be also handled in the LTE chipset along with the data, and no longer requiring the current CDMA chipset for voice, the cost of producing the smartphones should theoretically be lower. Verizon CFO Fran Shammo already made the announcement they would launch VoLTE by the middle of 2014, and that would allow launching the first LTE-only devices (here). The question remains open on whether this would also represent lower handset prices for the subscribers, or not. Whatever the path followed it would seem the handset subsidies have the days counted, and as the corner store’ sign states: no credit, no problem.

A. Rodriguez