iPhone revenue sharing: will mobile operators become dumb pipes?
With major mobile operators agreeing to share 10 percent of iPhone customer service revenue with Apple, what impact will this have on the future of mobile operators? According to a report from Analysys Research, the iPhone revenue share deals will bring plenty of high-value customers, but also foreshadow potentially dangerous territory for mobile operators. If operators give away too much leverage, they may have a bleak future as the next generation of dumb pipes.
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Along with the reports of a similar partnership between Apple and AT&T in the USA, these developments represent the first known cases of a handset vendor successfully negotiating a direct share in the mobile service value chain.
Even if the real details are never released, the upside for Apple's operator-partners is substantial; not only does Apple have a sophisticated, and desirable handset on the market, but it can also bring to its chosen partners a community of (iTunes) users who download and exchange music, images, films, TV programmes, and videos in a way no other community of users does.
Also, Apple's deal with YouTube to give it a prominent position on the iPhone start page brings another set of committed users. These users will quickly become the passionate, sophisticated, high-traffic and high-ARPU customers of their new mobile phone operator. In addition, while the operators may be giving away some control and revenue, they are retaining control of handset distribution and other key service enablers.
Dangerous territory for mobile operators
On the surface, this kind of deal appears to be what the mobile industry needs in order to achieve strong growth in non-voice ARPU, which is essential given the ongoing decline in voice ARPU. Provided that operators continue to open up the mobile Web-browsing experience and tariffs are kept simple, non-voice ARPU should increase considerably in coming years, from 19 percent of total ARPU today to over 32 percent by 2012 (see figure below).
Figure: Non-voice ARPU and non-voice services as a percentage of total ARPU in Western Europe, 2002-12 (Source: Analysys Research, 2007)
However, operators need to be very careful how the next wave of partnership deals are structured. In the Apple case, operator and original equipment manufacturer (OEM) have similar goals - to broaden the appeal and scope of what is essentially a semi-closed community of high-value users (i.e., Mac and iTunes users).
Other potential partnership combinations, for example with Google, Disney, or with a handset vendor that brings its own pre-packaged Google interface, could bring a very different and potentially dangerous dynamic. If an operator surrenders too many of its leverage points with customers (handset distribution, billing, location / usage information), it could find itself limited to the role of dumb pipe, a scenario most operators want to.
Operators should divide and conquer
Fortunately for mobile operators, there is only one Apple, and there are unlikely to be other OEMs that could demand (or offer) so much. Other alliances may arise (for example, involving Google or RIM) that will require careful observation. More importantly, operators should act quickly to improve the mobile Internet experience on sustainable terms by more aggressively partnering with sources of content and software on their own (rather than waiting for Apple or Google to do it for them). This will bring compelling applications (for example, mobile blogs) to the handset on terms that keep the operator in the centre of the mobile value chain. It will be possible for operators to open up the mobile Internet experience successfully, but it will require decisive action and direct partnerships with software and content providers decoupled from handset vendors in order to work.
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