MWC 2023 Day 3 – Fair nightmare

Subsidising failure is a bad idea.

• The most recent debate doing the rounds at MWC is the idea that Big Tech should pay some of the cost of rolling out 5G as it stands to disproportionately benefit from it.
• I find this argument to be absurd because I have long argued that the main reason why Big Tech is so good at monetising mobile usage is that the operators failed to create thriving digital ecosystems of their own and left the door wide open.
• This is not a new turn of events but has in fact been going on for more than 15 years.
• The best example was Vodafone’s attempt to create a digital ecosystem that began in 2008.
• At that time, Apple was only a tiny piece of the market and the opportunity was wide open for anyone to come in and Vodafone already had an important relationship with its users.
• Unfortunately, Apple and Google were much better at delivering an enticing user experience as well as engaging apps and services.
• Consequently, the users’ purchase decisions became about whether they would choose to live their digital lives within the iOS ecosystem or with Google rather than anything that the operators had to offer.
• This was not because Apple or Google did anything wrong or unfair but because the operators allowed them to come in and undermine the relationship they had with their users.
• The most extreme example of this was in Japan where NttDoCoMo had already created a successful mobile internet service called i-mode and had complete control of the handset value chain.
• The arrival of the modern smartphone demonstrated that i-mode needed to change to keep up but NttDoCoMo was unable to execute and as a result, it became a bit pipe very much like all of the other operators across the world.
• Mobile internet is now a giant industry from which most of the profits have either accrued to the digital ecosystem or to the providers of enabling technology like Qualcomm, MediaTek and Arm.
• The operators had every chance to create digital ecosystems of their own and reap similar profits, but they failed to execute on this opportunity.
• If the roles were reversed and the mobile operators had competitive digital ecosystems with good profitability and Apple and Google were merely handset suppliers we would not be having this debate.
• In my opinion, the mobile operators want the digital ecosystems to subsidise their inability to create a digital ecosystem which I think is a terrible idea.
• This is because the smartphone is not the end of the digital ecosystem story as there are new device categories which are as wide open today as the smartphone was in 2008.
• These are the segments of automotive and, in the long-term, the Metaverse.
• Both of these will require good connectivity from the cellular network meaning that the operators have a foundation from which to build.
• Furthermore, these segments remain wide open for new entrants although Apple and Google are already moving to address the vehicle and Meta Platforms the Meatverse.
• If the operators think that they will get a slice of the cake even if they fail to execute, then they will have no incentive to try.
• It will also lower the incentives for new entrants if they know that they will have to pay a “tax” should they be successful in creating digital ecosystem for the vehicle and in the Metaverse.
• Instead, I think that operators should be doing everything that they can to ensure that they have a position in the provision of the digital ecosystems in these new categories.
• There is far more upside to be had in contributing more than just connectivity to the provision of digital ecosystems to users than there is in appropriating the profits of the success of others.
• Hence, I think in the unlikely event that operators extract their “fair share” from the digital ecosystems, they will end up losing even more in the long term.