Carriers: We are here to help!

MWC being in full swing, has brought a truck load of new product launches and partnerships(too many that they start blending with each other to form one amorphous blob). But what caught my eye was an announcement from Jason Donovan, an AT&T executive on how it is considering a way to let app developers pay the cost of the data traffic associated with its usage instead of passing on the burden to subscribers. AT&T believes that it will roll out this service sometime in 2013, and that there is already rising interest from companies that hope to rely on this the feature to incentivize customer adoption. I believe AT&T is right in that there are firms who believe this to be a good thing. And one among them would be Isis. Let me explain why, before delving in to why overall this has the potential to be a really crummy idea.

Everywhere we turn, Carriers continue to clamp down on data usage caps and encourage/herd customers on to tiered bandwidth plans, as the number of mobile apps surge that pulled back the curtain to an always connected world of devices and people. Siri is just the first wave of data intensive apps that will satiate our thirst for information – contextual, serendipitous and forever at our beck and call. Carriers are mindful of what this represents by way of a threat to their profits, that despite ramping up investments in infrastructure upgrades – they will probably lag behind our thirst for bandwidth. And why do all this, when there is not much upside? Customer’s loyalty are to the platform and the apps within, and hardly extends to the Carrier who is alarmed to find the gap widening with its customer. Carrier brands fail in conveying the same emotive simplicity that we have taken for granted with brands, with whom we resonate(Google, Apple, Twitter etc.). As anyone who have had the misfortune of being caught at the crossroads of disruption can vouch, Carriers have to build a wider moat, innovate or find leverage and find it soon.

Ever since the iPhone launch back in 2007 and since then, through the enviable and exponential growth of Apple’s Appstore, Carriers had wistfully longed for the kind of profits Apple generated on there, but had zero leverage to inject itself in to the value chain. Despite having a close relationship with Carriers, Apple treated them with disdain, while all around, Carriers confessed publicly their addiction to iPhone. When Android came along, they got their wish as Google was much more amenable in letting Carriers be the driver, and it willingly sacrificed clout for ubiquity, so that Android will become pervasive on mobile(a mistake Google shall rue till the end of days – but that’s another post). Even on Android, Carriers found app store profits elusive and more so, found themselves at risk of becoming dumb pipes providing infrastructure and very little else. Moreover, messaging apps on both platforms took away a huge chunk of SMS revenue for the Carriers. Further as this trend continues, Carriers will find their revenues coalescing around a single point – their tiered data plans. Carriers understand that being reliant on a single source of revenue does not bode well for their future. Something had to change.

It is not that they had any less smart minds compared to elsewhere, trying to figure ways reacquire leverage, it was simply that so far they had little opportunity to do so. In my opinion, this all changed with Isis. In Isis, the Carriers found their calling, in becoming irreplaceable in the value chain, leveraging capabilities they already had that would appeal to current stakeholders in the payment framework without threatening status quo. Carriers could suddenly justify why they should be an integral component to mobile payments, as they had a direct relationship with the customer, they had existing OTA capabilities in provisioning and issuance, they had retail stores that could act as distribution channels or an extension to the customer support functions of a financial institution, through OEM subsidies they could control the Secure Element, and finally and more importantly – they did not want to disrupt anything. But to their chagrin, Mobile Payments face other significant challenges to find adoption, the least of which are merchants and apathetic customers. An increasingly common refrain on the part of consumers, who are all the more mindful of Carriers tightening screws around data usage caps, is how mobile wallet traffic will be measured and weighed. As we all chuck our plastic cards and embrace mobile wallets, Credit Card Issuers, Merchants, Loyalty Programs, Marketing and Ad firms, will want to monetize on what they know of us by enticing us with relevant offers, reward us for our loyalty, and envelop all aspects of our digital lives with a gamut of ads. As it becomes easier to redeem offers we receive on our mobile phones, via the same channel, we should see an explosion in the number of targeted offers we shall soon start to receive. This equates to a corresponding exponential increase in bandwidth required to support these apps, and Carriers have their eyes squarely fixated on that opportunity.

Isis will be the first, where it may buy a block of bandwidth usage from the Carriers that will allow Isis subscribers to receive offers, coupons, rewards on their mobile phones before, at or after making a purchase. This allows Carriers and Isis to further calm customer fears whether they run the risk of going overboard with their bandwidth usage merely by subscribing to the Isis wallet. Furthermore, when one is travelling outside of US, a more expansive agreement internationally with international carriers will also help customers use their mobile wallets without fear of incurring additional data or roaming penalties. Otherwise, one could use their NFC equipped phone to make payments abroad, without elevating said experience in to the realm of personalized offers and coupons. A Smartphone stuck in ‘card emulation mode’ with no opportunity to provide further context, the entire time you spend at vacation abroad, hobbling you from discovering new shopping or culinary experiences by sending offers and coupons to your phone directly based on where you are, is a missed opportunity. Isn’t the whole point of shifting from plastic to mobile about being able to leverage context (temporal, geo-spatial, social etc.) to recommend new purchasing experiences, and if so – wouldn’t a vacation in a faraway and exotic land be the perfect opportunity for serendipitous discoveries?

So to me, it’s a given that Isis will be one of the first to make use of this capability offered by Carriers. But that raises new questions too. Similar to the questions that are raised when you introduce a new stakeholder to a control point in an existing and familiar value chain, Carriers need to spell out the extent of the role they intend to play. Will Isis’s unique carrier advantage in any way be used to disadvantage Google Wallet, Paypal, Square or others? Or in scenarios outside of payments, will this have the undesired impact on startups where entrepreneurs jostling for spotlight and success may be less inclined to pursue a groundbreaking idea if they don’t have the capital to buy a data usage block? And what happens when a partnership between an app dev and a carrier turns sour? What impact will that have on its customers? Will they be able to continue to use the app? Or will the Carrier effectively discourage its use by charging subsequent bandwidth usage to the customer account? Would app developers feel safe in handing over their carefully crafted goodwill to the Carriers? This also puts Carriers as potential gatekeepers to the ecosystem, a role we are not comfortable seeing them in, as they have more of an incentive to keep things less disruptive, to their existing infrastructure, customer relations and revenue models. This would be a very thin line to walk, and for Carriers who are 800 ton lumbering behemoths, that’s nigh impossible to do so without collapsing under its own weight. If you were a nimble startup, you wouldn’t want to be anywhere near that.

What do you think? Sound off below. And do share this post if you like

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Board of Advisors at SimplyTapp - creators of Host Card Emulation driving democratization and open access to NFC in Android. Mobile Commerce & Payments Lead at Experian Global Consulting, serving Experian's clients in Banking, Retail, Consumer Credit & Payments. A strategic adviser w/ over 17 years of international Tech & Business Strategy consulting, advising firms in banking, retail & asset mgmt that seek clarity & insight in to the myriad business models around payments, fraud & commerce. Founded DROP Labs, a mobile payments/commerce strategy & advisory practice. Tweets here. I'm on LinkedIn here.
Cherian Abraham
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