UK - is it about to become the most interesting wireless market in the West?

[Apologies for the hiatus. After a summer doldrums burst of energy, September has been a very intense month for me in the real work arena, and I have abandoned by best intentions of regular postings.]

Through my various conversations with operators, OEMs and others in Europe and the US, it is increasingly clear that underlying any discussion of relevance lurks the iPhone somewhere in the background. It is like Voldemort in Harry Potter, he "who shall not be named" (Jobs, arghhh), is somehow embedded in many strategic decisions.

It has also been long apparent to me that the UK is one of the most interesting wireless markets in the world (I fully understand that much of the action in wireless has long left the pleasant shores of Europe and headed South to Africa, the Middle East, Latin America and Asia, but for purposes of this discussion I want to focus on the Western markets - mostly North America and Europe). The UK is interesting for three reasons: it is a highly competitive market (with 5 operators and several healthy MVNOs); it is the meeting point of four of the top global telecom groups (Vodafone, Telefonica, Orange/FT, Deutsche Telekom) with combined subscriber bases of close on 500M subs - and thus any innovation there has potentially vast reach; and it is the natural nexus with North American tech firms as they enter Europe.

So, with the announcement that the iPhone will be distributed by the 3 top operators in the UK by 2010 - O2 as incumbent iPhonian, Orange and Vodafone as new distributors - my view is that the UK's interestingness (is this a word?) will re-double. Although France already has broad iPhone availability, the French adoption of smartphones in general still lags, and the nature of the market is less competitive. So the UK becomes a great "beta-test" of the next phase in the iPhone's plan for world domination. With rumors that Verizon could carry an Apple product in 2010, we should also think as the UK as a test-case for the future of the US.

Some interesting questions:

(1) What will loss of exclusivity do? - O2 in the UK and ATT in the US have benefitted substantially in terms of market share from their affiliation with the iPhone. Will customers defect above the average as this device becomes available in alternative networks?

(2) How do you differentiate, when your OEM controls the bulk of the experience? - Operators have already been "dumb-piped" by the Blackberry, to the point that many enterprise customers claim that they don't really care what network they use as long as they carry BBs. There is a risk that consumers say the same with iPhone. Such commoditization means that industry margins will be pressured among operators, and Apple will gain more leverage over the industry as a whole (think about how value flowed in the computer industry towards Microsoft and Intel as an analogy). My view is that the natural "dumb-piping" trend that operators have dreaded and fought against, has been accelerated by a factor of 3-5 years with the advent of the iPhone and its brethren - Android, Palm, etc - and that the house is starting to catch fire.

(3) Start fighting for your life - just like most of the traditional OEMs are now cognizant that they are fighting for their lives against the new smartphone challengers, operators need to recognize that it is now time to "put away childish games" and get serious. They face big challenges in this, because for the most part the past 10-15 years have been times of plenty, and they have allowed themselves to become bureaucratic, unimaginative, and painfully slow. Per prior posts, one obvious example: the mobile internet, under the control of operators for the past 9-10 years, has been largely unattended by this group, who have focused on quick monetization ("selling ringtones") and failed to build a compelling set of user-friendly services in this channel. The likes of Apple and Google are stepping in to fill this void. I see little compelling evidence of operators that really understand what needs to be done to fight back and have a decisive approach.

Where can operators fight back?:

(1) Win through superior consumer experience - even as the experience on a smartphone, and specifically the iPhone, is in many ways better than on previous generations on phones, there is still a long way to go relative to the optimum. The biggest gap in my mind is "utility": consumers are after all ordinary people that need to get through the day and get stuff done. Here is a simple test: go to your phone and try to do something fairly trivial, like look up train times and buy a ticket - if you are in the UK or US, this is bloody difficult. How about looking up your electric bill or even your mobile bill? This should not be that hard, but in fact usually is a painful or impossible experience. Meanwhile, Apple has coined a term "there is an App for it", and has enlisted an army of developers to creates useful experiences (as well as a lot of entertainment). If the only place consumers can go to get their stuff done is the iPhone, then the game for the operators as a value-added company is truly over and they should perhaps focus on becoming very good wholesellers.

(2) Smart use of information - as discussed in prior blogs, operators have at their fingertips vast amounts of contextual information, that they can use to deliver highly valuable services to their customers. However, their ability to use this information is about circa 1995 for the retail or credit card industry.

(3) Value-chain solutions - Apple, Google, Amazon have all understood that the wireless ecosystem is the new centerpoint of the digital world, and have found a way to break in to the ecosystem and re-write the rules from the inside. Operators have a similar opportunity to break into adjacent spaces, such as gaming, entertainment, healthcare. Although many senior executives recognize the opportunity and the need, they lack the clarity of objectives and focus to make decisive pushes. This is complex because it requires top-down leadership vs. the vast telco bureaucracy; it requires cross-functional mindsets vs. the silo-based mentality; and it requires smart insight into the economics of these new spaces.