Which Telcos Should Pursue Dumb Pipe, Smart Pipe, App Provider Strategies?

A new $36 trillion “post-PC era” app value chain is being shaped globally, including media, music, games, retail, banking, health, insurance, education, gambling, information technology and recruitment. For telecom companies, the issue is how much of that new revenue can be captured. The fear is that the answer is “not so much.”

Operators don’t like the notion that they primarily are “pipe providers,” much less “dumb pipe” providers. That has lead to much consideration of how access providers can compete with the application providers (Google, Facebook, Apple, Amazon, for example).

Others have suggested something a little less ambitious, namely the “smart pipe” strategy, where service providers work to leverage core network features such as billing, customer location or messaging and voice features, typically exposing such features to third parties. 

You might summarize the key strategies as “efficient pipe” or “dumb pipe;” telco 2.0 “application provider;” “smart pipe;” generally services provided to business customers. With the caveat that some elements of each could, in principle, be pursued, the issue remains which of the strategies will product highly-significant revenue for providers in various markets.

For the most part, argue analysts at Delta Partners, competing with the likes of Google and Apple will be completely out of reach, though not impossible in some markets. That is not to say service providers might not become app providers at some level.

Telcos or cable companies could provide mobile video entertainment services, over the top voice and messaging services, music streaming or other apps and services. The issue is simply whether such apps and services can drive 10 percent to 50 percent of revenue at any firm that does so. In most cases, the answer will be “no.”

A larger number of service providers might achieve success in the “smart pipe” arena, defined by Delta Partners mostly as services for enterprise, small and medium businesses. In some cases, that might mean competing with system integrators or information technology consultants and architects.

In other cases, the smart pipe strategy means exposing network features to third parties in some way.

But all service providers also will have to stay focused on the one unique role played by access providers in the application and Internet ecosystem, namely the “access.”

“We believe most operators have little chances to become a successful ‘Operator 2.0,’ Delta Partners believes. “Being an ‘efficient pipe’ is a valid option while some might achieve some success as ‘smart pipe’ providers,” says Delta Partners.

Put another way, every access provider has to supply broadband and Internet access. That is the unique role an access provider plays in the Internet ecosystem. Some service providers, perhaps a significant percentage of all service providers, will provide some "smart pipe" services to third party business partners. Just a few global telcos will attempt, much less succeed, at becoming application providers on a significant scale.

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