Partnerships Abound Between Carriers and Content Providers

In the past 24 hours, three partnerships have been agreed between telecom operators and content providers, with Telenor inking a deal with Android, France Telecom launching three dedicated Facebook phones across its footprint, and Google launching an online music service, Google Music, with T-Mobile USA being its first wireless partner. More details on each deal can be found below, but this is a clear trend of partnerships between the different players in the value chain, such as Telia with Spotify, 3UK with Skype, France Telecom with Deezer or Google, and Vodafone launching a dedicated Facebook device (see World: 28 July 2011: Vodafone Partners with Facebook and Orange with Google As Operators Focus on Emerging Markets).

• Telenor and the Android market: The deal will enable Telenor's Android users to access relevant apps on their home pages, as selected by Telenor with a maximum number of 50, while customers will be able to pay for the apps via the operator. The agreement covers all of Telenor's 11 international markets, with initial launch in the first quarter of 2012 in Thailand, Malaysia, Hungary, Sweden and Denmark. The deal highlights that operators have a role to play in terms of the preferences of their customers.
• France Telecom and Facebook: The operator has launched three dedicated Facebook devices, including an Android-run smartphone known as the Alcatel One Touch 908F, or the Orange Vancouver. The devices will be priced at under EUR100 (USD134.95) and will be available, from this quarter, in more than 15 markets (Armenia, Botswana, Cameroon, France, Cote d'Ivoire, Mali, Morocco, Mauritius, Moldova, Niger, Poland, Reunion, Romania, Senegal, Spain, Tunisia and Uganda).
• Google Music: Google has launched an online music service, as it attempts to compete with Apple and Amazon in that space, with the service being closely linked to its social network Google+. Google has agreements with all music companies, apart from Warner Music, with each track priced between USD0.69 and USD1.29. However, Google also decided to give T-Mobile a boost in the United States market, probably because it is the only main carrier not to offer the iPhone, with T-Mobile Android customers having access to free music, and being able to buy tracks through the operator's billing system.

Outlook and Implications

• Knowing their Competencies: The time when operators and carriers would compete in all segments of the value chain is clearly over, as both TeliaSonera and France Telecom made clear their new strategies in terms of content. TeliaSonera said that it saw itself as an enabler and an access provider, while France Telecom moved away from production to partnerships as part of its Conquests 2015 Plan. Bearing in mind the failure of Vodafone Live! and other operator-centric models, where a walled garden was the main component, it becomes clear that operators have learned from their mistakes. However, so have content providers, as their attempts to bypass carriers were also unsuccessful, whether it was Google's idea to sell its first device, the Nexus One, unlocked and online, or Apple's attempts, despite its success in being a closed system, to bring to markets its integrated-SIM iPhone. Its UK attempt at selling the device with interest-free credit was also unsuccessful. Both types of companies now understand they have their strengths and weaknesses, which do not overlap, and that partnership rather than competition is the best way to gain further growth, as the data explosion is not a zero-sum game.
• Widening the Cake: These three examples show that partnerships between operators and providers are not cannibalising, as each shows a way that the pie can be expanded, with both actors gaining more revenues. Google has been more open than Apple in opening its app store, and the deal with Telenor will increase revenues and usage thanks to carrier billing, while the operator has the opportunity to become more relevant to its customers by hand-picking a series of relevant local apps amongst the millions being available in the store. The deal between France Telecom and Facebook is there to drive data adoption in emerging markets, as well as offer an attractive and cheaper option for current feature-phone customers to move on to smartphones, whose ARPU tends to be higher. Facebook benefits by gaining even more users, as the company commented that its next billion users will be mobile. Finally, Google Music is an attempt to compete with both iTunes and Amazon. However, Google understands the importance of mobility in music now, as it integrates the service onto its Android market, and the partnership with T-Mobile gives the service more visibility compared with its competitors, while giving an edge to T-Mobile as it lacks the iPhone. Furthermore, music services have helped drive adoption for smaller US operators, such as Leap Wireless and Muve (see United States: 1 November 2011: Leap Wireless Reports Stronger Quarterly Results).
• Network vs Content: There remain questions attached to the partnerships between content providers and operators, with investments into advanced networks and net neutrality being two of the main ones. Many operators have complained over the years about the amount of bandwidth taken by content providers' services, and have wanted to charge the providers to use their networks as they look to invest in next-generation technologies, whether it is fibre or LTE. Even though recent quarterly reports seem to suggest that data traffic seems to stabilise, this was a clear attempt by the operators to regain the upper hand, as they have seen these third parties intrude on their exclusive relationships with end-users. Content providers are not keen to give operators any kind of payments to access their networks, which is where partnerships are useful. However, net neutrality lurks in the background, as any deals favouring one type of content over another would fall foul of the principles of the free internet. No such deals have yet been struck, but the uptake of video-streaming services is a greater threat to the net-neutrality rules. Both sides need each other at the moment, because without networks there is no content, while without content, networks would not grow as quickly, if at all. This is why the interest shown by content providers in network-building, whether it is super Wi-Fi or Google's fibre roll-out, could be a major threat to operators worldwide, especially as more and more services are now IP-ready and do not require a cellular network.