The U.S. wireless industry has reached an inflection point. With a perfect storm of explosive data demand, the onslaught of new devices and an emerging mobile apps revolution, the industry is being forced to identify the most efficient ways to serve the consumer without compromising their networks or revenue streams.
Traditionally, the business model of choice has been a vertical one with the top industry players not only managing their own networks, but also offering their own content and services for a select number of devices, and running their own retail channels, both online and brick and mortar. Not only are these players often stretched too thin to ensure their networks can meet the growing demand, but this narrowly focused model has also stifled innovation, limited the number of industry participants and come at the expense of network capacity.
It is now apparent that successfully meeting mobile data demand will require shifting to a horizontal approach. With this business model, nearly all of the operator's resources are dedicated to ensuring the robustness of an open network that offers a wide variety of potential players the opportunity to develop products, offer services and generate incremental revenue streams, all accomplished with minimal capital outlay on behalf of the customer. Some might cynically refer to this as the "dumb pipes" model, however, once operators achieve more expansive network reach, broaden their customer base with little added cost and leverage cost-efficient outsourcing agreements to build, deploy and manage their networks, those same cynics might refer to this as a "smart pipes" model.
The U.S. is making its most sincere effort yet to enhance its global position in broadband, and wireless technology has the potential to be a driving force behind this initiative. However, without vibrant business models that act as incubators rather than roadblocks, this country will be stuck in the status quo. The arrival of 4G has created an environment for the horizontal business model to thrive. An ideal example of this is the wholesale network. While Mobile Virtual Network Operators (MVNO) succeed around the world, notably in Europe, this model is under developed in this country, and with the major operators aggressively rolling out 4G networks, the situation is unlikely to change. This is especially the case since there will likely be capacity constraints as the entire industry migrates in near lockstep to 4G.
To manage this demand and circumvent capacity constraints, the industry should take a closer look at wholesale networks. Operators that deploy this model can allocate nearly all of their resources to the quality and integrity of their network without dedicating additional expenditures to marketing and advertising. With no need to manage customers and a retail channel, there are also no conflicts with wholesale operations. The operator can focus on building a network that is available to a diverse range of players who are interested in accessing 4G capacity at low wholesale prices so they can quickly establish credibility in the wireless market and tap unprecedented new business opportunities.
So what exactly does this mean for potential wholesale customers? Service providers without wireless capacity can complement their existing portfolio and increase revenue from existing customers. Existing wireless providers can have accelerated access to the 4G market without additional capital investment. National retailers can launch their own products and fully own the customer relationship. Consumer electronics companies, PC manufacturers and Internet companies also stand to gain from providing devices, services and applications using wholesale-only networks.
This model also promotes the concept of the "open" network. While many industry players regard "open" as a lofty goal, it is a mark that few have actually achieved. Horizontal business models featuring wholesale networks will tear apart the chains that are constraining the industry, and ultimately this country. Innovation, creativity and business agility will unlock the mobile Internet to a broader range of entrants who can generate additional revenue streams by creating new devices, applications and services that will satisfy consumer demand.
—Sanjiv Ahuja is chairman and CEO of LightSquared.