Everything Everywhere and T-Mobile Only Operators in Europe Able to Provide Full iPhone 5 Functionality

Everything Everywhere and T-Mobile Only Operators in Europe Able to Provide Full iPhone 5 Functionality

When the iPhone 5 debuts in Europe this week, only two mobile operators there – Everything Everywhere (in the U.K.) and Deutsche Telekom’s T-Mobile (Germany) – will be able to offer their customers access to the much-hyped device’s full functionality. The iPhone works with their LTE broadband frequencies but does not with the other commonly-used LTE frequencies in Europe. While the phone is usable without LTE, subscribers in some major markets, such as France and Sweden, will not be able to experience the superfast data download speeds that the device is designed to deliver.

Tarifica’s Take

Since the advent of smartphones, we have been witnessing a dramatic shift in the power structure in the mobile communications ecosystem. At first, the mobile operators ruled the roost, and even today they are still extremely important. However, the seismic-level impact of Apple’s iPhone on the marketplace shows that the balance of power seems to be shifting in favor of the device manufacturer.

Apple is not only the dominant player on the handset side of the equation, but now it can apparently determine winners – currently, EE and Deutsche Telekom – and losers – those European providers whose LTE networks are not iPhone-compatible. While Apple needs the operators to give its devices visibility in stores (and, of course, to provide the bandwidth), the operators now have so much dependency on Apple, due to demand for the iPhone, that the company can effectively control how much success they have. And the situation is not limited to Apple. Google, with its Android mobile operating system and branded devices, is poised in our opinion to be on par with Apple as the other giant bestriding the mobile ecosystem.

So what can mobile operators do to regain control and avoid becoming (as we have noted in recent writings) “mere pipes” for data – the equivalent of utilities or fixed-line operators? Last week we suggested that operators build their own app stores. In light of the present situation, they would be well advised to consider going one step beyond and begin offering their own in-house lines of smartphones. For a large MNO, we believe an obvious solution would be to acquire a device manufacturer (some, like Research in Motion and Nokia, are themselves victims of Apple’s and Google’s success and can be bought for a fraction of the value they once commanded). Another viable option, which could be particularly appropriate for smaller operators, is to create an internal department charged with designing, marketing and selling such devices, with the actual manufacturing contracted out much the way Apple does. Still another possibility would be for a group of operators to share the costs of such an endeavor by forming a consortium.

While this proposal may seem a bit radical (not to mention potentially expensive), at the end of the day, we believe something dramatic needs to be done if operators are to take control of their own destiny again. The inescapable truth is that in the future, just having a network over which other companies’ sophisticated Smartphones function, and for which other companies provide content, would make mobile service providers a notably lower value, subsidiary part of the food chain. If mobile operators do not aggressively move forward toward providing more than just bandwidth, they could end up as “pilot fish” clinging to the undersides of behemoths like Apple and Google.