August 2012


Authors    Joao Sousa - Partner
  Luis Cirne - Associate Partner      

Pascal Lagarde - Associate










  • 50% of global GDP is being transformed by a new value chain built on affordable bandwidth and the foundations of OS/Apps: An extended value chain emerges, spanning from connectivity to transactional services. As the Internet and Apps become facilitating platforms for B2B and B2C interactions, many traditional industries are being transformed
  • The new value chain expands into the second billion: By mid-2013, one billion people will have access to Apps as the major OS platforms (iOS, Android, Windows 8) develop further. Technology firms and financial sector players stands to address 75% of the economic potential deriving from the advertising, transactions and IT sectors. Connecting the next one billion will be challenging but likely to address 95% of the economic potential
  • Technology firms are driving the new value chain expansion: The App value chain development is predominantly driven by global companies such as Apple, Google, Microsoft, Facebook, eBay, IBM, and by a significant number of innovative start-ups
  • For telecom operators, it’s the ‘pipe’ way or the highway: Operators should position themselves as ‘efficient pipe’ providers or particularly in the emerging markets, as ‘smart pipe’ players. The ‘Operator 2.0’ objective (of competing with Google, Facebook, Apple, etc) is nothing more than a mirage given the differences in capabilities and strategies of technology firms





The world is changing very fast. Eastman-Kodak, the 123-year-old company that gave us the digital camera, filed for bankruptcy-court protection in January 2012. One year before, the new CEO of Nokia announced that he was standing on a burning platform, and Nokia’s value has since plummeted by 80%. Meanwhile, Apple, following the successful launch of three ‘blue ocean’ products – iPod, iPhone, and iPad – boosted its market cap 1to 2.5 times the one of China Mobile, 2.8 times Google, 4.0 times Vodafone and 46 times the joint market cap of Nokia and Research in Motion.


The telecommunications industry is experiencing a significant disruption as about 2.0-2.5 billion people access the Internet, use multiple devices and drive data traffic growth exponentially. Soon, there will be 3 billion people accessing the Internet and 20 billion connected devices. The growth is driven by four factors: 1) faster and affordable fixed and mobile broadband; 2) A smart-device war that will result in fast growth of smart devices and increased bandwidth consumption due to high-resolution screens; 3) An increase in the global banked population to 2.5 billion adults and credit card owners to 0.8 billion; and 4) The growth of major technology firms leveraging the Web and Apps to drive customers to use data services and connect to machines at all times.


Technology firms are reinventing industries representing half of the world’s GDP, such as media, music, games, retail, banking, health, insurance, education, gambling, and recruitment. The Internet industry itself is being reshaped as users move from the Web ‘dominant portal’ model (e.g. Yahoo, Facebook) into the OS / App world, where companies interact with users without intermediaries. Even the IT industry is on the verge of a major shake-up with the materialization of cloud services for both enterprise and business customers.


As a result of these changes, a new US$36 trillion ‘Post-PC Era’ App value chain is being shaped. Such complex value chain is composed of multiple connectivity, digital, ICT and transactional services that address the needs of consumers, enterprises and governments alike. The value chain is the melting pot of diverse players from old to new industries – from the largest world company to emerging start-ups.


Interestingly, the balance of power in the value chain depends on many elements, such as the existing telecom infrastructure, local ‘rules’ / competitive intensity, and the relative size of advertising, electronic transactions, IT and debit / credit card markets.


Operators are still extending (or trying to extend) their connectivity business (the ‘efficient pipe’ positioning) into digital content (the ‘Operator 2.0’ positioning) or enterprise ICT services (the ‘smart pipe’ positioning). In developed markets, fixed operators have been able to add ICT services to their portfolio. However, most mobile operators - including Vodafone, AT&T and the European incumbents - have been struggling to rollout the ‘Operator 2.0’ positioning. The main factors attributed to the limited success include (1) the proliferation of Apps, (2) technology firms’ strategies which have resulted in the offering of multiple free services to customers, and finally (3) the intense rivalry between operators that result in a fierce battle on data connectivity bandwidth and price.


Thus, in any given market, operators and technology firms need to understand each other very well to set winning strategies. The winner will vary: in most of the developed markets, technology firms are well positioned to corner operators in the data pipe war, but in markets where one or two operators dominate, the operators themselves may actually emerge as winners.


This White Paper will first provide insights on the new App value chain, its structure, size and relative weight. We then review technology firms’ multi-varied strategies to exploit the expanded value chain and from there, we look at which parts of the value chain telecom operators can still play a role in. Finally, we address the reasons why most operators should focus on either a ‘smart pipe’ or an ‘efficient pipe’ strategy, instead of the ‘Operator 2.0’ approach.


To read more, please download the PDF...



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