Why Operators are important in Mobile

Everyone has a mobile phone nowadays. being either "dumb" or "smart", it follows you everywhere. Most of us have several phones and when we change clothes we pick up a different phone with us. That little device and its user interface and user experience are personal and important to us.

The little devices we carry are only a very small, little, tiny piece of the figure. The complete figure is the biggest machine in the world, the telecommunications network. The big machine connects you with virtually every person in the world. Just put in the number or email address and you can communicate with (almost) every person in the world. Really, with everyone. From China to South Africa to United States to practically everywhere.

If we look at the business, the mobile industry is a global giant. Following the Communities Dominate Brands blog by Tomi Ahonen, the total business is above trillion dollars per year. That is $1000 billion, or $1 000 000 000 000, or in scientific format 1E12. The business is bigger than that huge number, and it is growing fast. Do you understand the scale? Good, because I don't understand it completely. It is too big for me.

Let's go forward. Again, I refer to Tomi's blog and see that the phone business is worth around $150 Billion per year. That is a huge business alone. But to reach Trillion dollars, we need $850 billion more. And that $850 billion are the mobile operators. Of course, operators do need cell towers, base stations, antennas, switches, fibers and cables to make their business, but still the traffic is the dominant money-maker in the mobile industry.

Operators get most of their money from traffic as they charge voice, SMS, MMS and data. And that is the business in mobile, the traffic. The money is there. And where is the money, there is the power. This is something that can not be forgotten, it must be understood. Operators are the major players in the mobile industry.

You do not carry an operator in your pocket. The operator does not have a nice user interface and operating system. Only when your call cuts and traffic does not work, you notice the operator and blame it. And when your phone bill arrives, you know it is there. It is the giant lurking around the corner, making the machine work, and making money out of it.

There source behind the power of the operators is government and there are two main reasons for that.

1. The frequency bands are limited and they need to be allocated for different purposes. Governments do that allocation, and they give, hire, sell, auction or using some other principles give permissions to the operators to use the radio frequencies.
2. The governments have always been interested in communications between human beings. In the medieval ages they steamed letters open. Today requirements are different but still existing, like a law that requires the storage of the call data, or the law that makes the "wiretapping" obligatory, or the law that requires registration of the IMEI codes etc.
   

Now, the government power makes the market totally different. It is not the "free market", as explained in the economics textbooks, but it is well regulated and controlled. The government says who can enter the operator market and how much the initial investments for the network costs. Using the the words from business strategy textbooks, the entry barrier for the operator market is high. And it is not only money that buy you in, you also need to be "nice" in the eyes of the government that gives you the license.

The high entry barrier explains the profits and power of the mobile operators. Any phone maker must make their phones compliant with the network and that requires interaction with the operator and meeting them is inevitable. If a phone maker is small, operators do not care too much but probably let you try. And if a phone maker is making high profits, be sure the operators want their share.