Mobile Industry Power Structure: The 2 Factors That Are Changing It

A major thesis of our studies is that there has been a long-term intensifying struggle between the computer/IT/Web based industry and the major telecom, now wireless, carriers. This struggle, which is now focused on the future of the mobile wireless industry, was described in our 2011 study “The Mobile Traffic DELUGE.”

In the DELUGE study we showed the following diagram to illustrate the relationship that is emerging between the giant wireless carriers (i.e., AT&T and Verizon) and the device/apps providers, key members of what we refer to as the “Web Gang” (currently led by Apple, Google, Microsoft, Amazon, Facebook). In this relationship the influence of the once totally-dominant carriers is shrinking significantly.

Device Makers & Apps Providers Shrink Power of Carriers

We note that the Web Gang members are highly competitive with each other and may each be seeking to create dominant private ecosystems within their areas of expertise. Nonetheless they have fairly consistent objectives with respect to the Mobile Giants. To encapsulate the differences between the two sides – the Web Gang historically has pushed inexorably for the constant expansion of information markets into every possible facet of life; the history of the carrier industry by contrast is one of “managing to scarcity,” i.e., if there is strong demand, curb it by high prices.

In the long term, the scorecard for this struggle comes down to the issue of Value Creation. Here the carriers are vastly over-matched. To illustrate this, in our 2011 Deluge study we showed the following comparison of the growth in equity value, over ten years for a small sample of the carriers’ dedicated opponents – Google, Apple, Facebook, Amazon, eBay – versus AT&T and Verizon:

10-Year Equity Value Creation: Mobile Carriers vs. Growth Companies 

Companies 10-Yr. Equity Appreciation Including Dividends
Carriers – AT&T, VZ ($163 Billion) ~$ 0
Device/Apps – AAPL, GOOG, AMAZ, eBay, Facebook $650 Billion $650 Billion

We now view the Power Structure in the mobile communications and computing space as being influenced by two new key elements. The following diagram shows the underlying, intensifying, ongoing battle between the Gang and the Mobile Giants. Overhanging these two opposing parties are the other two key elements: a) the coming Mobile Traffic DELUGE and b) the Mobile Cloud(s).

The lower level of the diagram shows the Web Gang attacking the Carriers sphere of influence, which is steadily shrinking under this attack. The upper level shows the incipient Demand DELUGE and the Mobile Cloud also impinging on the future of the Carriers.

The lower level of the diagram shows the Web Gang attacking the Carriers sphere of influence, which is steadily shrinking under this attack. The upper level shows the incipient Demand DELUGE and the Mobile Cloud also impinging on the future of the Carriers.

We believe that these two transcendant forces – the Demand Deluge and the Mobile Cloud – are going to re-shape the mobile industry over the next five-to-ten years.