“You don’t know how hard I found it, signing the order to terminate your life.” Governor Tarkin, Star Wars (1977).
With all of the emphasis on technology innovation in the net neutrality NPRM, it hardly mentions innovation in business models. Perhaps business model innovation is simply underappreciated in an era in which shiny new technologies are introduced so frequently. Knowledge@Wharton has said that “[o]ne of the most common misconceptions is that innovation is primarily, if not exclusively, about changing technology.” As the FCC recognized in its Wireless Innovation NOI, however, companies innovate with their business models as well as with their products and services, and use business model innovation (“BMI”) to achieve and sustain competitive advantage. Indeed, a majority of executives now believe that BMI is even more important to creating new and differentiated value than product or service innovation. According to Samuel Palmisano, “with product [or service] innovation, it’s a certainty that your competition is shortly going to copy what you have done. . . . With business-model innovation, though, if you can come up with a unique way of doing things, it’s much tougher to react to.” Technology alone is not the fundamental engine of innovation.
Technology and business model innovation typically occur together. This can be seen in the mobile wireless broadband market, where the technological transition to next generation mobile wireless broadband is driving tremendous business model innovation and experimentation. As a result, mobile wireless broadband platform providers are experimenting with many different business models as they try to determine how to best leverage new mobile wireless broadband technologies and differentiate their services from competitors. The (non-exhaustive) mobile wireless broadband business models outlined below demonstrate the diversity in innovative business approaches to this market.
- Clearwire is using an all-IP WiMAX platform to deliver unlimited next generation broadband services at retail and through MVNO relationships with Sprint Nextel, Comcast, and Time Warner, and plans to cover 120 million people in 2010. Rather than invest directly in non-network services, Clearwire has launched a “WiMAX Innovation Network” in Silicon Valley to provider “developers with a live test environment in which to build broadband services.” Clearwire’s focus is on driving traffic through a network that is open to all parties in terms of devices and applications rather than through partnerships with third-party providers. This is sometimes known as the “bitpipe” model.
- Sprint Nextel is combining its existing 3G EV-DO mobile broadband network with Clearwire’s WiMAX network (through its MVNO relationship) using dual-mode devices. Sprint Nextel has also recently outsourced day-to-day services, provisioning, and maintenance for the Sprint Nextel-owned CDMA, iDEN and wireline networks. With this model, Sprint Nextel no longer manages day-to-day operations of any network, and is capable of both offering a “bitpipe” and leveraging its 3G platform through third-party partnerships.
- AT&T Wireless expects to complete deployment of its high-speed packet access 7.2 technology to 90% of its footprint in 2011 (when it will also begin deploying LTE), along with additional backhaul connections and antenna sites. AT&T is also providing widespread access to its Wi-Fi network, which consists of more than 20,000 hot spots. AT&T is thus combining multiple technologies into a broadband platform that enables the delivery of integrated third-party services (e.g., the iPhone).
- Verizon Wireless plans to deploy next-generation mobile broadband based on long-term evolution technology in up to 30 markets in 2010 and to its entire footprint by 2013. Verizon has implemented an Open Development Initiative that will allow any device that meets Verizon’s specifications to connect to the Verizon LTE network. This model appears similar to Sprint Nextel’s hybrid approach, although it does not rely on an MVNO relationship to provide the bitpipe.
Technology alone is not the fundamental engine of innovation.
The innovative approaches to mobile broadband business models discussed above are a predictable result of technological change and competition in the mobile broadband platform market. To gain competitive advantage, network operators will continue to maximize business model innovation by pursuing new technologies, third-party partnerships, and service offerings.
The proposed net neutrality rules would end business model innovation and force all mobile wireless broadband service providers to use the same business model – the proverbial “dumb pipe”. The result would be less innovation and less competition, rather than more.
“I’m surprised that you had the courage to take the responsibility yourself.” Princess Leia, Star Wars (1977).