Ralf HallerRalf Haller February 21, 2010

Is Europe becoming the “flyover states” in ICT?

This question is something I have been asking myself for quite a while, and a recent article in The Guardian writing from the Mobile World Congress in Barcelona reminded me of my own thoughts. Author Rick Wray said:

“Europe has become the ‘flyover states’ of the mobile industry,” says a ­senior European executive, referring to the disparaging term used to describe middle America by high-powered business travellers shuttling between California and New York.

“All the service innovation is being done on the west coast of the US, and all the manufacturing and technical innovation is being done in the Far East. All we’re doing is selling other people’s products.”

Quite frankly, it is not even a flyover state anymore since the traffic goes from the US west coast westwards to Asia. No need to fly across Europe. Rick Wray’s article is worth reading and I concur with his views but would like to add a bit more depth to it and look at some of the reasons, as well as what could be done.

The key reason is that IT, Internet and software innovations, a domain of the US for a long time now, is becoming the ruling power in the mobile landscape. The pure infrastructure business has been targeted by the Chinese government for more than 10 years now, supporting first Huawei and then ZTE, among a few others not yet widely known outside of China such as Datang. These companies profit heavily from government support and the enormous market growth in China, but are now also entering international markets everywhere.

Entirely busy with fighting these Chinese vendors, European infrastructure vendors focused on keeping their customers – the mobile operators – happy by providing more and more services to them (up to outsourcing the whole operation) but ignored the most powerful force, the end users. And that is what Google and Apple are after, the masses of end users, who will in the end decide what is successful. Some of the players have already dropped the ball, such as Siemens, first selling off its mobile phone business and then getting rid of its infrastructure business as well by forming a NOKIA-led joint venture. Now it seems they are trying to become a Chinese-style company shutting down one location after the other. But while cost cutting is inevitable for them, the real thing they should be doing is focusing on cloud computing, and getting extensively into innovative mobile service offerings that they then run for the operators.

They have one advantage that they could play nicely and that is the good long-term relationships with the mobile operators, who are facing similar pressures from the same US companies. The operators also own the networks – hundreds of billions $ worth of assets – and the clients using them. Something a company like Google would love to own, and use to augment their service offering. One note here: Google has the backend infrastructure already (data centers) but not the access networks – yet (for background info on Google’s latest FTTH project read here). I think there is also one other asset that I would play out: Google is seen as a threat by governments and increasingly individuals who simply don’t trust them. Operators – with their local ties to end users might have had customer support issues here and there, but at the least no-one thinks of them as a privacy threat; so this trust base could be used offering cloud computing services.

Mobile operators and the infrastructure vendors need to explore new business models and they also need to find a way to handle advertisements. The biggest threat I see for them though is the speed with which this transformation is happening. And speed has not been something they have been able to handle so far, mostly because their management do not understand the new challenges, threats and opportunities and what to do about them. Most importantly, they need to hire people for these positions who understand the IT and internet business and are not simply large company operational experts.

Now the world is growing together and even if the US president says in his speeches that America has to lead, I think big companies should not be seen as US-, Europe- or Asia-based organizations but as worldwide operating companies since none can survive by only serving parts of the world.