Unfettered Wireless

22 Aug ’05

Tom Evslin recently commented on a Walt Mossberg article (paid sub. required) on the lock US telcos have on the wireless devices they permit on their networks (which is also the case in Canada) and the chilling effect that has on innovation. The gist of Mossberg’s article:

However, I believe that, in the name of valid business goals, the U.S. carriers are exercising far too much control over the flow of new technologies into users’ hands. In an ideal world, any tech company with a new cellphone, or with software to run on cellphones, should be able to sell it directly to users. These customers would then separately buy plans from the cellphone companies allowing those devices to work on the networks.

But that isn’t how it works. In most cases, manufacturers must get the network operators’ approval to sell hardware that runs on their networks, and carriers don’t allow downloading of software onto phones unless they supply it themselves. I once saw a sign at the offices of a big cellphone carrier that said, “It isn’t a phone until ‘Harry’ says it’s a phone.” But why should it be up to Harry (a real carrier employee whose name I have changed)? Why shouldn’t the market decide whether a device is a good phone?

Cellphone carriers say one reason they keep tight control over what phones run on their networks is to protect the networks from harm and assure service quality for their subscribers.

But we’ve heard that before, and it wasn’t true then. Until the 1970s, when the government forced open the market, the old AT&T phone monopoly refused to let consumers buy phones and plug them into their home phone lines. You could only rent phones, and they had to be models made by an AT&T subsidiary. AT&T said the restriction protected the quality of the wired phone network. But, lo and behold, when the ban was lifted the phone network was just fine, even though consumers were plugging in millions of less expensive, more innovative phones.

From Evslin’s post:

In his Wall Street Journal column yesterday (subscription required), Walt Mossberg wrote that the veto power US wireless carriers have over which phones work on their networks has a chilling effect on innovation. Manufacturers of wireless phones need to sell the various carriers on supporting their new phones and even new versions of software for these phones before the phones or software can be deployed to work with US wireless networks.

The result of this veto power is that we do not have nearly the choice in cellphone technology we would have if the market were unfettered. If you use Verizon Wireless, you can get only phones supported by Verizon Wireless. Mossberg reports that it wasn’t until after thousands of customers petitioned them to do so that Verizon Wireless agreed to support the Treo smart phone on its network. Mossberg also cites reports that unnamed carriers are refusing to support a cellphone designed by Apple and Motorola which would be able to download and play iTunes, perhaps because the carriers want to sell music themselves.

We were recently in Hong Kong where carriers do NOT have veto power over what phones are offered or what software is on the phones and saw stunning confirmation of Mossberg’s thesis. Most wireless phones there are sold by electronics retailers rather than by wireless carriers. The wireless network is chosen independently by the user when he or she purchases a SIM card for the phone. The SIM card is a method for prepaying for cellular service, for choosing a network, and for identifying the phone to the network. In other words, the carrier is linked to the SIM card and not to the phone itself. You can even move the same SIM from phone to phone. People who have multiple phones for multiple applications – a car phone, a belt phone, a house phone, a fashion phone etc. – do move the SIM so that all the phones have the same number for incoming calls and call out using the same pool of minutes.

This restricts choice and innovation. And of course, the devices are much more expensive than they should be. It’s a ridiculously anti-competitive system, and the time for unbundling is long overdue.

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