[ the shifting world ]
December 2007
By Tom Wheeler
The tectonic plates are shifting. Wireless carriers and handset suppliers are changing their long-standing relationship with consumers as well as with each other.
For the first decade of wireless if you asked a consumer the name of their carrier the answer was likely to be “Motorola,” the name they saw on their handset. When new entrants bought spectrum in the mid-1990s, competition raged and the focus shifted to carriers and their pricing plans. Now that networks are approaching functional equivalency it appears as though things may be shifting again with the handset reasserting its dominance.
First there was the iPhone; a revolution in which a carrier permitted a handset developer to dictate the functionality of the device and take a piece of revenue in the process. Previously, it was the carrier who delivered massive dictionary-sized handset specifications to the manufacturer and would permit nothing else. Steve Jobs (News - Alert) ended that.
Then came Nokia to upset the status quo yet again. Their share of the U.S. mobile phone market having fallen from 33 percent in 2002 to 10 percent today provided a “why not?” opening to change the rules. It looks like Nokia is sticking a finger in the eye of its carrier customers by announcing Web-based phones and services that leap the carriers’ walled garden — but clearly they see a change in the market dynamic. Channeling Apple’s retail outlets, Nokia is even selling these devices directly to consumers instead of just through carriers.
Then comes the long-promised “Google Phone,” actually an operating system with API’s named “Android.” One must ask, “Why does the world need another mobile OS?” The answer would seem to be that Google is the world and it needs the OS as a platform for its next steps in the wireless space. Trojan horse anyone?
The latest — and perhaps largest — tectonic shift came from Verizon (News - Alert). Their announcement to open their network to any device and any service that meets performance criteria is a nuclear blast to the walled garden.
What’s going on here? The Federal Communications Commission (FCC) has been playing around with various ideas to change wireless industry practices, but the industry (in all its parts) seems to be beating them to the punch. Is the vision of a coming struggle with the handset suppliers at the root of changes in carriers’ relations with consumers? Just look at the carrier news that preceded the Verizon announcement: AT&T (News - Alert), Verizon and other major carriers ended a long-time consumer gripe and now prorate the fees charged when a subscriber cancels service; and Sprint announced that it will end another gripe and unlock phones so that a departing subscriber can use their device on another CDMA carrier. Could these changes reflect recognition that these days it is the device, not the network that rules?
The economic model that has driven the wireless industry since the early 1980s just might be going in for a quarter-century tune up.
Recently I heard a senior executive from a major wireless carrier ask, “Why is it that the Net guys get into the carriers’ business rather than vice versa?” The answer, of course, is “because they can, and because carriers can’t.”
The Internet folks have already co-opted the wired telecom business. Next, they believe, their consumer-driven innovation will allow them to do the same thing to wireless. You have to give them credit for the pace of their innovation. Whereas carriers’ processes to implement something new are legendarily long, Net-centric companies bring forth one new initiative after another, throwing them out to see which one will stick and change the market.
The albatross around the wireless carriers’ neck is their networks. Carriers define themselves by building networks. The Internet folks define themselves by building services.
So why is it that carriers need to continue to play by these 25-year-old rules? What is it that carriers can do to change the game? Over the next several months this space will try and lay out some thoughts on the 21st century tune-up of the wireless business.
Tom Wheeler is a managing director at Core Capital Partners, a venture capital firm specializing in early stage technology-based companies. He has been CEO of both the Cellular Telecommunications & Internet Association (CTIA) and National Cable Television Association.