I write this both as a consumer and as a VC: Enough with the cell carriers’ games, we need a Carterfone decision. We need to connect what we want to today’s and, even more, to tomorrow’s wireless networks. Carriers abuse the airwaves We The People licensed to them. Or, perhaps more to the point, our elected representatives, instead of protecting our interests, let carriers pick our pockets and strangle innovation. Speaking of Change We Can Believe In, transparency in government and respect for the citizen’s hard-earned and vanishing buck, how about the Obama administration getting carriers to open their wireless networks the way landlines are? How about me, having the freedom to connect what I want and run whatever applications I want – as long as I respect rules similar to the ones for ordinary telephones, modems and fax machines?
Let’s start with the Carterfone decision. Once upon a time, the US telephone company, AT&T a.k.a. Ma Bell, told subscribers they couldn’t connect “strange” equipment to it precious network. Everything had to be supplied by the phone company. Cutting to the chase, in 1868, the Federal Communications Commission (FCC) allowed the Carterfone company to connect its device to landlines. As a result, we’ve seen a huge variety of products emerge and, over the years, make an increasingly sophisticated, productive and fun use of landlines: cordless phones, answering machines, fax, old-style modems, broadband ones (DSL), alarm systems… Unfortunately, in June 1968, the FCC opposed what will later be Skype’s request to do the same for the wireless industry. This is a shame, this is yet another example of regulators being in an industry’s pocket — not Wall Street this time but telecom carriers. This bad FCC decision must be reversed by the new (acting) Chairman, Michael Copps.
Imagine a world where landline phone companies could decide what DSL modem you use (in practice they do; fortunately it doesn’t matter); what WiFi base station you connect (they don’t); what computer you use (they don’t, they might try with netbooks), what sites you browse, what content you play (they don’t, for the most part, see efforts to limit huge downloads).
Now, turn to the really personal computer, your smartphone and we’re back to the dark pre-Carterfone ages. The cell carrier decides what phones you will and won’t connect, with tiny exceptions at the edges. More important, you now have a wireless Internet connection but the carrier won’t let you use Skype, for example. Or they’ll try to force you to use their own music download service, or charge you unseemly amounts for messages that are free (included with you fixed-price subscription) on your PC.
Just try to parse, to understand what you can and can’t do with your wireless plan, scheme would be a better word. Why can’t it be either fixed per month, like our ISP, or variable according to use (time or megabytes), and no further restriction?
Taking a quick detour to the VC world, I once met Israeli mathematicians, ex-IDF (Israeli Defense Force) officers, they had devised complex algorithms to optimize the use of spy satellites, the optimization juggling requests from agencies and field commanders, daylight, satellite position and desired accuracy. Based on their experience, they felt they could next turn to a truly difficult challenge: optimizing cell phone plans for large businesses with hundreds if not thousands of wireless subscriptions. I’m not kidding. I didn’t invest because we, VC, want to have nothing to do with carriers. More on this later.
Back to the “why”, to the reasons for the unintelligible carrier schemes, there are official explanations. They boil down to: The plans are complicated because our business is complicated. Wireless networks are horribly complex and expensive to deploy and maintain, they’re fragile things. As a result, we must be careful not to overload them, otherwise they’d stop working – true to a limited extent; we can’t let anyone connect any device to our network just like that – untrue: cell phones are no longer so difficult to design and manufacture and strict rules do exist and work, manufacturers know them.
The real reason for the obfuscation is the need to make money. Nothing wrong with that, we don’t need more money-losing businesses to bail out. But, carriers object, customers don’t want to pay the “real” price for a handset, we have to subsidize it. True and untrue. Yes, some customers prefer “leasing” the handset as part of the monthly price. This leads to “free”, not always allowed by law, or almost-free, $9.99 or less, basic phones.
The problem with that is the opacity of the agreement, the customer doesn’t see (and, true, often doesn’t care to know) how much of the monthly fee is for the phone and how much for the service. Finding the real numbers isn’t as easy as comparing bundled rates, phone + service, to separate “naked” phone and service prices, at least in the US. Different Verizon stores, for example, will quote you different prices the same day, this because the manager has some degree of flexibility, depending upon your being a new or existing customer and/or your calling a “retention specialist” beforehand. Retention as in preventing a customer from going elsewhere, especially now that the law forces carriers to let you keep your number when you change suppliers.
Setting aside complexity, let’s ask ourselves why there is no Verizon iPhone? The answer is simple: Steve Jobs wanted the iPhone to be an Apple device, not a carrier device, no branding, no icons on the screen, no bundled navigation or music or ringtone or any other gimmick; he also wanted money flowing back to Apple on top of the device price. Verizon was horrified. What do these guys know about phones, who does this Jobs character think he is? We know what happened, AT&T decided to take the pill, made “uncarrierlike” concessions and stole Verizon customers as a result. The Valley scuttlebutt is AT&T isn’t too happy with the arrangement, they allegedly feel “cheated” of their usual control over the supplier, Apple, and their flock, customers. We’ll see if, when, how and with whom my tongue-in-cheek prediction regarding the end of AT&T’s (in the US) exclusivity comes to pass.
Of course, Verizon is making noises about opening its network. In March 2008, it launched a big media offensive, see details here “Any App, Any Device” was the politically correct motto. Since then, nothing.
Turning to venture investing, this chokehold carriers exert on the industry is causing many young companies to go unfunded. Last week, for example, I saw a company that renounced making its own version of an Android phone because they became convinced carriers wouldn’t want it. Why? Too inimical to the carriers’ interest. You see, users would bypass all the “value-added” (read bill-padding) features and services provided by the carrier, the phone and its OS would treat the wireless carrier as a wireless ISP. No deal.
Instead, the company now tries to co-opt a handset manufacturer currently in the carriers’ good graces so its enhanced Android implementation gets adopted. Unfortunately, Android being free, an enhanced Android won’t get much revenue. So, the company has to come up with an additional business model: Web services for their smartphone. Nice ones, I saw the demo. Unfortunately, the carrier’s consent can’t be presumed, nor how much revenue they’ll share. This isn’t a good way to foster innovation, or to enhance the daily life of users. In the past six years, I have seen more than fifty small companies trying to break into cell phone hardware and software markets, from payment systems to games, music, advertising, dating… In every instance, the big question mark, the big obstacle was one similar companies don’t find on the “wired” Web: carriers. This has to stop. We can thank Steve Jobs, once again, for showing “it” can be done, that the carrier’s chokehold can be broken. Think for a moment of the diversity, of “Any Device, Any App” happening with cell phones, smartphones, netbooks perhaps, tablets I hope and objects and uses I can’t think of.
Carriers will say, as a telecom exec objected 15 years ago, they can’t become “dumb pipes”, they need the “added-value services” revenue otherwise they won’t be able to stay viable and build the next generation (4G, LTE or Wimax networks. Let’s not fall for those sob stories, these are the same companies that, without much trouble, found the billions to buy spectrum or each other.
We’re in a deep crisis, innovation is an important part of the solution, of rebooting the economy. Carriers need to get out of the way, our servants in Congress and in the Executive need to remove the obstacles carriers continue to put up.
(This is a US-oriented column. A few networks outside of the US are more open, barely, they’re not yet at the Any Device/Any App stage.) — JLG