Headline |
|
Are Carriers Dismantling The Case For Spectrum Scarcity?
Trying to force music and other non-timely content over cellular networks is wasteful
National wireless carriers pay dearly for wireless spectrum licenses, lobby the FCC endlessly for access to more swaths of spectrum, and generally complain about the "unfair" distribution of frequencies in the USA that leaves one of the most vibrant, financially important industries using the airwaves (cellular communications) with a relatively small swath of spectrum compared to, say, TV. Yet while they argue vehemently that they are being shoehorned into too-small radio bands, the same carriers are also making sweeping efforts to abuse, mis-use, and over-use those same bands with network traffic that doesn't even need to be there.
I'm referring to the 'walled garden' phenomenon where wireless carriers constantly try to contain and control all the media and content that flows to and from a customer's mobile phone. The walled garden allows the carrier to set up a toll booth at the gate to the garden, and charge customers for every data packet that goes in our out of the handset. The walled garden offers control, and with control comes the ability to charge. In the short-term, at least, the walled-garden has proven fairly lucrative: for example Apple's iTunes music store values a full MP3 song at $0.99 while a 20 second, midi ringtone version of the same song costs up to $3.00 on your mobile phone. With that kind of profit margin, carriers are fighting to keep a corner on the ringtone, photos, and other data service markets. But to have a role in these markets, carriers must stubbornly keep all of that data traveling over their network, where they have installed the toll-booth.
Meanwhile, newish technologies like Bluetooth, SD cards, desktop synchronization cradles and such have enabled content to travel to mobile phones through a path other than the one controlled by the wireless carrier. In fact, usually that other path is more efficient, and basically free. Because of this, carriers have been reluctant to offer Bluetooth functionality, Wi-Fi, infrared, SD slots, and sync cables with their phones. The fear is that customers will transfer photos, ringtones, voice memos, their contact list, music, video, their e-mail, and even their voice over a local PC-to-Phone connection instead of over the cellular network. This local transfer doesn't cross the tollbooth and would prevent the carriers from assessing their tariff. As such, carriers are actively fighting against opening their devices to local connections. For example, Verizon's disablement of full Bluetooth functionality on the Bluetooth phones it offers (VZW limits Bluetooth to headset use only). Their idea is to force customers to use the expensive, fee-based wireless network. Isn't there something ridiculous about sitting at your desk, and moving music from the PC on your desk to the phone on your desk over an expensive, constrained cellular network. Sure there is, but that's the only way the carriers can bill for it, so that's how they want it.
Carriers are doing the telecom equivalent of a taxi driver who drives you through Connecticut and Jersey on a ride from LaGuardia to Manhattan. It's not the most efficient route, it doesn't wisely allocate scarce resources, and it doesn't help the customer, but it does generate more revenue for the guy running the meter.
This relates to the recent, late launch of the Motorola ROKR E1 phone, made in partnership with Apple's iTunes. The phone was highly anticipated since its announcement in July 2004. Motorola hinted that the phone would launch at the 3GSM conference in February, then CeBIT, then CTIA, etc. But it wasn't announced. Instead, the phone languished in Motorola development for months because Motorola and Apple could not find a carrier willing to launch a phone that could synchronize music over a USB cable instead of over their cellular networks. That's because most cellular carriers are salivating at the prospect of selling music and other media over their networks, in fact competing with iTunes. They believe they could thus charge for the song, but also impose a surcharge because of the network traffic the download would require. Cingular finally agreed to offer the phone, but the so-called "iTunes phone" does have limitations: A completely arbitrary maximum of 100 songs has been programmed into the iTunes player on the phone, so that no matter how big a memory card you insert, the iTunes player can only recognize 100 songs. The ROKR E1, however, does have another non-iTunes Java music player built-in, which has no limit on the number of songs, but is not linked to your iTunes music collection. I suspect that, in time, we will learn that this player is fully compatible with a Cingular music store. The choices will be: get 100 songs on your phone from Apple, or as many as you like from Cingular. (n.b. I've read that the average iPod is used to store about 375 songs.) So while the idea of an unrestricted iPod/telephone is great, we shouldn't expect to see one offered by the mobile phone carriers any time soon. They will not subsidize and deliver a device that drives traffic (music files) off of their cellular networks and over USB instead.
But isn't this a contradiction of where this article started? Firstly, carriers complain that there is not enough spectrum, and then they fight to carry heavy content like music and videos over that same limited spectrum when it is more efficiently uploaded over a wire from your PC. It has to make you wonder…is the spectrum scarce or not? The answer is: yes, the spectrum is scarce, and the way carriers are trying to abuse it is wasteful, unreasonable, and inefficient.
On the upside, it seems to me that despite short-term blips in wasteful directions, there is a long-term trend towards reason and efficiency. You can hold back the tide for a while, but eventually the dyke breaks. Carriers will not be able to prevent Bluetooth, Wi-Fi, and local transfers into and out of phones, so the correct telco strategy would be to begin long-term planning on ways to make money in an era of open access to handsets. It's not impossible to do, but it requires starting to think creatively NOW, instead of thinking how to prop up the walls around the garden. Meanwhile, there will be an opportunity for some carrier or MVNO to break the ranks, and be the carrier that gives customers what they want, over whichever connection is most efficient and cost-effective.
|
About Us
kertongroup.com
+1-408-935-8702 |
|
The Kerton Group provides insightful, expert consulting in wireless telecommunications to companies across the entire value chain and around the world. Our analysts' deep, vertical knowledge of the wireless industry delivers a complete understanding of the technology, market, and business issues our clients face today and in the future. The Kerton Group's expertise is internationally recognized in widely distributed industry reports, articles, newsletters, and frequent quotes in national press and industry publications. Our services include strategy, business development, research, marketing, product development, due diligence and technology transfer services. We also run the SPIF, a private investment forum for telecom investors. Our projects, clients and publications are detailed online: www.kertongroup.com.
|
