Unfettered Wireless

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.

There is no carrier-imposed constraint on the ability of wireless phone manufacturers to innovate for the Hong Kong market.  So long as they build a standard SIM card interface into the phone and comply with radio regulatory requirements, they can build every imaginable type of device without saying “Mother, may I?” to the carriers.  The result is just what Mossberg predicts would happen here if innovation were not stifled – a proliferation of devices from the outrageous to the incredibly useful depending on your point of view.  Music downloading to cellphones, video downloading, advanced gaming, many flavors of email and PIM integration – all are available in a bewildering but intriguing number of combinations.

Mossberg quotes the US carriers as saying they have to control what phones do in order to protect their networks.  He remembers as I do that the same argument was used forty years ago to prohibit any device not manufactured by AT&T from being attached directly to the phone network. After the Carterphone Decision in 1968, the connection of devices which met certain easy standards was allowed.  The result was an explosion in telephone device innovation including answering machines, modems, and usable fax machines not to mention phones which sold for the rent AT&T used to charge for just a couple of months’ use of its plain black instrument.

Clearly SIM card technology already provides all the isolation needed to protect networks. It also makes it easy to switch carriers which is probably one reason that this technology has not been supported in the US even though it is used throughout Europe and in most of Asia.

The biggest fear for wireless carriers if they lose control, I believe, is that a generation of phone will appear which always use VoIP whether in a WiFi hotspot or not. This means the data channel would be used instead of the voice channel even for a “phone call”. The implications of this channel choice are far more than technical. Just as with landline VoIP, distance is irrelevant once a call reached the Internet. When this switchover happens (and it will happen on wireless phones just as it is happening on landlines) both outrageous international calling and roaming charges will be gone forever. Good for users, bad for carriers.

Mossberg quotes Steve Jobs as saying that he is wary of producing an Apple cellphone because he would have to offer it through the “four orifices” – the major US cellular carriers – rather than being able to sell it directly to the public. We here in the US would have a far wider choice in wireless phone technology if wireless carriers did not have a veto over what is deployed on their networks.

Comments

[kurt wendelken]

I purchased a prepaid TMobile phone and can remove my SIM card and place it in any GSM Phone, retaining my number and my minutes. Consumers need to modify cell phone companies' behavior by voting with their feet.

[otmar]

Here in Austria the only way mobile carriers can influence the choice of handsets in use by their customers is to subsidize them.

So typically you get a free (simple) phone as sign-up bonus, or a heavy discount on luxurary phones. These phones are SIM-locked and will accept only SIMs from this specific provider. (Which made unlocking them a business :-)

[maobi]

"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."

sorry for the second post.

This already happens today. The new Lexus off the line provides you with the ability to run the car phone off your cellphones SIM if it has blue tooth. So instead of two accounts, is one account.

SIMs are not only for pre-paid. They just identify a subscriber and can be used for post paid markets too.

Part of the GSM standard specifies that the subscribers data is stored in the SIM. This also means that your address book moves with you when you switch phones (my newer phone stores in in the phone/PDA since the data is getting larger).

SIMs are 256K these days (used to be 32K) and that's a lot of data. Most new GSM phones also come with a SD card to augment the SIM storage (probably an extension of the data anywhere philosophy).

[Maobi]

It's not just Hong Kong

The beauty of GSM and the SIM (Sub ID Module) is that it allows a subscriber to go from any GSM cloud to any GSM cloud and stick in a new SIM with a reasonable expectation of it working.

The only caveat used to be that phones worked on any of the three GSM frequency bands but not all. However today, most phones work on all three bands.

Which is why you can take a phone to many countries (give or take exorbitant "roaming" charges)except most of the US.

Oh, the sender pays/ recipient does not pay model for texting also explains why SMS has exploded in the rest of the world....

[Jim Courtney]

SIM cards are associated with networks using GSM technology. Here in Canada Rogers is the sole GSM-based network (having recently acquired Microcell, the other Canadian GSM-based network). I am aware of several acquaintances who have deployed non-Rogers supplied phones and connect via a SIM card. Not a purchase path promoted by Rogers directly but there are a few independent dealers who offer this option. Rogers specifically does state on their website FAQ's that if you wish to activate a SIM card for non-Rogers hardware you need to set up an account and pay a $25 fee for a Rogers SIM card.

[Bob Sargent]

Great post; agree completely.

Note that the Mossberg column is a available here: http://ptech.wsj.com/ptech.html

[Nick]

It would be a mistake in the long run from preventing the carriers from controlling their networks. The largest portion of innovation in this space was financed by them; building the infrastructure that allows these neat, follow-on innovations cost billions of dollars that need to be recouped.
http://lawlersrule.blogspot.com/2005/06/innovation-in-wireless-space.html

[Michael Parekh]

Curious if VOIP over cell phones has started or taking off in Hong Kong, given it's SIM card freedom from carrier control...

[Tom O'Neill]

Great post Tom. The root of this problem is not the cariers having veto power (shouldn't every company decide how to use their resources?), but rather the government-sponsored monopoly privileges they wield. If there were true competition (i.e., freedom) in wireless and other communications mediums, then opportunistic entrepreneurs would be happy to provide consumers the choices they are vociferously demanding. As it stands, they are prevented from doing so by force of law and customers are forced to eat the resulting gruel.

[Sally]

I fully agree.

What are our next steps? Will the industry need to be required by our government to open, or will one of the 'orifaces' see an opportunity and the others be required to also adopt an open strategy?