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June 03, 2005

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.

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