Apple Fails to Reinvent Telecommunications Industry – Too Bad

According to the AP Story carried in the NY Times Online, Steve Jobs claims that iPhone will “reinvent” the telecommunications sector.  Wish it were so but it ain’t!

The design of the phone – no hard buttons, all touch on screen, sounds like everything we expect from Steve and from Apple: it’s all about the GUI and that part’ll be fun.  But the business relationship is as old school as it can get: exclusive US distributorship through Cingular (which will soon be exclusively owned by at&t).

Come to think of it, iPod and iTunes aren’t very open models either.

The telecommunications sector (or at least the mobile part of it) WOULD have been reinvented if Apple said that the WiFi connection on the phone could be used to make voice calls without going through the Cingular network.  But they didn’t.

The telecommunications sector (or at least the mobile part of it) WOULD have been reinvented if Apple had announced a phone which is network agnostic and  let the carriers rush to announce their support for it.  But they didn’t.

Actually, of course, all mobile phone are born network agnostic.  Then the manufacturers of the phones make deals to lock them on to one network or the other so that they can be cobranded and distributed by the network operators. 

As you know, the network operators subsidize the cost of the phones to us endusers in order to get us to sign long term contracts with them.  So it is very dangerous for a Motorola or a Nokia to offend the networks by marketing around them and, in the short term, would make it harder for these manufacturers to launch a new device.

In order to keep its iPod momentum, Apple needed to make sure that, if phones become the music and video storage device of the future, these phones are Apple phones.  Apple had to introduce a phone.  Apple has to succeed with the phone.  Apple has no stake in the existing phone business.  Apparently Apple, unlike Robert Frost, decided not to take the road less traveled.  Apple will market is phone through network affiliation like all the other manufacturers.  Exclusive distribution, in fact.

Apple did NOT reinvent to telecommunications sector even though there is a good chance that it could have done so.  Too bad.

Short term this is a good tactic for Apple because it protects the iPod franchise for a while.  Long term I think it’s terrible strategy.  It invites an endrun from someone who IS willing to reinvent the industry or simply allies themselves with a Cingular competitor.

Let’s do a thought experiment:  There are lots of users of Verizon Wireless in the US.  Many of them are not going to be willing to switch to Cingular because Verizon really does have better coverage in many places.  But they can’t get a Verizon iPhone according to this announcement.  If they want music and video integrated on their phone, they WON’T be able to get it on Apple device.  So now there’s a huge opportunity for a competitor in the entertainment space that Apple currently owns.

Remember how wonderful the Mac GUI was?  But it only ran on machines from Apple.  Remember how crappy Windows was at first?  But it ran on machines from everyone and their brother.  And now there’s Linux – even less restricted – running on anything that moves.  Tell me again why it makes sense to have a phone that runs only on a service from at&t (in the US).

Update: More thought on iPhone including lots of good comments from readers  in:

Apple’s iPhone Strategy -  Machiavellian or DOA? – Readers Comment

Steve Jobs and the Orifice

Comments

[Jeff]

David G there will be no support for VOIP on the AT&T wireless network, you are required to use your minutes. If you hack the phone (according to my read) your contract is terminated and you are charged the balance of your account.

[David G]

Tom, you are wrong!

The communications revolution is VOIP + WiFi (/WiMax) + Skype. It's about any data anywhere. It's about e-mail everywhere. The revolution is (technically) already here and now someone has finally built a device for it -- and it's a device that not only promises no-holds-barred communications but also seemlessly transitions users from the status quo to the new world order. It's no surprise that Verizon turned tail and ran back into their walled garden as soon as they saw the wifi logo on the iPhone. Portable music and video on a phone is NOT a revolution. Mobile users have repeatedly eschewed mobile content - it's a dead horse - ipod owns portable media - iphone is about portable communications.

Yes, more innovation is needed in mobile broadband products but that's not apple's gig.

[Jordan]

EnterprisePainPoints agrees with the backwards step of Cingular's Edge and exclusive distribution.

See this article on Apple's Biggest Mistake.

http://www.enterprisepainpoints.com/2007/01/10/iphones-biggest-flaw-probably-too-late-to-correct/

[Kempton]

Tom, thanks for an insightful discussion here.

[Tristan Krautz]

Apple is experimenting in the phone business, hence, decided to partner with some one who is already in the game. They have set their target at 1 per cent of the mobile phone market in 2008. It is clear that Apple are taking a much longer view of the market than the one taken in this post. Apple wants to learn about the market before they go and start disrupting it.

[ss]

A totally useless writeup
It's always easy to come out with bitches.
What does Apple know about Telecom ? Nada .. nothing, so how could it transform it?
wifi .. get real, wifi is not a service and can never be for real use.

The exclusive part is just a marketing thing for starters .. they will open it up for other carriers.

Apple doesn't want to (can't) transform Telcom .. it only wants to protect it's ipod franchise. With cell phone eating into the market .. it had to have sometimet to compete, otherwise ipod would have become a dead-pod.

[GS]

I appreciate the good discussion here about what I think is atleast an interesting statement by Apple, Inc. I can fully admit to being a fan boy, but it is a more mature fanboy than my Linux geek past. My Powerbook just works and I like it so much I can put up with being an Apple customer (standard hardware breakdowns that get fixed, evil Apple lawyers, etc).

With that said I think Marcelo makes quite a good point about the CDMA carriers. I will say I was a bit shocked about the iPhone being Cingular only based on the fast the ROKR wasn't a great success and showed a lot of apathy on both Apple and Cingular's part. The GSM nature of the device doesn't so much surprise me. GSM gives Apple a chance to expand easily into Europe and Asia (with the notable exception of Korea I think). I really hope HSPDA comes to pass because I am always tempted by Sprint and Verizon's speedyness, but the speed always seems to come with a hitch like a crippled bluetooth or crazy DUN rules. Also Verizon is non-existent in my market.

I was quite looking forward to the iPhone and while I am a tad disappointed, I think it is a better foray into a new market than the 1st Gen iPod. I wish it cost less, but when I look at the offerings across the board, they all seem a little pricey (excluding BlackBerry's) and they just don't have that iPod feel. I want something nice instead of a BlackBerry, but Windows Mobile just doesn't do it for me and I am willing to pay a little more for what I get every day on my Mac. I think in 2 years when the contract is up with Cingular, Apple will be putting out a very stellar phone that might even come in a CDMA version.

Never before have I seen the media in such a buzz about a product. I can't even escape the buzz on NPR. The iPod wasn't the darling it has become until the 2nd or 3rd generation came out and there is a hell of a lot more scrutiny on this product than any other in the past. Give it time, but I doubt we will see the iPhone flop like the Newton did.

[pwb]

Israel, excellent points. People forget that there's this nasty thing called "reality".

[Paul]

We've had some discussion here about the iPhone and and a more macro discussion of the future of telecom and digital music overall.

The iPhone looks good, and you want it to feel right...but it just doesn't. You're right, they had a shot to change it all, and only shot halfway.

Do they put out a buiness friendly iPhone in a year? Probably. But how much time do they have to differentiate themselves in this market?

And is Apple, iPod and iTunes missing what's happening at the youngest levels of the populous? Kids seem sick of iPods and iTunes. Sure, they have them...but they are ready for something that just lets them listen. They don't have our collector mentality for music...just give them the access and they are happy.

The phone may do well, but longer term...is Apple using forward thinking?

[Tom Evslin]

Patrizia:

The operators would have been better off if they listened to you. Their loss as well as yours.

[Tom Evslin]

Marcello:

I said phone are born NETWORK agnostic, not TECHNOLOGY agnostic. There's a difference although most successful handsets are built for all of the mobile technologies and the released in versions locked to various networks.

[Tom Evslin]

AP:

Thanks for the correction; my writer and English teacher parents would be shocked. It's fixed.

Tom

[Tom Evslin]

Lots of great comments here. Thanks. I've addressed some of them in a new post http://blog.tomevslin.com/2007/01/apples_iphone_s.html

[dd]

aswath, not sure where you get that idea. everything i've read said this is something totally new.

from the time.com article:

'Jobs demanded special treatment from his phone service partner, Cingular, and he got it. He even forced Cingular to re-engineer its infrastructure to handle the iPhone's unique voicemail scheme. "They broke all their typical process rules to make it happen," says Tony Fadell, who heads Apple's iPod division. "They were infected by this product, and they were like, we've gotta do this!"'

[Aswath]

dd:

I am not so sure that I agree that Apple just invented visual voice mail. What they call visual voice mail is nothing more than what others have called it as "voice mail as email". Cingular may not offer it currently, but as technology it is a standard fare. Apple has modified email user interface so it is a simple matter to retrieve the voice snippet in the email attachment.

[Bill Seitz]

There are some more open phones in the pipeline...

http://webseitz.fluxent.com/wiki/z2006-11-22-OpenCellPhonesComing

[dd]

"Actually, of course, all mobile phone are born network agnostic."

not if the phone network itself has to be upgraded to handle the phone. currently cingular is the only network that can handle visual voicemail because apple just invented it.

[Kris Tuttle]

I was totally baffled and upset but he Cingular twist yesterday. I couldn't believe it at first. Making this is a device you get in a Cingular/ATT store with a two year service contract? Crazy. I'm in the process of cancelling all such things thanks to broadband, SIP and all that Jazz. Why didn't Steve really "skate to where the puck is going to be" with respect to service providers and the Internet?

Certainly as a gizmo the iPhone looks like an amazing device every geek will lust after. Is that enough?

[AP]

"And now their’s Linux..." The word is "there". I can't trust the content of one's writing with multiple grammatical & typographical errors.

[Marcelo Lopez]

"Actually, of course, all mobile phone are born network agnostic. "

No they're not. Who sold you that steaming pile of dung. A phone platform usually goes through a development cycle for release on one technology, and set for future release on another. Sure, in THIS country you may see "exclusivity" deals that reinforce that, but that doesn't mean that there was always a plan to have a particular phone be agnostic in any way.

There are plenty of phones in the past where there have been CDMA or TDMA or GSM only designs. Get your facts straight.

Now, let's do a little experiment. There's a little phone like the Motorola Q, or that's only available on Verizon, but there are lots of people on TMobile that would love to have a phone with that sort of functionality, but can't. Why ? Oh, that's right, because it was originally, and specifically designed for initial release for CDMA networks which support EVDO. You are SOooo missing the point.

How do YOU know that Verizon didn't just take a pass on the iPhone ? Did that ever occur to you ? Or Sprint ? Maybe none of the CDMA carriers were ready for a phone like that. The CDMA carriers have been notorious about locking up their UI's to only what they want. Apple being Apple, I'm sure, was unbending on that respect, Apple controls the UI, maybe we'll tweak or customize this and that a little bit for you. But we, Apple, run the show. I'm sure that couldn't have gone over well with carriers that lock in their customers tighter than a bank vault.

[Aswath]

Sometime back there was a buzz about an open, Linux based phone (http://gizmodo.com/gadgets/smartphones/fics-linuxbased-smartphone-213016.php). That could be a hope. But a recent visit to the company's site (http://www.fic.com.tw/) did not turn up any reference to this device.

[Doug Mitchell]

This phone is simply the first gen Mac release. Apple evolved their PC's over time to become more attainable/usable and the same will happen w/the phone.

Until (if ever) the US will homogenize on cell standard, we're stuck with this kind of relationship between hardware and networks.

[gz]

Completely agree, Tom. I can't believe that Apple stopped being a computer company only to become a phone company...hopefully this is just step one and Apple has a good plan to get the iPhone out of the walled garden asap, but I wish they started that way.

[Patrizia Broghammer]

Nice and accurate post, as ever Tom.

In 1999 I proposed to a Polish small Telecom owner the idea to make a portable phone with integrated Mp3 player.
I thought young people would have liked to go around listening music on their phone.
The idea died, because in Europe when you have an idea they first ask you: Who are you?
And since I was nobody it WAS not a good idea.

Eight years have passed and Apple comes out with the same.
But mine would have been much cheaper and didn't need a telecom provider.

I have a very good idea about videos on a portable.
Something very special and feasable that would really be a revolution.
But I am still a nobody...
I want to see how long it will take before somebody thinks to do what I dream...

Regards to a wise and independent voice over IP (not in the sense of Telecom).

Patrizia

[Israel Alvarez]

Could Apple really have reinvented the wireless telecomm industry by jumping immediately to selling an unsubsidized iPhone for....how much would you guess? $800? Apple has a responsibility to stockholders greater than a dream of possibly rehabilitating the utterly dysfunctional wireless industry. Under your scenario, the iPhone would have been relegated to a tiny niche as a cool but ultimately irrelevant curiosity. Meanwhile, other phone manufacturers would integrate the iPhone featureset piecemeal and make buckets of money, while Apple doesn't.

There's nothing to prevent Apple from taking any number of steps you describe *after* they've made a decent chunk of money off the iPhone in partnership with Cingular and established a track record of success. Ask yourself this: say Apple had started selling music or movies through the iTunes store right off the bat, *before* the iPod had become a huge sales hit? How much would songs or movies on iTunes cost, given that Apple would have had no leverage with the RIAA or MPAA? Do you think you would be able to buy individual songs, or only buy albums? I think Apple understood this upfront, and that's why they sold iPods like hotcakes, *then* negotiated from a position of strength to provide content.

I think Apple understands that you only get one shot at doing things right, and that it requires doing things in a specific sequence. It seems pretty clear that Apple doesn't enter into entriely new markets halfway. They intend to dominate the cellphone market just as surely as they dominate the online music business, and their approach to it seems awfully similar to me: create a piece of hardware that everyone must have, innovate like hell, then build a content infrastructure for it once you've set the bar high enough that only you can reach it and seeded the market with thousands of your units.

The vagaries of the cellphone market as it currently exsits require that they pick a partner, but I'm not convinced they chose the most capable partner - just the most gullible. Remember the Motorola partnership for the first iTunes phone? Remember Apple's lack of interest in the product? If enough people complain about Cingular's service (and it's almost guaranteed they will, whether for poor service, high prices, or any number of other reasons) it gives Apple a plausible reason to open up to other carriers or create their own service, once they've proven to the providers that they have the hottest product anyone's ever seen, and consequently hold a huge bat with which to beat the wireless carriers. Just like they currently have a huge bat with which to beat the music and movie publishers.