Analysis The US mobile industry’s trade show CTIA in San Francisco closed in better spirits than for some time. More parties, higher spending and much more realistic expectations were much in evidence - so perhaps the hangover of the 1990s bubble has worn off. This Fall's gathering took place amidst the usual predictions that the wireless telcos are doomed, because they're debt-laden dinosaurs who don't understand how to do data. In fact the cellular carriers are in many cases debt-laden dinosaurs who don't understand how to do data. But it doesn't necessarily follow that they're doomed.
When half the world hasn't yet made a phone call, and when DSL will never reach many parts of the planet (think how long it took to reach Mytholmroyd), it's very much their game to lose. Whether it's a next-generation technology data-optimized like Flarion or WiMax, or a version of 3G, which is primarily optimized for voice, it doesn't really matter except to the equipment vendors. Intel has been hyping WiMax for most of this year - and has now invested in Clearwire Craig McCaw's national WiMax network.
But 3G hasn't stood still. HSDPA and EuDCH (enhanced uplink data channel) will be rolled out next year, the latter a technology so obscure that it's only really been discussed in technical committees. But EuDCH gives GSM operators 4Mbits a second both upstream and downstream, and will be much in evidence when Cingular, now the biggest US operator, seeks to beef up its data credentials. For now, Qualcomm maintains an impressive and well-earned lead, with Verizon's EV-DO network (500 kbits/s with bursts of 2 Mbits/s) now available in 17 cities. It's important to remember that the demand for data is still far from certain, but more importantly, carriers don't need data to win. The rival boasts from Verizon and Cingular are a willy-waving contest. 4 Mbits a second however is a lot of capacity for VoIP, itself the cause of the notion that the carriers are doomed.
But Skype wasn't the elephant in the room that your reporter expected it to be. Skype, and similar VoIP services give the impression that Net phone calls are almost free. But nothing comes for free, and even Craig McCaw will need to show a return on his investment. It costs real money to maintain a reliable network, and Verizon's success has come from stressing quality of service and coverage. No one has yet successfully put Skype in a mobile box, and until such a service is offered to the ordinary Joe, we simply have no idea if the public will accept the trade off between the convenience of ubiquitous coverage and quality of service, and lower costs. VoIP really ought to put a price squeeze on incumbents, but they'd gladly settle for becoming the opposition, and taking $25 rather than $50 off us each month.
Of course carriers have greater pretensions that that: they want to be TV channels and Wal Mart, too. Anything else to a carrier is what they call a "dumb pipe". But they'd would be wise to put aside such dreams and focus on QoS and coverage, their best weapons against insurgent VoIP-bearing data networks.
The trouble is, the success of ringtones has gone to the dears' heads. If you can sell thirty second ringtones for $4, what else can you sell, and for how much, they imagine. Naturally the catch is that they must first sprinkle the roadway with lots of glass, before they can offer to carry you over for a small fee. A representative of one North American carrier, who must remain nameless, was berating Orange for allowing PC owners to transfer MP3 files to their phones. "Carriers who do that will just become a dumb pipe." Not a day too soon, you might think. Being a dumb pipe in a business where its best days are ahead of it compares very favorably to being, say, a sheet metal plant in Philadelphia. You'd think they'd wake up every day and count their blessings.
Each has its own problems. Cingular is hemorrhaging users at such a rate that its lead over Verizon will have disappeared in a couple of years, in which case the $41 billion its spent to buy AT&T Wireless might have been better spent giving its existing customers free calls.
Voice: the killer service
If there's any need to remind us that voice remains the killer app, it was Nextel's Boost push to talk service. No one's called it "emergent" yet, and we doubt if there's one weblog in the world devoted to singing its praises. It doesn't need it.
Boost targeted urban youth with such success that the chirrup is now featured in hip hop videos. Word has spread virally, on the back of a great deal: $1.50 for a day's worth of talk. Marketing people at the networks wondered aloud if Boost has started to take the stigma out of pre-paid contracts. In the past quarter Nextel gained 195,000 new subscribers from Boost, and 550,000 overall. It also lowered its churn, and although Boost is derided for targeting the poor, subscribers spend an impressive $69 a month. The debt-laden operator is still fighting its way out of bankruptcy, but the turnaround for what was the least fashionable of all carriers should give others food for thought. Even in Chapter 11, Nextel is discovering, being a mobile network is still a nice place to be.
So almost everything we were told to think in the past few years turned out to be wrong. Good quality service, not a choice of providers, is what people wanted: choice isn't a destination, as we now know. Good quality calls, not data gimmicks, and certainly not the internet, is where the carriers should focus. If they take their eye off the ball, the upstarts deserve to win. ®