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Summary:

T-Mobile is trying to work with the Federal Communications Commission to cut in half the number of days a land-line carrier has to transfer a phone number to a cell phone, according to the New York Times. This cracks me up as number portability was once […]

T-Mobile is trying to work with the Federal Communications Commission to cut in half the number of days a land-line carrier has to transfer a phone number to a cell phone, according to the New York Times. This cracks me up as number portability was once the bane of the cellular operators; they were among those that lobbied hardest against the passage of the local number portability regulation back in 2003 because it made it easier for customers to switch carriers.

Six years later, I would argue that unless you’re Sprint, number portability is a very good thing. Witness AT&T, which has netted more than a million new subscribers thanks to the iPhone. This seamless transfer of data — this openness surrounding phone numbers — has undoubtedly helped carriers and consumers. So why won’t carriers accept that more openness will benefit them?

Two recent news items show that carriers still haven’t learned that openness can benefit them. One is AT&T trying to hobble Skype on the iPhone. Skype’s use of VoIP takes traffic off the voice network and moves it to the data network, but it’s still traveling over AT&T pipes. With LTE (when we get there), voice should all be VoIP because it will travel over an IP network rather than a circuit-switched one. But this isn’t a technical problem; it’s a business model problem because Skype could cut into AT&T’s wireless voice plans. So AT&T is trying to keep its network closed to Skype.

The other example is the removal of some tethering apps for the T-Mobile Google phone. T-Mobile doesn’t want people to use their phones as wireless broadband modems. While attaching a phone to a computer does allow it to consume a lot more data, the user experience is fairly mediocre, meaning bandwidth-hogging applications aren’t a large danger. Again, this is less a technical problem and more about keeping its network closed to protect an existing business model. T-Mobile wants to sell data cards plans and phone data plans, not just a single, cell-phone data plan.

This is where greater carrier openness comes into play. I’m not entirely sure that unbridled network neutrality can work on current capacity-constrained wireless networks, but I also believe that protecting voice minutes, as AT&T is trying to do with restrictions on Skype and T-Mobile is doing by halting tethering, is counterproductive to increasing wireless data use by consumers.

The wireless data business has so far been very good to carriers, just look at the prices they charge for data. AT&T’s 200 MB plan costs 20 cents per megabyte while Verizon’s smallest data package (50 MB for $40) costs 80 cents per megabyte. However, once folks move up to the 5 GB tier the per-megabyte costs go down to 1.2 cents.

Carriers don’t want to shoot the golden goose of fat wireless data margins, but they don’t seem to realize that the golden goose is already sick. The web and the ability to deliver a multitude of competing IP-based services over a pipe is clearly coming to wireless broadband, neither interfering with Skype nor halting tethering will change that. By encouraging apps on their pipes, and offering data packages that capitalize on the growing obsession with mobile data, carriers would actually drive the average consumer toward data cards and 3G plans. Openness will lead to more money, even if it is made on a dumb pipe.

  1. I think it is good that media is catching up on this subject as what the carriers are doing is much worth than monopoly. I still cannot figure out why EU is not reacting (as they did for a couple of times against MS, but I guess the financial interest is much bigger when speaking about telcos).
    Minutes ago I was reading the iPhone contract from Orange Romania (the exclusive carrier) and I have noticed that they can: 1) not only ban specific applications, 2) but even claim damages from the client using the app.
    I do think that this is totally incorrect and somebody should just start suing these companies. EU should also look into it as this is even worth than monopoly.

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  2. It’s not clear to me that unbridled openness is a money-maker for mobile network operators, but I tend to agree that a bit more of it than they’re used to would go a long way. The problem is re-engineering networks and plans to allow different kinds of delivery services, each relevant to a particular type of application. The real turd in the punchbowl for mobile data is the net neutrality mandate that all packets have to be treated the same way, regardless of their actual requirement.

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    1. Stacey Higginbotham Saturday, April 4, 2009

      Richard, that’s true. I’m not sure how open the telcos can be given wireless network constraints, but I also think its a debate that needs to take place.

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  3. Why does everybody get to make money on the dumb pipe except the one that spent all the money to build it. If building a pipe is so easy and cheap why are there so few carriers. Everybody wants a really cheap ride. Every other business except telcos can protect their property. Can the telcos move into your office space and just pay for only the actual floor space they use. The dumb pipes are adding caps because they can’t raise prices but the demands on the networks are causing rebuilds that are costing a fortune.

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    1. Stacey Higginbotham Saturday, April 4, 2009

      John, as the carriers move to 4G networks and upgrade equipment, the cost per bit to send data over these networks is dropping. In just about every businesses (even software) margins tend to shrink over time, especially as a product (2G, 3G) ages. Telcos need to adapt and continue their innovation to keep their margins up. I and many others would pay more for a 7 Mbps wireless connection as compared to a 1 mbps connection.

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  4. It’s by no means clear to me that this would significantly threaten AT&T’s wireless voice revenue, even if it were to use the 3G data network. To the extent it did, they would simply need to reprice their data service.

    My guess is that AT&T is at least in part concerned that the uncontrolled use of 3G data service for VoIP will result in customers using vastly more bandwidth than when they use the part of AT&T’s network that is engineerd for efficient voice transmission. For example, say AT&T uses codecs optimized to transmit voice in 4 kbps of bandwidth. If the customer instead uses a VoIP application that uses 16 kbps, or 32 kbps, or even 64 kbps of bandwidth for a voice telephone call, overall network efficiency will take a nose dive. I don’t presume to know what bandwidth AT&T uses for its own voice telephone or what bandwidth is used by any particular handset-based VoIP application, but I do think it’s grounds for legitimate concern. A related point is that Skype (at least the PC version) is a P2P program that uses bandwidth not just for your own calls, but for others’ calls. I don’t know if the Skype iPhone app does this (my guess would be no, because of latency and bandwidth concerns), but if it does the bandwidth penalty could be significant.

    And of course you might not get the same quality of handoff from cell to cell and from system to system that you get from the cellular carrier’s voice service.

    The other point I would make is that AT&T doesn’t sign up iPhone accounts without a voice plan that includes a substantial number of minutes. This might allow a user with a high bucket plan to move to a lower bucket of voice minutes, but for people on a 700 minute plan, for example, it would mean that the user would be paying to Skype Out to telephone numbers, while paying the same amount as before for a bucket of 700 minutes per month, which will no longer be used.

    For chat and international calls, which aren’t on the bucket, something like this seems like a productive use of the data plan (assuming it’s not a spectrum hog).

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    1. Stacey Higginbotham Saturday, April 4, 2009

      Mike, these are excellent points. These are exactly the types of things that we should be talking about in the wireless net neutrality debate.

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  5. Good article. I have always said that today’s telecoms are like maintainers of the old paths for horses and horse-drawn carriages. They are resisting the advent of the automobile because the paths they are maintaining is not good enough for the automobile. They don’t realize that they can make a LOT more money by:

    1. Providing good paved roads and freeways for the automobiles and maintaining them.

    2. Getting into the automobile making business, if they can. Or gas station business. Heck, even the restaurants-on-roadsides and rest areas business.

    There is a LOT of money to be made by everybody by the advent of the automobile. Those who ask how telecoms can make more money by being more open are asking how the advent of the automobiles would generate more money in the economy.

    LL

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  6. what we really need is to have 3G/4G wide area data networks that are built and run by phone companies. instead of increasing data rates on the cell networks customers would be better served by city wide and than nationwide WiFi hotspot networks. i am not talking about technologies; but about business model and attitude.

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  7. [...] Carriers Should Accept That Openness Can Be Good for Them [...]

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  8. [...] wired side, ISPs have to follow federal net neutrality regulations that require them to allow all content over those pipes without interference, cutting off revenue schemes that would involve either consumers or content providers paying more [...]

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  9. [...] said that the users decide which one they want to use. That’s actually pretty open-minded coming from a carrier. If these stores are well-designed, and carriers are really ready to provide a good experience for [...]

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