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Summary:

European wireless carriers are resurrecting a failed wireline move and trying to extract more money from the likes of Google, Apple and other web and mobile companies. The operators say the costs of building out their networks to handle growth in traffic is outpacing data revenues.

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Like an old dog with no new tricks, European wireless carriers are resurrecting a failed wireline move and trying to extract more money from the likes of Google, Apple and other web and mobile companies providing content over their wireless pipes. According to a report in Bloomberg, European carriers such as France Telecom SA, Telecom Italia SA and Vodafone Group Plc are pushing for new deals to get content providers to pay for their usage. The operators say the costs of building out their networks to handle growth in data traffic is outpacing data revenues, compromising their business models.

This is really about operators being upset over the Googles and Apples of the world profiting off the pipes the operators have built. Instead of realizing they are about providing access or building awesome content of their own, they sit at the table begging for a chunk of profits from companies which have built something on top of the operator’s networks. When begging doesn’t work, they threaten to stifle access and innovation. The carriers are like old dogs that can’t learn a new trick. Unfortunately, right now, the only trick they have is peeing on your rug.

Ed Whitacre, AT&T’s former CEO, tried to play this card a number of years ago on the wireline side, pushing for content providers to pay a quality of service tariff. The plan didn’t go through, but it showed some of the vacuous thinking of operators. That wireless carriers in Europe are looking at flogging the same idea shows they’re either dumb or really bold. Either way, it smacks of desperation.

What the carriers don’t understand is that they provide access. Yes, mobile data usage is soaring but that’s the business the carriers are in. They rely on Google and others to get people to buy their data plans and their phones. Without great services, why would people want to pony up for a smartphone or a data plan? It was great just a couple of years ago when data revenue helped offset declining margins on voice. But now that data is exploding, it’s put the carriers in a tough position.

However, trying to get money from content providers is not the way to go. The carriers are already charging users for data, and are in the midst of changing their pricing plans to reflect the very real flood of traffic caused by user demand. Right now, their wireless businesses are still very profitable; for example, Verizon reported operating income on its wireless business of 29.9 percent. It’s preferable that the operators look at tweaking that model to manage traffic and revenue. We’ve advocated innovative pricing for data plans and dynamic pricing, which makes more sense in a world with limited bandwidth and spectrum. They shouldn’t try to build a double-sided market by dipping into the revenue of companies, who have legitimately created valuable services on top of their networks. A flour mill owner can’t approach the baker for a cut of his bread revenue. This would stifle innovation and potentially undermine the dynamism in the mobile world. Will popular app makers have to worry about paying as well if their apps are consuming bandwidth?

If the wireless operators are peeved at Google and others making money off their pipes — and they are no doubt mad — they should build their own services that appeal to users. Otherwise, the carriers shouldn’t argue that they’re more than dumb pipes. The carriers may think they’re getting out early on charging content providers and may have more leverage than their wired counterparts. But pushing an unpopular model again doesn’t reflect bold thinking; it really shows that the idea cupboard is bare. Let’s hope their American wireless counterparts don’t try the same trick here.

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  1. “If the wireless operators are peeved at Google and others making money off their pipes — and they are no doubt mad — they should build their own services that appeal to users.”

    That would require intelligent thought by the carrier decision makers, passion for the work one does, putting pride in one’s work above fiscal quarter profits…

    NEVER. GOING. TO. HAPPEN. EVAR

    Ref.

    http://radar.oreilly.com/2009/01/work-on-stuff-that-matters-fir.html

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    1. Thanks for the comment Todd. I don’t know if they’ll get anywhere with this but it just doesn’t look good.

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  2. It looks like the flood gates of wireless greed have opened up. I think they noticed wired strategies and thought ‘we need to milk SOMEBODY!’

    The big players just need to build out a network that brings these bastards to heel. Competition is for crap anyway with mobile provider pricing collusion!

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  3. Data consumption has grown? So they are complaining that their customers are actually using the data plans? What did they expect? That people will buy 2 GB plans and only use 200 MB?

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  4. Wireless carriers apparently were sick the 10 years the record labels battled users over online content – and eventually (mostly) lost. The customer WILL get what the customer wants, because eventually someone will give it to them.

    Perhaps instead of trying to financially rape their customers, the carriers should look at the butt-load of high dollar contracts their executives make, or the hundreds of millions they spend visually assaulting us with TV advertisements. In this day and age, build a great product and people WILL find you.

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  5. [...] Android) and streaming players is putting additional strain on the networks and the carriers are trying everything under the sun to remain relevant and monetize the stream of data they are [...]

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  6. The wireless operators should build their own services? What are you? Nuts? The operators DO build their own services, and they are complete crap. Just look at all the Verizon VCast apps / craplets that litter the claptrap Android devices they ship.

    And maybe the author is too young to remember (or didn’t follow the wireless content & services market before Apple and Google joined the fray), but before the iPhone, the carriers RESTRICTED all the phones on their networks to carry pretty much ONLY their own apps and services. And again, if you didn’t know, Android users have been raising hell about not being able to un-install the carrier craplets from their smartphones because the carriers won’t let them.

    Here is what you should be preaching regarding the carriers: they need to stay far, far, far away from producing apps and services (other than voice communications) for the devices on their networks. They need to leave that to the innovators who develop for the iPhone and other smartphone platforms. Carriers have only shown a record of cocking it up when they have tried to do any kind of content.

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  7. Yeah. Seems like a major lack of innovativeness. Why not try to hire some innovators instead to provide real leads. The idea is pathetic. If this is all that carriers can come up with, then, maybe the networking should be a public service instead… ;) Seriously, we’ve seen quite a lot non-adding-value ‘bubbles’ being created lately. The proposed idea would be, exactly, an artificial pumping of the value of networking. Networking is a commodity – if an operator can’t cope with the fact and can’t run it’s business, maybe it’s time to retire.

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  8. Ok, so the wireless network operators should subtract all of the value added service revenues/profits from their models and just model the business on dumb pipes and a nice 35% margin. Ready to pony up for metered usage? Really?

    The large data users (me…) are benefitting from the collective user base of the network. The wireless operator either seeks that return from the peer in that network usage, from the collective user base, or from the users.

    So either all plans cost a little more, the network peering providers pay more (a la Comcast/Level3) and pass those costs onto their customers (Google, Netflix), or you get metered billing.

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  9. These wireless carriers designed and built their sub-standard networks with the idea they’d be selling their own wireless data services to customers. Each had meek plans to roll out data tools based on circa 2000 clamshell phone and Blackberry-type technologies.

    This limited vision proved to be inadequate for what customer’s actually needed, and what a great company like Apple envisioned that it could deliver.

    Now, they have to redo al those business plans and figure out a way to pay for real wireless computer networks instead of the bandwidth-limited networks originally envisioned.

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  10. They know exactly what their doing, using old technology to get them to bite on the new plans and smartphones.
    mainstreethost

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