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Summary:

Imagine buying your SIM-free mobile phone from a local electronics store, logging in as soon as you turn the phone on for the first time and having the phone ready to use immediately. In the future, even the phone number itself will disappear.

Broken Mobile

Imagine buying your SIM-free mobile phone from a local electronics store and logging into your Google or Apple account as soon as you turn the phone on for the first time. Then imagine having the phone ready to use for voice calls with a phone number provided to you by Google Talk or Skype, and ready to access email, YouTube or Facebook.

That same phone automatically hooks to your home Wi-Fi or any of the available 3G, WiMax or LTE networks without you even knowing (or caring) which specific network its running on at the moment. No longer do you have to belong to a specific carrier — your phone automatically picks the strongest and cheapest network option at any given time. Your network access, along with voice, app/in-app purchases and everything else are provided to you by the mobile platform provider. The carriers are only there to run network infrastructure and sell bandwidth to two to three mobile platform providers.

Let’s face it, the only two things that still connect carriers to consumers are the voice number and billing for the network access. SIM card technology is rudimentary — you can easily conduct user authentication using a simple login, just like Apple does on iPods when you want to buy apps or songs from the iTunes store.

Looking into the future, even the phone number itself will disappear. Why bother with all these numbers when you can just place a call directly to anybody’s Facebook profile?

This future is inevitable, and the changes are coming very soon. With mobile platform providers running the show today, carriers simply have no way of stopping the process. Not having any control over the platform vendors — for instance, via a consortium that would centrally license Android or other mobile platforms to equalize the balance of power between the platform provider and the carriers/OEMs — they will eventually give up on their ambitions to control the user. Just read the Google/Motorola/Skyhook story to see how it happens.

It only takes one carrier to crack and start selling bandwidth to Google, Microsoft or Apple; all other carriers will simply have no choice but to follow. It’s like the prisoners’ dilemma from economic textbooks: If both prisoners don’t talk, both win. But if separated and one is promised a way out (or an easier sentence) and he talks first, then game theory suggests the winning strategy for each prisoner is to talk. In other words, one of them will crack. They are nowhere close to being united enough to stand together, even in the short to mid-term. Look how effortlessly Apple, then everyone else, took over their app distribution businesses — something that only five years ago would have been totally unthinkable.

Most likely, these first-to-crack carriers will be tier-two low-cost carriers outside the U.S., possibly acquired by, but likely just partnering with, the big platform players. Those carriers will have a high incentive to enter such partnerships, as their networks are already optimized for low costs (lean, efficient cost structure without heavy marketing, support, premium services overheads, better network logistics, etc.). Short to mid-term, the strategy will be against tier-one carriers, who have a high marketing/operations cost burden. The UK actually looks like a very logical place to start, especially when some UK carriers have already been experimenting with Skype phones, which were successful to the degree that price-sensitive younger audiences actually started to carry Skype phones as their second device.

It will probably be a while before most users fully switch to non-carrier-provided voice/network services — maybe five to seven years — but it’s only a matter of time, as the new model is so much more compelling to the consumer. Signing up for multiple phone numbers as easily as opening email accounts, getting the best and the cheapest network at any given time in any spot (finally, no more service drops!), free and unlimited voice/video on WiFi networks, cheap roaming even when overseas on a local service, and so many more benefits are poised to take off.

Once this happens, carriers fall into a very undesirable position. Network access becomes an absolute commodity, much more so than in the case of landline ISPs. The latter at least have relatively high switching costs, while a mobile phone is already connected to every network available in its physical location. This means carriers compete head to head over who sells the cheapest bandwidth to Google, Apple or Microsoft, and only those most economically fit with the strongest network logistics survive in the game. This time, the brand, handset subsidies or any other marketing tricks are of no help — it’s all about economics.

What’s really interesting is what could happen with next-generation networks. As carriers see their margins disappear almost entirely and the profits shift to mobile platforms, operators won’t accumulate enough profits to be able to invest in next-generation networks. Nor does the marginalized economics of the network business promise them high ROI. Mobile platforms do the opposite: By that time, they’ll have accumulated profits for all the value-added services, so they’ll have both the money to invest and the strong economic incentive to do so. This will also be very lucrative to mobile platforms politically, as owning services end to end, from cloud to network to devices, enables a whole new level of control and market power.

Ilja Laurs is CEO at GetJar, the world’s biggest free app store.

Image courtesy of Flickr user Arthaey.

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  1. In a true market-based economy, with collusion and anti-trust laws actually enforced, the carriers would be selling only bandwidth, because that would be the natural evolutionary path for such a commodity service. We would be able to buy a 3G or 4G (the latter would be more common today, because a wireless service provider that is forced to compete would have already upgraded its entire network) device that allows you to install your favorite VoIP service app. There would be no walled gardens, no locked down bootloaders or bloated OS’s, and no mandatory service/equipment bundles. But anti-trust laws are not regularly enforced, so we get the second-rate communications system that is prevalent in the U.S. today.

    I realize the DoJ has filed suit to block ATT’s acquisition of a competitor that has tried to limit their ability to provide as little value as possible at the highest possible price. But the DoJ has also said they are hoping to “settle” the suit. Settle? There is nothing to settle, the acquisition is anti-competitive and should not be allowed, under any circumstances. Selling off 25% of T-Mo will not mitigate the anti-competitive aspect of that deal, and it won’t allow the future that Laurs is predicting.

    A condition of all wireless licenses should be that the licensee must separate the bandwidth delivery service from everything else they want to sell. There doesn’t need to be a law preventing them from offering voice services over their spectrum, just a rule that says they must do it independently of the bandwidth that they provide. With that requirement, the competition that Laurs speaks of will happen, and everybody will benefit.

  2. “Why bother with all these numbers when you can just place a call directly to anybody’s Facebook profile?”

    Because a phone number is a universal, internationally accessible contact ID. If people need to contact any other person in the world, then a universally recognized and accessible ID has to be available, and for telephony that now means through multiple mediums – internet, secured VOIP networks, cell networks, satellite, and POTS for remote areas. Who provides and directs that number may change (like google voice), but at least in the near future, phone numbers aren’t going away.

    If there’s a drive for it, we may in the future see regulated international services for phone naming services – like DNS, so these services can give you a named address to call instead of a number, and that can change if your number does, and allow you to seamlessly switch networks and numbers when traveling internationally. Just as with IPs, then the phone number finally becomes meaningless, but is still there under the surface to allow communication with different networks and mediums.

    At least, I would hope the future looks more like that, because the thought of people handing over all their communication to a company like facebook scares the heck out of me :) (and frankly wouldn’t happen in the business world).

    1. “Because a phone number is a universal, internationally accessible contact ID”
      Not for a long time has that been true. Haven’t had a landline in years and am in no ‘universal’ (what?) phone directory.
      Nor do I need or want a ‘universal’ id, tyvm. My contact relationships are nuanced and better served and segregated by various email/IM IDs.

      1. So is a email address, which is actually a “internet address”, it simply called email becuase we became used to the service behind it, but any IM or VoIP call can be made with that same address, using XMPP, SIP or other technologies. Its just a mapping to a server, hopefully waiting for such requests based on a SRV record.

      2. Stephen Blanchette Sam Tuesday, September 13, 2011

        Completely agree with Sam’s comment. In a customer-centric world, a phone number is simply an unnecessary barrier between two individuals who want to talk to each other. It may need to be there for the sake of telecommunications systems but there’s no reason telecoms can’t enable customers to find each other using a more easily remembered mechanism like a username.

    2. Because people don’t call each other now without a phone number like skype or google talk… riiiight.

  3. Michael Schmidlen Sunday, September 11, 2011

    I wholeheartedly agree with your assessment of the industry and will share that imho this WON’T take 5-7 years (assuming that 2012 is ‘The Year’ for mobility that’s been “forecasted”). The US mobile operators are already on the verge of becoming just like the RBOC’s in the US marketplace. The Apple phenomena pierced a huge gaping hole in the carriers business models and plans. The carriers obviously recognize this reality, unfortunately for them, it’s WAY past too late for them to do anything about it. They will NOT give up without a significant, protracted fight, but it’s inevitable that this, or some variation thereof is the likely outcome. I’m all for allowing the market to determine who the “winners” and “losers” are. Let the consumers decide what services they want to pay for and allow the market to cater to the consumers needs and wants. Basic capitalism.

  4. Wirless carriers have traffic control and can permit or restrict what they want which stops what this article suggests. This is why net neutrality for mobile networks is so important..

  5. This is very good Sci-Fi read, Utopian version unfortunately.
    I agree with “Michael Schmidlen” – this is the absolutely last thing carriers themselves want – to become a dumb pipes.
    Regardless of average Joe desires…
    Oh I wish this dream would a reality one day…

  6. You say:
    “It only takes one carrier to crack and start selling bandwidth to Google, Microsoft or Apple; all other carriers will simply have no choice but to follow.”

    Is any carrier *not* selling bandwidth to these companies? Can’t anyone be an MVNO, say? Buy bandwidth? Lease lines?

  7. Carrier’s trump cards? Emergency Services, Disaster Events/Recovery and Security.

    The subscriber ID stays with the infrastructure owner, the subscriber ID remains a standardised number for the longest possible time.

    C’mon, what’s the date?

  8. The original requirement for fixed phone numbers in order to route calls has already been largely eroded by the take up of ip voice solutions within the carrier networks. The younger generation already routinely communicate through on line accounts such as skype and xbox live so it’s only a matter of time before convergence reached the point where this is the norm.
    Legal moves, such as those seen in the Netherlands, to prevent carriers from effectively surcharging certain types of data usage in order to protect their lucrative SMS and voice services will only speed up the separation of services from the underlying
    infrastructure, leading to exactly the scenario predicted in the article.

  9. Will this solve dropped calls between cell towers? Page

  10. This will never happen in the US, especially if ATT buys TMo. The dual monopolies will prevent this by buying up tier 2 carriers and getting Washington to pass laws prohibiting this scenario in the name of national security.

    1. Keep dreaming…

    2. Yeh, keep dreaming baby…

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