41 Comments

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.

  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.

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  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).

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    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.

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      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.

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      2. 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.

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

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  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.

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  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..

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  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…

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  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?

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  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?

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  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.

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

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  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.

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    1. Nikolay Klimchuk Sunday, September 11, 2011

      Keep dreaming…

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    2. Yeh, keep dreaming baby…

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  11. Mridul Srivastava Sunday, September 11, 2011

    I think this is a wake up call for Indian mobile carriers, whose revenues still come mostly from voice calls. With 4G in place, this service will be a boon for users. However I am not sure about the commercial viability. Will Google begin to charge or will the 4G guys will charge?

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  12. Its a very real possibility and I agree with you on – why remember a number if you can directly call a facebook profile. I would love to have your comments on a similar piece I had written some time back – http://goo.gl/hfeHA

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  13. Lincoln Maurice Sunday, September 11, 2011

    Ironically, PSTN and ISDN will continue to be reigning markets over SIP/VoIP, despite the mobile version of VoIP being so common, but that’s pretty much thanks to it being considered the safer option… and because they’re more suited to big business than relying on the cloud.

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  14. Hi Ilja Laurs
    Thanks a lot for sharing your views on the future. Would like to start my comment from the lines below:

    Yesterday is History
    Tomorrow is Mystery &
    Today is a Gift….

    With this note tomorrow is mystery and you never know for sure what is going to happen in coming days.. but yes what we can do is only predict.

    Let me brief you up from where i come INDIA. India is on the radar for many equipment, device, service vendors from across the globe. Reasons to name a few:

    1. Huge geographical area to be covered i.e. more base stations.
    2. Huge people count i.e. more business opportunities.
    3. Developing economy i.e. increasing per capita income.

    Having said that there are couple of facts which cannot be neglected when talking about a country which is in top 10 list of vendors who want to sell applications, devices and all other telecom infra.

    The internet penetration of the country is not even 10%. 75% of the population lives in villages and mostly rely on land lines for voice communications. Data is something which they dont even know what it is. Out of more than a billion people facebook registrations are only approx 10 million. Also the literacy rate is less than 75% so 25% people dont know how to read and write.

    Teledensity of India is close to 64% which means there are immense opportunities.

    With these facts and figues supporting my argument i would like to state that Indis is a growing economy and has a lot of potential to sell any telecom infra and apps. in years to come but there are certain restrictions on ground which might take them slow.

    People are getting literate and internet penetration has increased multifolds but a lot still has to go in. With more than a billion population only approx 600 Million people use GSM services (as of July 2011) which means mostly people need voice connections and not so fond of mobility (which is changing slowly at a FASTER rate).

    There are tremendous no. of people who just know 2 buttons on the phone RED and GREEN. They do not use any application on the phone and just use it for voice.

    I know ur comeent is keeping the changes going globally and not specific to a country. But i wanted to share thoughts based on from where i come in. Change is in-evitable and is bound but here in India will be truely gradual.

    Since these changes depend on lot of factors and to rank 1 is the global acceptance. I understand China and India being big big markets with immense selling potential have a good amount of contribution to form the need and shape the course vendors take on to develop fones with the features you listed.

    Frankly i can see that coming (very very very slow) but here in India at least i think this is a far cry.

    Still your comments and article provides a fresh thought to debate on….

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    1. Mukesh Aggarwal Tuesday, September 13, 2011

      People do not have to learn technology to use it. If people just know how to punch numbers on a phone, then software on phone can easily convert it to an IP address/im profile to call. Also people use the numbers since they are given a number to call. Now substitute that for an IM/email address. Would it be so hard to punch the characters instead of numbers ?
      you will be surprised to see how fast this spreads to asian countries if offers value for money.

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  15. 1) It seems like a scary scenario for the end user. Whats the guarantee, the service selected will be the cheapest overall? My experience says otherwise.
    2) Why wont the service providers lease the platforms and release their own versions? A Vodaphone can always license Android and sell a custom version usable only on their phone. The platform providers save the headache of managing end users and both come out as winners. Ofcourse, the end user suffers, but dont they always?

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  16. winners will be mobile platform providers not the small carrier that crack the nut, unless it is acquired by the platform provider

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  17. Wow I really enjoyed this article. I’d love to read more theorizing on how it will go down and also an expansion on why the UK is ripe to be where it starts and what exactly has gone down with the Skype phones you mention kids using as second devices.

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  18. Alexander Drewniak Monday, September 12, 2011

    Great read, Ilja, You hit it right on the head.

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  19. Well envisaged and I would agree to it as well.
    Video communications can surely be leveraged on this roadmap flawlessly.

    There may not be a universal approach to numbering plan right now but it aint a mission impossible!! IPv6 might just do the job.

    The ease at which Social networking sites attract users can very well be the trendline for this roadmap. People would be more than happy to jump in without a universal phone number.

    Let me say When I search myself on FB, I get more than 40 matches but who cares about it. People still find me easily (if they want to network in).

    Legislations would be a tough nut but skype and similar global communication platforms have already started cracking it.

    I personally feel its a win-win deal. However, on the flip side, it leaves no ground for the small player. Everything will be big then.

    Who knows people may turn their shops from selling mobile connections to customizing mobiles!!

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  20. I agree that carriers will only be CARRIERS of traffic in the future with the rise of mobile platforms and web services. However, i think the first signs that we should see in the market is the death of Value added services (Content, media…etc) as those are becoming increasingly available free on the web and share among users. I even don’t remember when was last time i accessed a VAS from my carrier.
    I think more consolidation of the telco industry will occur because tier1 carriers will try to strenghthen their position to monopolize the market on a global level and to reduce their cost per call or per bit (later), which will enable them to survive more time in the market.

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  21. Most people just want the carrier to deliver zeros and ones and nothing else.

    The more the carriers want to control things (eg block tethering) the more we want them to get out of our way.

    One correction. The article mentions Google Apple and Microsoft. No, Microsoft will have no place in this brave new world. Its many mobile platforms have all failed. Yes, it now owns Skype, but Skype is a closed system. People will want to be able to interconnect between various calling platforms. That’s why open systems (based on SIP) will eventually win.

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  22. Ilja is right on all points except time line. Five to seven years in the future vanished sometime in the last 12 months. Kineto already does this for T-Mobile. And the lap top and tablet markets already bypass average cost-based cell nets entirely for marginal cost-based Wi-Fi. This is why GetJar must become a brand engine for everything from smart phones to large plasma displays. It needs to stay ahead of the marginal cost revolution crushing its cellular customers.

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  23. Hi;

    good article, thanks! Its a subject dear to my heart :~) I still know the phone numbers when I was a child, by heart. But, I cannot keep track of numbers at all, and use “names’ in my address book, or buddy lists. So, why are we still using numbers? :~)

    Keep in mind Wireless operators are not going to give away airtime (bandwidth). They will just increase prices as PSTN services vaporize to IP based. So, they can make more, and charge more if you get good access and speeds. Problem is in the USA, the speeds and coverage are not adequate to move all telephony to IP unless you are in fixed networks. Humm, even then, ADSL in most places, like SF still sucks.:~( But getting better…..

    Here in France we have a network of Wifi, by the carriers that could be beneficial in many ways to the US market. There are 3 major carriers here, and a fourth coming. All of them sell fibre and ADSL. So, when you have a home Wifi router, you have a 2nd SSID (network) broadcast into the street. If you are a customer of that same service, you can use Wifi anywhere in France, if you are near a similar customer.

    it does a few interesting things. First, it offloads network load to the fixed network. Second, it gives the user a lot of opportunities to use faster and lower latency bandwidth, and in places you do not have coverage.

    Its in French, but maybe you can get the idea from this:

    http://www.sfr.fr/sfrwifi/reseau-sfr-wifi/wifi-cite.jsp

    Regards,

    Jon

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  24. From the article:

    “Imagine buying your SIM-free mobile phone from a local electronics store and logging into your Google or Apple account … a phone number provided to you by Google Talk or Skype”

    Really? Do we really want this? Google or Apple to be the gatekeepers to our mobile phone (/next generation of personal computers) usage? To me this is horrendously scary. I mean, people can be fans of Apple or Google products and all that, fine, but do you really want a world where access to all aspects of your digitally-accessed life are via them? Can anyone say “world domination”? Can anyone say “absolute power corrupts absolutely”? Seriously people, where exactly is this headed? What happened to open agreed standards that anyone can start up a business and implement? What happened to a plethora of providers and an open free market? What happened to competition? A future where Google and Apple (or Nokia and Microsoft if you prefer) dominate totally is NOT a good future…

    ” The carriers … sell bandwidth to two to three mobile platform providers.”

    2 or 3 platform providers? We want this? We sure? Well…maybe we do. So Google is the new IBM for this generation, and everyone’s building IBM Android compatible PCs phones?

    I must say I love the way currently Nokia is just invisible to Americans. And by Nokia I mean S40, I mean Symbian (both of which recently removed from the American market), I mean whatever future potential Nokia (/ & Microsoft) has (whether one thinks that’s a lot or a little). And therein lies the problem with American analysis of the phone market and an American world-view, and anyone else’s extrapolation of and from that. Nokia is in the American mobile market’s blind spot (and that of all that market’s hangers-on). But hey, not just Nokia, but Eastern innovators and all the rest.

    The future is not Android + iPhone. Fans of these platforms and those making their money from them have a particular myopia and over-sensitivity here. These may be great platforms (etc blah blah blah etc) but don’t discount “all the rest”. Because all the rest are excellent (or at least good enough to be a threat), and massive, and “not-dead” (just when America thought they were) and if anyone thinks the future will be mainly Android + iPhone they are in for a major shock to the system. Guaranteed.

    S40 is about to turn into a smartphone platform, fully fledged and with the potential to own the low end. Contrary to the view of impending Android world domination at all price points. But hey, worst case scenario, MS buys Nokia, both fall flat on their face, Nokia dies and MS trundles into obscurity, you’ll still get challengers to the Google/Apple/Google&Apple hegemony.

    What’s more with all this talk of carriers getting mown down by the Google/Apple juggernaut, do we give no credit to a potential fightback? Do we give no credit to Nokia traditionally being the carrier’s friend and that being something of significance in this context?

    The thing is, Google and Apple (whether you and I love them or hate them) can dominate the airwaves, the print runs, the mindshare, the developer time, but at the end of the day it’s what people have in their hands that really counts. And right now, we have a bit over 100 million people with iPhones and the same for Androids and the same for QT-capable Symbian phones, and about 2.5-3 times as much for all Symbian phones, and then 1.03 billion or thereabouts S40 and S30 phones. And then how many phones in the world now – 4 billion? So Google has about 3% of the world’s phone-using population using Android and Apple about the same using iPhones (and they’re competing with each other).

    So I think in summary we should not get too carried away with Google and Apple focussed crystal-ball gazing :)

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    1. Alex: Absolutely agree with you.

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  25. Nice Ilja, I agree with you on the total disruption and devastation of network operators as we know them. If we negate the SIM and MSISDN it could be replaced with a IPv6 address surly? If we ever get the IPv6 off the ground…I am assuming that the network operators are pushing back on that also. There will be enough IPv6 addresses to allow every single device on the planet it’s own unique IP address, now that would be something!

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  26. Eagerly awaiting this…..

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  27. This completely ignores one small issue: telecom lobbyists. Telecom is one of the strongest lobbies, and you’re deluded if you think that they won’t fight this tooth and nail.

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  28. This will not work! At least not in any semblance to the way it is described above.
    For this to work, there must be no degradation to the end user experience. This means, the mobile platform provider must depend fully upon the carriers to, not only provide the conectivity, but to also, perform service control functions like SERVICE HANDOFFs to name just one. Technically it is possible to design a system where service handoff is negotiated between the mobile device and a server sitting at the platform providers data center but this would require the negotiation to occur on Layer 3 which will lead to unprecedented levels of droped calls. For handoffs to be sustained at the level of success we’re accustomed to today, they must be negotiated at Layer 2 level which means that the platform provider must depend on the carriers to perform service handoffs. This means that the only functionality that the platform provider will relieve the Carriers of is voice setup and tear down which is an infinitessimal component of the functionality that Carrier mobile infrastructure are setup to perform. What this means is that the whole setup – as innovative as it may sound – will not lead to any significant degree of simplification of the Carriers network ultimately reducing his CAPEX and OPEX (the only condition under which he will be happy to accept a major decline in his revenues). Matter of fact, his network may become a lot more complex since the mobile device now has a lot of candidate networks of diverse technologies (GSM/WCDMA/HSPA/LTE/WIMAX/WIiFi/CDMA2000…etc)to hookup with which means the Carriers networks need to get smart enough to detect each other and implement handoff between each other in addition to everything else they do today. This means greater network shphistication and complexity which ultimately leads to higher CAPEX and OPEX.

    So why will the Carriers go into any kind of arrangements which will result in a monumental decline in revenues with no commesurate decline in CAPEX and OPEX, rather, a possible increase in both? Dont forget that whithout the carriers in the middle, the moble platform provider is fundermentally enstraged form their devices.

    Finally, the theory that all it takes is for one carrier to enter into such an “arrangement” to kick off a global avalanche effect does not hold. As was rightly pointed out, even if one Carrier was crazy enough to go into such an arrangement, it would be one of the small ones. Everyone knows that one of the characteristics of small Carriers is limited or regional-only coverage. For what is described above to be possible, the end user has to be able to enjoy as much coverage under the new system as he does today. So lets say, one of the little Carriers is willing to sign his future away by entering into such a deal, the service will never gain traction as the end user will not enjoy the same level of coverage that he is used to today. Why then should the larger carriers feel pressured to give up their precious livelyhoods?

    This is all much more likely to become a reality if the big platform providers will just buy up the major carriers but wiht AT&T’s market cap at $165B none of the mobile platform providers will come out of such an aquisition unscathed

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  29. “…selling bandwidth to Google, Microsoft or Apple”.
    Why do you think Google, Microsoft, Apple will be willing to buy this bandwidth from operstors, when they have it already and for free ?

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  30. Amos Winbush III Thursday, September 15, 2011

    “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.” – The possibility of this occurring should encourage carriers to work harder to maintain their clients. Provide quality customer service and I don’t think customers would care if their service came from a carrier or an alternate source.

    Amos Winbush III
    Founder/CEO, CyberSynchs
    http://www.cybersynchs.com

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  31. I think this will happen sooner than you think. In an interview May 12 of this year, Lowell McAdams, CEO-in-waiting at Verizon, stated “We are moving from a voice company to a data company… so then it’s like water, or like electricity… you want to have people use it.

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  32. In the same interview he said he didn’t care if Skype ran video over their network, because they would monetize it through data charges. As for your vision of a voice service that switches automatically between Wifi, 3G data, or cellular voice networks, that is available right now from the app Line2, which works on Apple and Android devices. Shameless plug but its absolutely relevant to this article! :)

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  33. It sounds really scarry to me. This is because we are literally going to submit ourselves to google, MS, Apples and so on. If this article’s prediction come to real than probably we have to pay for sending an email, subscribe ourselves to use differnet social networks or to use their facilities. So as a consumer we need to use all the different sort of facilities just incase if we need them. I think it is pretty much like using a radio which could be easily substitued by many devices but they still exist as a sole device which only has radio.

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