Thursday, June 14, 2007

When wireless business models collide, customers lose

Today's Wall Street Journal nicely profiles the "air war" between wireless carriers and handset makers in a front-page article (link - $$).

The two sides play nice when it comes to plain old cellular service, but with both wireless networks (via 3G technology) and handsets (adopting PC-like features) becoming more advanced, their business models are coming increasingly into conflict.

Nokia, Motorola, BlackBerry, Sony Ericsson, etc., want to create the coolest devices--and these days, cool means the ability to take & share videos, play music, connect via WiFi and display maps. The carriers want applications to be offered as additional subscription services downloaded over their networks. Any application that comes bundled on the device, or that otherwise bypasses their networks, takes money out of their pockets.

An example is the sideloading of music (loading it via the PC, like you do with your iPod, instead of over the wireless network). Such a feature is easily provided on any phone that can play mp3's, yet the wireless operators frequently ask for it to be disabled, the better for them to sell tracks for $1.99 or $2.99 each, regardless of whether you've already paid someone else for that track.

One complication is that we Americans buy phones differently. In other countries, you go into a store, buy a phone costing perhaps $100 to $500, and separately subscribe to service from any carrier. Here, buying the phone and subscribing to the service are intertwined. And untangling them is quite difficult, given that carriers sell the phone at a subsidized price to entice you to sign a 2-year contract for service. Americans are far more likely to pay $0 than $300 for a phone.

Which limits the power of the handset manufacturers to innovate. If Samsung, say, refuses to disable a feature that its carrier partner disapproves of, the carrier will say, "OK, I'll subsidize LG's phone instead." And Samsung will lose that channel.

Caught in the middle are we, the users. We want the best applications, the coolest phones. We also want a cellular bill that's less than $200 per month.

Hope is on the horizon. One handset manufacturer has the brand name, market power, and image to negotiate an agreement with a carrier that empowers the end-user and enables many features that are not allowed on standard smartphones.

Its name begins with "A" and its phone will be available starting June 29. But it won't be cheap. Can you guess who it is?

(Photo: "my pda phone" by dreamjay via stock.xchng)