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Wireless Carriers: A Barrier to Innovation?

Over the last few months the chatter surrounding a possible future government intervention into US wireless carrier’s business practices leading to a breakup of their stranglehold on new wireless devices has picked up some steam.

The latest is a powerful article by Walt Mossberg entitled “Wireless Carriers' Veto Hampers Innovation” in which he comments on how wireless carriers are increasingly creating a barrier to innovation for the continued development of ‘superphones’ such as our Treo – an area that most technology observers now recognize as the single most important future platform for digital convergence which brings multiple hardware, software, content and services companies together.

At present however, wireless carriers are happy to let these companies come together as long as they come to them first and operate within the strict confines of their ‘gated communities’ – typically through a dedicated wireless portal so that the carriers can take a share from every wireless transaction made.  This battle between ‘open’ versus ‘closed’ platforms has been raging for as long as I can remember and is an issue that I’ve had to deal with on more than one occasion in the past when I was offering Internet strategy consulting services – Walt sees it as something akin to the battle between free-market capitalism and Soviet era ministries.

Perhaps my business culture is biased but I have never been an advocate of closed systems/platforms.  Although on the surface this may seem like a sound strategy to follow the fact is that it is doomed to failure in the long term.  I believe that a company can make money (even a lot) within such a closed platform for a while (even a long while) but over time the entire organisation will grow accustomed to working in a low/slow competitive environment and will be ill prepared to respond to the onslaught when the doors finally open (which they always do in the end).

A case in point is the famed AT&T breakup a little over 20 years ago without which it is highly unlikely that we would have seen even a small percentage of all the innovations in the communications industry – the Internet we know and use every day would certainly look a lot different had it been a closed system…  In this respect, just look at how quickly the closed AOL ‘system’ was supplanted by other open ones (and mainly free) such as Yahoo. 

Alternatively you could also think about the kind of computer industry we would have today if all manufacturers had been required to sell their wares via only four operators who would have dictated what they could or could not develop – the ramifications of such a picture are simply scary.  From a business perspective there’s no doubt that I will consider a leading player in an open system to be ten times more valuable, solid and capable of future growth than one operating in a closed system.

Moreover, Walt points out in his opening paragraph that “One reason the American high-tech industry has been able to create so many innovative things is that it was able to maintain a close, direct relationship with the individuals and companies that used its products”.  I have to admit that find it baffling that when the technology is now readily available and can be used cost effectively by companies to engage conversations with their customer base that so many still choose to adhere to the old mindset of ‘pushing products’ from the inside out instead of the much smarter and ultimately rewarding option of ‘building solutions’ from the outside in. 

For example, I believe that Apple’s resurgence over the past five years can almost directly be attributed to its adoption of company wide customer-centric digital strategies – something which has now clearly paid off handsomely and which palmOne could/should also learn from if it intends to fully exploit its lead in the smartphone space.

Furthermore, according to Walt, in the case of wireless carriers the main issue is that they are “exercising far too much control over the flow of new technologies into users' hands” and palmOne’s Treo as well as Apple’s planned “iPod Phone” with Motorola are but two examples that he uses to illustrate the point.  He also notes other technology restrictions imposed by carriers that we are all too familiar with such as “crippling phones’ Bluetooth wireless functionality so they can't be used as laptop modems or to synchronize with a PC”.

If customer needs continue to grow unmet there may be a company or new technology which will eventually come to fill the gap.  Alternatively the government may deem the current close system too limiting for future innovation and thus the entire technology competitiveness of the nation and will decide to intervene as it did years past with AT&T.  One way or another things will definitely have to change and freedom will ultimately prevail.

Wireless Carriers' Veto Hampers Innovation [WSJ Personal Tech]

Note: many of topics here were discussed at Wall Street Journal’s conference D: All Things Digital a few weeks ago – an event which I could unfortunately not attend this year.  I also sadly haven’t yet had a chance to meet Walt but did get to briefly see Kara Swisher – WSJ’s San Francisco technology correspondent – at a Web 2.0 dinner in SF last week.  However, since innovation and entrepreneurship are two topics that motivate me deeply, I am delighted to have been invited to the Innovate!Europe conference taking place in Zaragoza, Spain from where I’ll be blogging for much of next week.

Treonauts are free and independent thinkers

Posted by Andrew on June 8, 2005 at 05:16 AM

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by jack | Jun 8, 2005 9:16:08 AM

How has apple loosing half of its market share a resurgance? Selling a few million overpriced MP3 players may have boosted there bottom line in the short run, but the cracks on that venture are already showing, warehouses full of them and not moving.

by keith | Jun 8, 2005 2:12:58 PM

The company has a $30B market cap and $7B in the bank.

by Roger | Jun 8, 2005 9:13:18 PM

Free my People! Unlock my Treo!

by laika | Jun 9, 2005 1:18:24 AM

what if the concentraion of market shifts to Asia? as a Thai user, I feel that people in this region are getting used to the idea of changing their mobile phones every 6 months. in addition, or in Thailand for example, carriers do not get involved in the features of mobile devices as those in the States. thus, what if the idea of Apple rolling out their iPhone (according to business2.com) or Treo coming out with the features that they initially omitted for the U.S. market, in the Asian market first. maybe, the mobile carriers elsewhere will follow suit into adapting the open model.

by Andrew | Jun 9, 2005 1:34:48 PM

laika - I like your thinking. The main issue is that today the US market still accounts for over 80% of Treo sales and so cannot be readily dismissed.

Cheers, A.

by Jason | Jun 13, 2005 2:49:55 PM

Mobile service is a commodity, but through the current oligopoly the carriers can call the shots.
Give me a SIM card with a static IP number instead of a phone number. Sell me GPRS/EDGE/3G/WiFi bandwidth in big chunks for low prices {1GB/$10} and use VoIP to provide POTS service and converge data & voice.

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