How to Shape the Mobile Data Market

(Part 3 of "Who Will Pay for Mobile Data?")

There's a big nasty dilemma hidden at the heart of mobile computing:  No one knows how we'll pay for all that mobile data we're supposed to use in the next few years.  The question doesn't get much publicity, but it drives some of the most intense debates in mobile, including net neutrality and the wireless bandwidth "crisis."

This is the conclusion of a three-part series on the issue. In Part 1 (link), I talked about the tech industry's unlimited vision for the growth of mobile data, and why I think it won't come true because we'll run out of people willing to pay for data service

In Part 2 (link), I discussed the alternate scenario, in which everyone is willing to pay for mobile data and adoption of it continues to accelerate.  In this case, the mobile operators will need to invest urgently in increased capacity, and even with that investment we'll eventually run out of wireless bandwidth. 

The two scenarios leave mobile operators trapped between the need to expand their networks and the fear that they won't be able to pay for the expansion.  So the operators are trying to get other parties to help pay for the network.  I believe that's the real driver behind the net neutrality debate and the rhetoric about a wireless bandwidth "crisis."  Ultimately, government regulators will decide who will pay and how the mobile data network is structured, which will have a huge effect on which companies win and what we can do with the network.

In this part I'll give my take on what we should do about the situation, and I'll talk about the opportunities all of this change creates for operators, handset companies, and developers.



The look of mobile data in the future

If you only took away two messages from the first two posts in this series, these are the ones I'd want you to remember:

1. The only thing we can predict for sure about the future of mobile data is that it's unpredictable.  Maybe I'm right that it'll saturate soon; maybe Cisco's right that it'll go on growing explosively for years; maybe we'll average out to something in the middle.  The variables in play are so numerous, and so complicated, that absolutely no one can predict for sure what will happen.

In that sort of uncertain situation, I think our top priority should be to keep the mobile market as flexible as possible, so it can respond quickly and efficiently to whatever the customers decide to do.  That means we should ensure that market signals -- things like pricing and customer demand -- are as clear and unambiguous as possible, so we'll all know what the real level of demand is, and we can all respond to the same base of information.  The word "transparency" gets overused these days, but goodness gracious we need as much transparency as possible in mobile data.

2. We should plan wired and wireless data together.  We need to deal with the reality of the mobile network and market, not what we might want it to be.  And the reality is that we're not creating a separate wireless data network, we're creating a single integrated wired and wireless network.  A lot of the political rhetoric about mobile data talks about a completely cellular data future as some sort of public goal.  It's more like a public fantasy.  Every forecast I've seen from the wireless operators requires that they be able to offload a lot of traffic to the wired network.  Forget about wireless replacing wired; what we need to do is make sure they both work together well, with each focusing on what they do best.  That means wired is used whenever possible because in most cases it's cheaper and higher capacity, while wireless fills in the gaps.

We should set up a level playing field between wired and wireless so the market can sort out which traffic should go where.  Artificial political goals for the penetration of wireless, or favoring one network technology over another, are incredibly dangerous because they may lock in a market structure that turns out to be unaffordable.  In fact, because the market is so unpredictable, those sorts of goals are almost certain to be wrong.

So I get queasy when the US Federal Communications Commission, and even big companies like Google, argue that wireless data should have different regulations than wired data.  I think that increases the risk that we'll accidently bias the overall network in the wrong direction.


What we should do

As I've said before, I am not a big fan of government regulation in business, because it's usually inefficient and slow.  However, there are some situations in which you can't get the government out of the market, and I think cellular wireless is one of those cases because the public ultimately owns the airwaves in most countries.

So if we're going to have government regulation, let's do it right. 

The grand bargain.  The operators are asking for some mammoth benefits.  In the US, some of the biggest operators want to merge.  Okay, let's let them do it.  I don't think TMobile US is large enough to be viable in the long term anyway, so we need to merge it with either AT&T or Sprint.  If TMobile joins AT&T, which is the current proposal, the next merger in the US will be Verizon-Sprint; I think we have to accept that as well, for the same reason. 

The operators in the US and Europe want more spectrum allocated to them.  Again, I'd go ahead with it.  In the US, the television networks aren't using the extra spectrum, so it ought to go somewhere useful.

But in return, we should demand serious changes in the cellular data market.  I'm not talking about tweaks at the edges, I mean permanent changes in the rules of the game, designed to ensure lasting competition and a more flexible market that responds better to customer needs.

Here's what I propose:


Stop whining about the wireless "crisis" 

The first step is to change our rhetoric.  The bandwidth "crisis" is the tech industry's equivalent of the War on Terror: it's based on a genuine problem, it can never be completely solved, and it can be used to justify many actions that people might not otherwise consider.

The idea of a wireless crisis is an incredibly convenient tool for motivating government regulators.  Elected officials assume they are responsible for solving a wireless spectrum crisis, since they allocate wireless spectrum.  If it were called a "Verizon and AT&T don't want to pay for a bunch more cell towers crisis," I don't think President Obama would propose spending $50 billion on it.

This isn't just a US issue.  Anything one government does in mobile data is played back in other countries as a justification for equivalent actions there.  On a recent trip to Australia, I was surprised to hear a radio commentator complaining at length about the government's plan to supply broadband service to many Australians through landlines rather than wireless.  You can make a good argument for using landlines, since (as we discussed in part 2) they can carry a lot more data than wireless.  But the commentator was upset that Australia was failing to do "what Barack Obama is doing in the United States."

It's reasonable to ask what's so wrong with a little crisis hype and international competition.  After all, governments move far too slowly in most cases, so if a bit of alarming rhetoric makes them respond faster, isn't that a good thing?  The trouble is that we'll all have to live with the results after the "crisis" is "solved."  In that world, no matter how much spectrum we allocate to wireless data, service will continue to have slowdowns, outages and service gaps, especially in the United States, because it's more profitable for the operators to run their networks right at the edge of overload (in this sense they have the same financial incentives as airlines). 

We're lying when we tell people that the whole wireless data network could collapse.  Although service problems are a certainty, there is virtually zero risk of a full network collapse, unless the operators cause it themselves by underpricing data plans and selling more smartphones than they can support.  And we're misleading people when we say that prices will go up unless we allocate more spectrum.  Prices will eventually go up no matter how much spectrum we allocate to data, because demand for cellular data is growing faster than supply.

By overstating the risks and talking about the "crisis" as a temporary, fixable thing, we create an unrealistic public expectation for the quality and price of cellular data in the future.  That may well be advantageous for a couple of quarters or even a year, but in the long run it will erode public trust when we don't deliver the benefits we promised.  The wireless operators, especially AT&T in the US, already have big image problems.  Overpromising will make the problems worse.  To the extent that government agencies, and mobile tech companies like Apple and Google, participate in the crisis rhetoric, they risk their credibility as well.

We need to ask ourselves as an industry if we want to have the same sort of public image in five years as the airlines have today.  If not, we should be honest with people now.  For example, I think there is a convincing, legitimate case for reallocating old TV spectrum for data services.  Without it, mobile data prices will go up faster, and a lot of the features many of us want from mobile data may not be affordable.  But we should also be honest with people that cellular bandwidth overload is a chronic disease rather than a crisis, the network is not going to collapse unless we're incompetent, cellular service will not be as fast or cheap per bit as a wired, and cellular data will generally be a supplement to our wired broadband, not a replacement.


Make the cellular data market transparent

The problem with the cellular data market as it's structured today is that it often hides from users the real cost of the network they use, so they can't make well informed choices, and it's hard for us to tell which buying patterns are genuine and which ones have been created artificially.  For example, the cost of your smart phone is subsidized, so you don't realize what an expensive piece of hardware you're carrying in your pocket.  You're told that you have unlimited data, but actually if you use it too much your operator will probably reduce your data speed without telling you. 

By making cellular data seem cheaper than it is, we encourage people to use the network more, increasing the very overload that we're supposed to be fixing.  Some of the proposals for the future of mobile data would further increase the overuse of cellular data by making it seem even cheaper to users.

The structure of the mobile market also limits competition among mobile operators (especially in the US), and reduces competition between mobile phone manufacturers.

I think this systematic distortion of the market must stop.  If people could see the real cost of cellular data, they would make better-informed decisions about when and how to use it, and we wouldn't need secret back-end controls on traffic.  Meanwhile, more competition in services and phones would mean faster innovation, more consumer choice, and more efficient prices.

Here are some specific steps I think we should take:


1.  Ban covert traffic limits. 
Today some wireless operators (and some wired ones as well) are quietly reducing the quality of service they deliver to some users, without telling them.  This is done through various techniques including "traffic shaping" (prioritizing or delaying certain types of data packets) and "throttling" (reducing the throughput of the network, or the speed of certain transactions).  In effect it usually means reducing the connection speed of people or apps that use the network the most.  For example, Dean Bubley recently wrote about an ISP who consistently reduced data throughput at particular times of the day (link).

There are some types of traffic management that make sense.  E-mail spam can be reduced through throttling that limits the number of e-mails that can be sent by a single account per second.  Throttling can also be used to limit malware attacks, by reducing the ability of a rogue app to flood the network with traffic.  And I think it's fine to enforce the speed you paid for in your Internet connection.  For instance, if you've paid for a 10 MBPS connection and the operator limits your throughput to 10 MBPS, I do not have a problem with that.

But in some cases the operators are limiting network performance to covertly restrict users, either by interfering with certain types of traffic, or by limiting the speeds of some users without telling them.  For example, the current Verizon Wireless terms of service give them the right to reduce the throughput in your "unlimited" data plan if you're in the top 5% of data users (link).  They can do this without notifying you.

This sort of hidden restriction is damaging to the market because people may sign up for a wireless plan believing they will get more service than they actually will.  They can't make a fully informed decision between wired and wireless service because they don't know how much wireless data they're really going to get.  This may misallocate resources and make the wireless network even more overloaded than it would be otherwise.

The answer to this is simple: Require operators to notify a customer when they have throttled or shaped his or her service (other than enforcing the promised speed of the connection).  I am not against throttling in general, but it should not be done without notification.  A text message would be fine.  The Internet speedometer, which I discuss below, will also help with this problem.


2. Require a data gas gauge and speedometer in smartphones.  Can you imagine buying a car that didn't have a gas gauge and speedometer?  That's essentially what we do today with smartphones.  For most smartphone users today, there is no easy way to tell how much data throughput you're getting from the network, and how close you are to any limits on your data usage.  Some operators bundle apps to do this, some have more arcane ways to check, and some send you a text if you get close to the limit.  But I think it's fair to say that most people are in the dark about their usage until they get their monthly bill, and if they do go over a limit they will have trouble figuring out why.

This is an easy problem to fix.  We should require that every smartphone have an app, accessible at the same level as the Settings app, that tells the user how close he or she is to hitting any data caps in the service plan (for example, if you are a Verizon user, how close are you to getting throttled?).  The app should also show how much data you're using at any particular time, so you can see how much throughput the network is really giving you. 

We also should modify the signal strength bars to change color depending on how much data you're consuming at any moment.  This would show you when you're using a website or app that uses huge chunks of data.  When customers see that video or Flash makes their signal bars turn red, they'll be much more cautious about using those sites on the wireless network.


3.  Decouple the phone purchase from the network.  Currently in the US and much of Europe, if you sign a contract for a data plan, you get a discount of several hundred dollars on a new phone purchased at the same time. But you have to buy the phone through the mobile operator, giving them huge control over the selection and features of the phones they sell.  Basically, users are not free to pick the phones they want; they have to take the phones their operator chooses to sell.

This operator lock-in is subject to all sorts of backroom manipulation.  Weak phone vendors are forced to comply with a huge list of tests and requirements, while for stronger vendors the rules are often waived.  I've also been told privately by some operators that they deliberately discriminate against some handset vendors because they just don't like them.

The handset vendors aren't completely clean either.  A vendor with a hot handset may restrict its availability to a single operator in order to extract concessions from them.  Can you say iPhone?

It's a wonder that some operator or handset company hasn't been sued already for restraint of trade.  With the amount of operator shelf space shrinking in the US due to mergers, I think it's only a matter of time before there's a legal detonation. 

In addition to the legal risk, these restrictions have the effect of restricting customer choice and competition, so they are bad for transparency.  It's time to open up the handset market.  To make that happen, subsidies should be separated from the purchase of a particular phone.  When someone signs up for a plan, they should get a voucher for a discount on any phone.  The voucher can be used at that time to buy a phone in the operator's store, or it can be used later to buy a phone in any other store. 

This would encourage more selection and competition in mobile phones.  It would create more direct competition between operator service plans.  And it would put the wireless and wired networks on an even footing (can you imagine a wired data provider limiting the brands of PC that you can use with your cable data connection?).

In the US, I think we should consider one other step to open up the handset market.  In most of Europe, and many other parts of the world, there is a vigorous retail market in mobile phones sold separately from an operator.  Because everyone is on the same network standard, and because all the phones use SIM cards, it is easy to buy a new phone at retail and pop your card into it.  You do lose the subsidy, but virtually all customers know they can at least switch phones if they really want to.  This leads to a much larger selection of phones, and to higher competition between operators because it's easier to choose separately the phone and service plan you want.

The US market is much less open.  Most mobile phones are sold only through operator stores, and it can be very hard to switch from one operator to another because they have different network technologies, and some of them don't even use SIM cards.  Because it's so hard to switch phones, I think most US mobile users are barely even aware of what a SIM card is, and how to find it in their phone (most of them would probably confuse it with the SD card).

To open up the handset market, the US should require that all mobile phones use SIM cards, and that they be switchable between the major operator networks.  That way someone could go into a consumer electronics store, buy the phone they want, and use it with any network.  This will have to be phased in over time, but we're already moving toward it anyway.  Verizon and AT&T are both moving to LTE, and there are very strong rumors that Sprint will do so as well.  So some day we'll have one standard cellular technology base in the US.  In the meantime, we'll have to buy dual-mode phones that use both LTE and either GSM or CDMA, depending on which operator you use.  But the chipsets for smartphones are increasingly capable of handling several different networks, so they can switch between LTE, GSM and CDMA.  I think it would be reasonable to require that future smartphones sold in the US be SIM-based and capable of operating on all three standards.  I think the real question is how quickly we could phase in that requirement; if you have thoughts on that please post a comment.


4. Enable toll-free apps and websites.  As I discussed in Part 1, we need the data equivalent of a toll-free phone call, in which a website or mobile app company would pay for the data traffic generated by a particular app or site.  This requires changes to the operators' billing infrastructure, but I think it will be essential for enabling the growth of mobile data.  It should be an extremely high priority for the operators, and it's in the interest of web and app companies to get together with the operators to define standards for these charges, so they'll be easy for developers to work with.  I suspect there's an important role government regulators can play in helping to encourage these negotiations.


5. Do not allow the operators, or the web companies, to discriminate against one-another.  I agonized over this one a lot.  The operators would like to be able to charge web companies extra if they want reliable delivery of data (for example, in a time-sensitive app like video streaming), or if they want a guarantee of a certain level of throughput.  I understand why they want to do this, because it would help pay for their infrastructure, and I do not think it is inherently evil.  But I think it would cause too much collateral damage to the mobile market.  In fact, I think it would put us on a road toward wrecking mobile data.

The first problem is that hidden back-end charges like this are essentially an invisible subsidy for cellular data.  A user won't know the real cost of the data he or she is using, and this could end up increasing traffic on the cellular network artificially, contributing to data overload.

There are also big practical problems with implementing charges for quality of service.  As Dean Bubley has pointed out repeatedly (link), there are huge drawbacks to this sort of approach.  To give one example, there is no way to guarantee quality of service when you don't know how overloaded a particular cell site will be.  If one high-priority video session comes in, does the operator shut down five other "regular" data sessions to make way for the high-priority one?  In that case, the "regular" customers are not getting the service they paid for, and they won't even know it.  They'll just think something is wrong with the web app they're using.

I agree with Dean that there's no way to make a system like this work predictably and fairly.  Better to just charge users for the data they consume, let them know how much that costs, and allow them to adjust their own usage patterns.

The other reason we should ban quality of service fees is because in some cases they could produce in a destructive power struggle between operators and websites, with users caught in the middle.  US cable television is a nightmare example of what not to do. 

In cable television, it's common for network operators and content companies (the cable channels) to pay each other for services.  For example, Home Shopping Network reportedly pays cable TV companies to be included in your service package, because they know they'll make more money if they're seen in more homes.  They are, effectively, subsidizing your cable television service. 

On the other hand, many of the most popular channels charge the cable companies a fee for the privilege of carrying them.  For example, ESPN (the leading US sports network) reportedly charges cable companies about $4 per month per household; other popular channels are in the 5-20 cent per month range. 

The same sorts of things could happen in the mobile web if the operators could charge websites for service.  For instance, what if Facebook started offering video streaming as part of its services?  If the mobile operators tried to charge Facebook for its network usage, what is to stop Facebook from turning around and demanding a fee from the operators for allowing them to carry Facebook? 

Unless we're very careful, we could end up with a situation in mobile similar to the one in cable TV, where users get caught in disputes between the network operators and the content creators.  Some of those arguments in the US have been incredibly ugly, with users tied into long-term contracts for cable service but unable to access the channels they thought they paid for.  And remember, in cable we get these messes even though we have only have about a hundred channels to negotiate.  On the web, you have literally millions of them.

The operators should not kid themselves that they would win in this sort of showdown.  If Facebook cut off its traffic to Sprint's servers, what would happen?  Would users abandon Facebook because it's not on the Sprint network -- or would they switch off of Sprint because it doesn't have Facebook?  I think we all know the answer to that: there would be crowds holding pitchforks and torches outside the Sprint stores.  The websites have far stronger brands and far more user loyalty than the operators.  So it's unlikely that the operators will really be able to coerce money out of the most successful websites.

In practice, I think the operators would be able to get fees only from small startups that don't have brand awareness with users.  That becomes a barrier to entry for those companies, which historically have been the source of most online innovation.  To give a real-world example of what that could do to the web, look again at cable television programming: A small number of networks dominate the selection of channels, resulting in slow innovation and reduced choice.  There is very low turnover in these channels. 

If the web worked like cable TV does, we'd all still be using AOL for e-mail.

I've talked with people at small startup cable channels, and they are incredibly bitter about the barriers they face getting placement on cable systems.  They're actually counting on the web to let them bypass the cable operators.

I think the only way to make the mobile market work efficiently is to make the payment mechanisms as clear and visible as possible.  Make users pay for the data they use, and allow web and app companies to make their sites and apps toll-free if they want to, but don't start creating hidden layers of fees and subsidies.  That will just distort the market and expose operators to retaliation.  My operator friends, this is a war you cannot win -- so don't start the battle.

To formalize this settlement, government regulators should ban both operators discriminating against websites or types of traffic, and websites withholding their content from a particular operator or network.


6.  Encourage open WiFi.
  As I mentioned above, we're not creating a standalone cellular network, we're creating an integrated wired and wireless network.  WiFi has a critical role to play in that network, and we should make it even more central.  Here's a question for you:  How often have you tried to find an available WiFi network, and seen no networks at all in range?  I can't speak for other countries, but it almost never happens to me in any populated part of the US.  But how many times have you tried to sign onto WiFi and found only locked access points?  That happens to me all the time. 

We already have a very dense, well-populated wireless front end to the data network in most places that matter, but we can't use it fully because most of the access points are locked down.

There are good reasons for the lockdown.  If you leave your WiFi router open, it can be hacked (actually, it can also be hacked if you keep it locked, but that's a topic for a different post).  Also, in the US if someone downloads child pornography or does something else illegal on the Internet, the law often goes after the router owner because that's the only person they can find.  You can read some horror stories here.

But getting those connections opened up would have huge benefits for the public, because it would take some of the pressure off cellular wireless.  Rather than telling people to close off their connections, we should be encouraging them to leave them open.  Regulators could help this in a couple of ways:

--First, we should require that the next generation of WiFi routers have a pass-through feature enabling public access to the Internet without giving access to the user's home network.  Traffic from the user's private connection should have priority over the public one, and if public usage is excessive the user should be able to throttle it.

--Second, the law should be changed to protect people whose open wireless connections are abused without their permission.


Opportunities

So that's how I think the future of mobile data will look: unpredictable growth, always skating the line between overloaded and overpriced, and with a huge variety of users, almost all of them with some sort of limits on their data service, and many with budget plans that encourage very careful use of data.  For the health of everyone involved in the market, I hope we'll also get regulations that make the market more transparent, and more open to new players.

It's a different mobile data world than many analysts have been predicting, but that's not necessarily a bad thing.  Often the best business opportunities happen when conditions change unpredictably.  I think this is one of those times.  So I'd like to conclude by recapping the big opportunities as I see them...

For handset vendors, I think the most interesting new opportunity will be the smartphone designed for people with limited data budgets.  How do you entice people into gradually using more data?  This is an opportunity to do a fundamental rethinking of the smartphone user experience.  Since different people will probably respond to different data features, I think it will also be an opportunity for smartphone vendors to stake out their own market segments, helping to insulate them from the intense commodity price pressure we're likely to see in generic smartphones as the market fills up.
   
Try to think like an automobile vendor in 1950.  Do you want to compete with everyone else in midsize sedans, or would you like to dominate a smaller segment like station wagons or sports cars?

To target a segment, you'll need to hire people who know how to design integrated hardware-software systems rather than just devices, and you'll need to learn to partner closely with app and web companies as peers (rather than the serf-overlord relationships you're used to having).

In the last couple of days I've been contacted privately by some people who predict even more revolutionary moves by the handset companies, most notably the idea of selling a phone at retail bundled with airtime that you've bought from an operator.  In other words, the phone comes with its own network service.  That's what Amazon did with Kindle, and there's nothing in principle to prevent a handset company from doing the same thing. 

I think there would be a lot of implementation challenges, most notably keeping access to that third party network if it starts to run out of capacity.  But it would be intriguing to see what someone like Apple would do with this.

For operators, I think it's important to pick your battles.  Although covert traffic-shaping and charging websites for service is very seductive, in the long term that will lead you into intense conflicts that you're not likely to win.  It would also create more incentives for the handset companies to set up their own virtual networks, which really would transform your networks into dumb pipes.

I think it's better to focus on new business models that are a win for both you and your business partners.  The most appealing of these to me is toll-free data.  That would be intriguing to a lot of web and mobile app companies, allowing you to build cooperative alliances with them.  And it's a whole new revenue stream that might become very large over time.

For web and app developers, the emerging segmentation of mobile data makes the idea of "enticement" even more important than it is today.  How do you give people some software for free and then entice them into paying for add-ons or other apps?  Already most of the mobile app developers I talk to are thinking along those lines, and obviously that business model is very well established on the web.  But as smartphones reach down to more price-sensitive people who are less enthusiastic about data, there will be intense demand for apps and websites that can entice them into starting to pay for bits of mobile data. 

These "data on-ramp" apps are not always intuitively obvious, and will probably differ by country (for example, mobile horoscopes were a major driver of beginning data use in parts of Asia).  The companies that can find the on-ramps will be incredibly valuable to investors, handset companies, and operators.


What do you think?

That's my take on the situation. What do you agree and disagree with?  What else would you add to the picture?  How does it differ in your country?  And most importantly, what do you think the opportunities are?  Please post a comment and share your ideas.

30 comments:

Euroclie said...

A few thoughts about open WiFi: here in France we've got less WiFi hotspots than in the US...

And if you want free WiFi, you've got to find either a McDonald's or Starbuck, otherwise you're stuck with closed access points, even in public places like train stations or airports! OK, granted, in those public places you sometime have some open (but at a cost) access points. So much for using WiFi to save on your mobile data bill!

On the other hand, some ADSL providers (Free, 9Telecom...) already provide a feature on their ADSL box where there's a separate, public WiFi SSID that can be used by other customers of that operator when they're roaming, for no additional costs. It works well, especially in higly populated areas.

And there are also companies like FON who sell addon WiFi access points that you can hook to your existing ADSL/Cable box to provide a public WiFi access to the network, for free if the user is also a FON customer, and for a fee after a login process if he's not.

The good news is that in both cases (ADSL providers public channel or FON-like solutions), you've got to authenticate before using the WiFi access point, so at least it should prevent the owner the hassles of having an anonymous guest using his access point for illegal things and getting into trouble because of that.

All in all, I agree with you, Mike, that we need more transparency in the billing process, though. A lots of users complain when they have to pay for WiFi, because we've got used to associate WiFi and free access, and mobile (GSM and such) with high bills.

If people could compare the (true) cost of a session on their mobile operator network vs. on a WiFi acess, they might realize that it probably makes sense to chose the appropriate pipe depending on your data usage. But they'd also probably realize that they're getting ripped-off more often than not, which is why I'm not certain that carriers (wireless or not) will like transparency!

Rob said...

Just to add to the Fon story. They have been selling exactly the idea you mention of allowing phone-network customers to offload data to wifi. In the uk, they have a deal with BT where BT wifi customers get a FON enabled router. BT customers can then connect to any Fon access point.

Hard to imagine how this scales to a universal solution though.

There is another conflicting incentive here. A few years ago, most home routers were sold unlocked. That meant that you set up your wifi network, and then your neighbours could connect.

My suspicion is that the move to locked-down routers has nothing to do with security, but everything to do with making more sales by reducing shared connections.

bill.chard said...

Interesting point about requiring all US mobiles to use SIM cards to decouple the phone purchase from the network and open up the handset market.

What's your view on the initiatives (from Apple, among others) to make the SIM function reprogrammable, and achieve a similar end, but without the removable plastic cards (because if it can be reprogrammed then the SIM may as well be embedded in a circuit board)?

Does this shift the control too far in favour of the handset vendor?

By the way, I think there are strong arguments in favour of reprogrammable embedded SIMs in markets like M2M, for other reasons.

Dominic Travers said...

Great series of posts, thoroughly enjoyed reading them, and agree with a few of your points... but...

C level executives in the European operators are, beyond a shadow of a doubt, strategically retarded. Every smartphone user I know or meet thinks the current data service they get is atrocious. Every single one of them would pay a fair rate for metered data with some kind of QOS guarantee. I would be happy to part with £20 - £50 pcm for a data connection that isn't total garbage... and no, I don't want Sky TV on my mobile, or any video for that matter. Getting two thousand characters of text and some tiny images in to my mobile browser in less than 60 seconds would be a good place to start.

You make a lot of good points, transparency of the cost, and the obvious flaws in prioritising certain types of traffic. Though how you can advocate toll free services, and come out against priority servicing of content owners baffles me... They are one and the same thing. Opening up domestic WiFi by law is total batshit.

Mobile operators have been creaming massive profits in the developed world for well over a decade. So much so that, and I know this from years of experience, they pay 80% of their staff large salaries to almost nothing of any use to anyone. MNO's need to stop whining, and get ready to buy a load more spectrum, and lots of NSN kit. Then offer me a level of quality data connection that pleases me, and I will pay through the nose for it. I can already meter my data apetites both fixed and mobile. Fixed ISPs and mobile operators glaze over when you use terms like latency and thoughput because almost none of their staff have any idea how the internet arrives at the screen in front of their eyes.

The C level suits need to change their strategy of "parity" and actually try to compete by delivering at least some semblance of an data network to users. Make facebook "free" to users by bundling it in to subsidised handsets and having it work in the background. Just charge for it in the total tariff, don't discriminate in the proxy layer as it's these stupid boxes that ruin the mobile web for the rest of us.

Roll on 2012, when I hope somebody interesting enters the spectrum auction.

greenlander said...

I travel a lot internationally and always have problems with SIM cards, data plans, absurd roaming charges, etc. I just want to read my email. Why is it such a hassle?

I finally found something that works like it should: the Amazon Kindle 3G browser! I went to Paris, and used it to read my email. I went to Beijing, and used it to read my email. In Franfurt and Hong Kong, it worked. I was finally convinced I would break it when I went to Novosibirsk, Russia (in Siberia), but it worked there too! Somehow, Amazon negotiated plans with carriers worldwide. The data rate is slow and the Kindle browser is clumsy, but it *worked*.

It was just a pleasure to see that somebody could do it and not subject the user to stupid carrier-induced BS.

Anonymous said...

even more important than decoupling phone and service plan sales is i believe the following:

currently all the carriers have different rate plans for different device types. for example in prepaid at&t has a plan just for the ipad, than a new $50 unlimited everything including data for feature phones, and a variety of smartphone plans with different caps. Verizon has similar plans. sprint bans use of higher end phones all together on there cheap virgin mobile and boost brands(even though they do allow basic sprint feature phones on boost) to truly have transparency we need to not only separate handset and rate plan sales but set a new rule allowing 'any rate plan on any device.'

the major operators these days also have mandatory data plans for all smartphones. lots of people may want to buy new smartphones but only subscribe to talk&text and use wifi for all data needs. you can not do that these days. new rules should explicitly make this possible.

i think one of the reason we have so few open wifi points is that many people believe that instead of creating a reciprocal sharing with neighbors they will simply be giving free internet to people who choose to pay nothing at all.

Anonymous said...

Michael,

what are your thoughts on the wired operators(cable and DSL) deploying wifi on a broad scale? and eventually being a much higher capacity alternative to cellular data?

seems it should be feasible in two ways:

1. place routers on the lamp posts or junction boxes outside of homes. the signals could be used by anyone subscribing to the wired service.

2. providing special modems to subscribers that create two separate connection to the network. one for the customers personal use, and a second one on the different wifi channel that can be used by any subscriber to that companies service. since there are two separate connections users on the second channel would not grab bandwidth from the primary subscriber.

the operators would not sell wifi only service since too many people may go for that and not enough of the special modems would be installed.

coverage would be determined by density of subscribers but in major metro areas at least there are probably plenty of cable subscribers to provide near blanket coverage. and since nearly every wired connection these days has a wifi router attached already i do not see any new radio interference problems coming along.

what are your thoughts?

Aaron Klein said...

Michael,

I often love your analysis and think you are dead on about a variety of things, but this is the first time I've ever violently disagreed with a series of posts from you.

(I still have some points of agreement here and there, but by and large, much of it doesn't compute for me and I don't think it's just wishful thinking.)

From a revenue standpoint, as voice and data converges and other services start getting shifted into the data network (e.g. why pay $13/month for XM when my smartphone plays Pandora via Bluetooth on my car speakers), it seems like there will be a broad and deep market willing to pay $100/month for enough data service that they have what they need (perhaps not unlimited, but "practically" unlimited).

The only government interference that I agreed with in your post is the requirement for carriers to disclose when they are not providing what they promised. Governments should require companies to do what they say and tell the truth.

But I don't want the government requiring certain chipsets in phones. I don't want the government regulating the color of my signal bars (even though that's an awesome idea that Google and Apple should implement). I don't want the government requiring that I share my DSL over wi-fi, even if I have immunity from my neighbor's illegal actions.

In other words, I don't want the government mucking up the Internet like they so vastly improved my long distance service in the 1980s.

The solution isn't metering and regulation. It's competition, revenue and investment.

A big piece of this is that I don't see a huge difference between cell towers and wi-fi. They are both wireless access points that connect back to a wired network. One of them is pre-authenticated and has a revenue stream attached. The other either has no revenue stream, or requires a complicated negotiation (password, login, etc.) to enforce one.

Wi-fi spectrum is even more noisy and conflicted than cell phone spectrum, so if we move all the wireless devices to wi-fi, we're unlikely to make this much better.

If I'm already within range of a cell tower, I find it hard to believe that we can't figure out how to deploy more equipment and fatter backhaul to each existing site to grow capacity. Especially with data traffic, where the technology keeps getting better at putting more data into a wireless signal.

Ultimately, for wireless to scale, we need more access points, we need bigger wired pipes to the access points, and we need carrier revenues capable of paying for that.

You haven't convinced me that's impossible.

Bill Bliss said...

I've enjoyed this series of posts, Michael.

Regarding your idea of leveraging existing WiFi coverage more broadly... I like the idea a lot, but there are some infrastructure / standards issues that need to be solved.

While you may not have meant to imply this, I think it's overly simplistic to say that open WiFi means unlocking WiFi routers, and I'm not sure your "public passthrough" is practical. Regarding your comment "the user should be able to throttle it" - users would need a gas gauge-type thing (actually more like per-process CPU utilization) on their routers too in order to know when to throttle it. Most people I know have no clue how to modify their router settings, nor do they want to know.

But there is an existing model to follow: cell phone roaming. Cell phone towers don't let any SIM card's traffic through either; you must be authorized by the carrier. And if you aren't in the carrier's network, there's some behind the scenes magic to make roaming work. (Magic which really only started to work reliably 12-15 years ago.)

That magic does not exist for WiFi - while networks such as Boingo and GoGo support roaming across WiFi networks, it's all done at the user level via authentication in the browser, where it happens at the network layer in the cell phone network.

However, it's not too hard to imagine a simple layer that makes this work more seamlessly. When your cell phone encounters a locked WiFi node, it could the cell data network to look up that SSID in a registry, which would then return the password to use that SSID.

There are a number of open issues, security is one, how users (or the phones) identify these special networks, how to get the device manufacturers to embed this in their software, how to make this non-intrusive for the "host" WiFi owners, etc. But I don't think it's necessarily too hard.

If such a system existed, I might even consider subscribing to Boingo/GoGo etc. which right now only makes sense for road warriors.

Anonymous said...

how does the whole 'wifi offload' concept develop when at the same time more and more of the open hot spots across the country and around the world are wifi tethering connections or mifi style routers?

you end up with cell phones drooping 3g/4g in favor of wifi that is actually another cell phones looping right back to the cellular network.

Anonymous said...

one important thing to consider its that peoples willingness to pay more for data will likely be linked to how much cheaper voice can get. if the total bill doe snot increase people may be willing to pay quite a bit more. for example someone paying $80/month today which is $50 voice and $30 data may still be willing to pay the same $80 if it changes to $20 voice and $60 data.

i just do not see willingness on consumers to pay higher total monthly bill than they do today though.

Chuck Till said...

Makes great sense to me. We'll see if the world is as rational as these three posts.

Walt French said...

Michael, you're performing a great public service by raising these issues.

That said, I think you shortchange some important parts of the solution:

- cross-carrier load-leveling. Our auction/technical process for spectrum encourages (as FCC's Genachowski has said) gamesmanship to lock up spectrum for profits, even if that means some goes unused.

- also for load-leveling: IIRC, Apple has filed a patent for “bidding” for lowest-cost spectrum by a wireless device. This could allow dynamic use of spectrum at virtually zero incremental cost, due to unused capacity.

- femto. I see reports that the number of femtocells in the US now equals the number of regular cell towers. If a site offers wifi, why not also voice/G4? Surely, the capital cost is irrelevant for the high-volume usage that could result, and presumably this bypasses all the NIMBY and other concerns re: tower location. (While cities can regulate visible towers, only the FCC can regulate actual transmissions, such as e.g., in airports or coffee shops.)

- tech: of course, the fact that I can be directly underneath an unused Verizon tower has no relevance if I have a GSM device. This is simply wasteful (valuable for monopoly/oligopoly profits only).

- actual costs: while you do a great service in highlighting these issues, I desperately want to see actual capital costs of a 3G or 4G base station. My impression is that a well-utilized (see all other points above) “tower” is extremely inexpensive versus the billed cost of the capacity provided. Yet the carriers, with effective monopolies at any location (see standard monopoly pricing theory from any Econ 101 text), naturally restrict availability and have higher prices. If we were to remove the monopolies, we might very well blast through your concerns that towers are expensive. Yes, the SF process IS awful and so are many others, but an exposé about how any individual city costs its citizenry bigtime in encouraging high cell costs would quickly shift the balance.

These are just quick points off the top of my head. While physics is real, we needn't let past practice dictate the economics of how cells function.

Michael Mace said...

Thanks for all of the fascinating comments, folks. I haven't had time to digest them all yet, but I will this weekend (and am looking forward to it). I'll have responses then.

In the meantime, please keep posting -- I am learning a lot from you!

Anonymous said...

Maybe a bit off topic but I'm amazed how much more you pay for both mobile and fixed internet access in the US compared to most European countries. Allowing the biggest players to merge is maybe not the best way to change this?

Anonymous said...

@Aaron

The limits of Radio are very easy to understand: All the people share the same channel, the air, and this brings a lot of problems you won't find on wired.

Imagine that you need to talk to each other but someone else is already talking, loud. The only way you can communicate is being louder than him.

You need to see it, buy a network card for the computer and install wireshark, and listen to the "air", you will be surprised how much you see.

TV and Radios work because they broadcast one way only. They talk really really loud, and people could only listen to them.

That is mobile in a nutshell,it is not as simple as making "bigger pipes" because possible interactions are not linear(they do not scale well, as more people talking means higher noise), while wired use dedicated channels, and light.

I believe there is a huge opportunity in light or radio connected to wired as Michael says. Light could be used in a lamp and you can put your ipad in a dedicated radio surface(the equivalent of talking near someone so your voice is heard exponentially louder)

Rob said...

I think anonymous made a great point about bill levels. Since I first had a mobile in 1995, mobile plans have cost about the same. From about £20 for a basic consumer plan to £40 for higher end, and £75 for top end business plans.

In '95, that £20 plan got you something tiny like 30 mins a month and 30 texts whereas now it probably gets you unlimited txt and 600 mins with perhaps a bit of data thrown in. In '95, you got the most basic possible phone 'for free' with the plan, whereas now you can probably get a basic smartphone in the £20 plan.

I suspect this will continue; Carriers will market to broadly the same price points, and adjust their offering at those price points to compete with each other and manage costs.

gzost said...

Great posts,and probably another comment from me later, but for now just one little thing:
Why have the financial benefits of entering into a long-term contractual relationship with a MNO tied to the purchase of a phone at all, even with vouchers? Just allow the signing bonus to count against the monthly charges, or factor this already in and give me cheaper service vs. the pre-paid customers.
Voice and messaging handsets have long been good enough that there's no need whatsoever to replace a handset every two years. Smartphones are still evolving very quickly, but there is also going to be a point where a smartphone may still be perfectly satisfactory for the current set of requirements for more than two years. (I actually think that something like the Samsung Galaxy S 2 may already be there. I don't expect quad-cores, 2 GB of RAM and 400 dpi displays to be the norm in 2013.)

Jussi said...

Your three posts made vere enjoyable reading and touch upon very current topics.

On the decoupling of phone purchase from the network we have some recent experience in Japan. The market in Japan used to be very similar to that in the USA in that operators subsidised handsets (0 yen) and were able to push certain technologies much more quickly to the market (two years ago already ca 90% penetration of ISDB-T mobile TV). The only way you could buy a handset was to get a bundle of a device and dataplan, although you did have plenty of selection in the monthly bills depending on the plan.

I was based in Tokyo when the administration (MIC) started to look into these practices some years ago, but haven't followed it so closely recently. Anyway, MIC found out that the monthly data fees charged by the operators were higher than they need be. For example, the operator would get the price of the handset eventually refunded by the monthly bills but even after the supposed cost was recuperated the consumer continued to pay similar fees. Another concern was that consumers changing handsets only seldom would in effect "subsidize" those consumers who switched handsets often (because everyone pays the same monthly fee planned to recover the handset cost to the operator in a couple of years).

The solution was the enforcement of separating the handset subsidy from the service subsidy. This way, should you choose to pay the full price for the handset itself (say, 70 000 yen) you could choose a cheaper monthly service fee that only reflects the data package you select. Should you still want to get the latest and greatest device for free, you would be locked into a maximum two-year contract with higher monthly fees.

All of this made sense, but due to a similar structure to the US market of "SIM-operators" (docomo, SoftBank, eMobile) and "non-SIM-operator" (au) it was not seen fair to enforce the ruling for current portfolios. If I remember correctly this would have been applicable only for LTE devices which all four of the Japanese operators would be launching to the market.

About the freedom of buying an unlocked phone and pop your SIM card into it: you do need a very attractive device for consumers to actually choose that option. As long as the choice of subsidized devices is there, hardly anyone sees the benefit in buying a "free" device - just look at e.g. Nokia's success in the USA outside the operator channels. In some European countries the regulator has actually banned bundling and subsidies (e.g. Finland was so earlier) which did encourage competition between devices. The drawback of forbidding subsidies is then the slower market penetration of expensive smartphones (which was also seen when Finland dropped from its position of the mobile hotspot of the word a decade ago to a relative backwater).

Walt French said...

Another point I left off regards load management: right now, users are responsible for choosing 3G versus wifi or a wired link on some functions such as media download; they can trade off cost/speed/timeliness. iOS has a feature or two where data is transmitted every 24 hours or when wifi becomes available, whichever comes first; it appears that there will be some scheduling of the synchronization in iOS 5.

As the limitations you cite become more serious, subsequent OS updates for first-tier smartphone OSs will undoubtedly move further in the direction of bandwidth management, mostly automated but perhaps subject to user over-ride.

carkitter said...

Excellent series of posts.

With regard to one network technology across the US...

Here in New Zealand we have a mobile network operator which has decommisioned it's mobile network technology twice resulting in migration of all it's customers to new handsets. First from AMPS to CDMA in 2000 and then to SIM-card based WCDMA in 2008. The first forced change made many low end customers very angry - most went to the GSM competition and had to be bought back with unlimited txt deals that were later changed to limited deals. The second forced change has caused that network to be ridiculed in blogs and forums across the country. Worse, the marketing was inane and the new (rushed into service) network collapsed 4 times leaving large parts of the country without reception. The resulting press coverage has been brutal and once again customers have been lost to the competition. Clearly, switching network technologies is bad for business even when the new technology offers tangible benefits.

The worst thing is that the network in question has maintained a policy of competitor-incompatible technology throughout the changes, first by choosing CDMA when the competition used 2100MHz UMTS and then choosing 850MHz WCDMA when the competition is using EU-spec 900/2100MHz HSPA. Chances are, they might chose WiMax for 4G just to spite us all.

There is no guarantee that should Verizon and Sprint move to a GSM-based technology that they wouldn't find some way to remain incompatible with the other GSM networks and their phones.

RomanP said...

There are applications which allow you to prevent possible bill shock of data charges. For example Roaming Guard for Symbian smartphones, No Data for Windows Mobile...

R_hR said...

I like it that people are thinking of alternatives for transmitting data and the open wifi alternatives in highly populated areas seems like a great idea. The problem I currently have with mobile data is that operators are selling me a x-mbits package with a maximum of data per month, but I never get even close to the promised down and up rates. Operators then say it's because I'm far away from the towers, or a lot of other people are using the same tower...which is fine, but it becomes annoying when put into context: I don't use all my data (1Gb a month) or anywhere near the speeds promised (due to capacity limitations), but still if I wanted to use skype or even SMSoip (really small data packages), my operator claims it's clogging up the network and should be charged extra!! Basically what they're saying is, we're promising you this and that, but if you come anywhere near reaching the limits you pay for, we're going to restrict you.

Perhaps a linkup between operator, webservice, OS and so on is a possibility..imagine google or apple setting up their own networks and offering prioritised service to their handsets and services. Although you'd get massive ecosystem lock-in, it would solve the problem of the multi-billion dollar services leaching off the multi-billion dollar providers...

Rob said...

just have to comment on R_hR

"it would solve the problem of the multi-billion dollar services leaching off the multi-billion dollar providers..."

the wireless providers really want us to thing of the service providers as leaches, as the ISPs in the UK keep trying to say that it is unfair that the BBC provides streaming video and forcing the ISP to pay for the bandwidth.

The fact is that the services provide the value here. They provide the utility for which the users are willing to pay. The operator gets to charge for access to that utility as they provide the toll.

Try this thought experiment; If google, facebook, youtube and every other significant service shut down - how many people would be willing to pay $100/month for data then?

Rob said...

great data here

http://cow.neondragon.net/index.php/kens-tech-tips-worm

turns out customers really like 'all you can eat data'

one of the uk's minor telco players seems to be doing well by offering all you can eat while the other operators close it down.

Dean Bubley said...

Hi Michael

Some thought-provoking material in these posts... and thanks for name-checking me as well.

I agree with you on some aspects, and disagree on others.

I certainly agree on the issue of mobile data pricing - in many cases it has been absurdly low for domestic data plans, especially for PC 3G modems/USB dongles. It's quite common to get 3-5GB per month for as little as $20 in many countries, and on most non-US networks it is PCs, not smartphones, that still make up the bulk of data traffic.

I (mostly) disagree on the issue of toll-free apps. Sounds good in principle, but I think it will be nigh-on impossible to implement, and will have a plethora of "gotchas". I wrote a blog post about this last week:
http://disruptivewireless.blogspot.com/2011/07/zero-rating-sender-pays-toll-free-data.html

For starters, an app would need to be aware of 3G/4G/WiFi connectivity - it's unlikely that the upstream app provider will want to pay for toll-free service when connected via WiFi. We'll also get big problems if apps can talk to each other on the device (eg if running in separate tabs in an HTML5 browser) as it will be near-impossible to define which app is which. Consider the issue of a web page linked via a Facebook page & rendered *inside the FB app* - it that Facebook's data, or the 3rd-party site's?

WiFi is an interesting theme I'm doing a lot of research on at the moment. There are various efforts afoot to make it more useable as an offload or complement to cellular data. These range from the useful and convenient, right through to the Machiavellian: some parts of the cellular community are trying to own/control WiFi. The connection manager layer of the OS will be a strategic battleground.

Making it illegal for app providers to favour certain networks over others will be tricky. (eg your hypothetical example of Facebook denying service to Sprint) In particular, what happens where the app provider is the operator itself?

Are you saying that when LTE moves mobile telephony to VoIP, then Vodafone will have to offer its voice service/app to *all* mobile networks, and all networks will be forced to accept it on equal terms? Bear in mind that many operators already have their own app/content businesses.

There's also a big series of issues around dealing with traffic in "busy hour in the busy cell", vs. essentially harmless traffic in underloaded times/locations. Do you charge the same? And what about apps (or devices) that are particularly signalling-heavy but have low levels of outright data "tonnage"?

There's many other themes I could also drill down on, but hopefully this has given a bit more food for thought.

Regards

Dean Bubley
@disruptivedean
disruptivewireless.blogspot.com
disruptive-analysis.com

Anonymous said...

spectrum allocation and billing should be as simple as building roads for trafficking. the land associated with good road, easy access causes more to purchase, and pay more property tax. Many roads build by private corp and transfered to gov for collecting traffic fees, and taxes. Same model should be apply to the spectrum. Gov should be the only one can oversee a major network like spectrum, just like the major highway (private company should participate the construction of such highway in term of contract, but need a grand vision and overall planning). With current scheme of multiple vendors, roaming charges, paid wifi via fee is not the way to go. Free data plan? not going to last very long (nothing is free in the world). I do like smart chip idea for now, pre-load money on the chip, pay as you go wifi, just like singapore traffic stop, you have choice to turn left on a busy road, the smart meter tell you how much it would cost,or you can choose to turn right for a bit longer trip for less pricy or free, leave the busy road for rich (unless you are in a super hurry. Time is money, same goes with data traffic).

id said...

I agree with Dean Bubley on the issue of toll-free apps and web-sites.

One "gotcha" is is when the toll-free web page includes ads hosted elsewhere.
It is only the client-side browser that knows that a number of different downloads belong together - on the server-side they are just requests for different URL:s.

You wouldn't want the end user to get e.g free Facebook, but have to pay for downloading the ads shown on the side.

Dyon said...

Interesting post (late to the party, sorry).

In an e-mail reply you sent me some months ago you already stated that you feared the effects of governments making poorly-written net neutrality regulations. This has now become reality in the Netherlands.

One year ago I was offered a lifetime of unlimited cellular data for a mere 2.50 (2 euros and 50 cents) a month by my provider. Ofcourse I accepted. I paid 9.50 a month for unlimited data before.

Over the course of a year, services like Whatsapp, Viber and Skype have become mainstream, replacing SMS texting and operators are thus losing out on revenues, charging 10 cents for a couple of bits worth of text was their cashcow for years.

But now nobody is texting anymore, innovation caught up with the operators so they want to start charging people for Whatsapp and VoIP.

Consumers complained which lead to net neutrality regulations, blocking providers from charging consumers for specific services. So within the course of 2 weeks, ALL providers (T-Mobile, Vodafone and KPN) have revised their mobile plans. No more unlimited wireless data, an averagely priced plan gets you 200mb of data, if you go over it you end up paying about 1 euro per MB.

Consumers are outraged but have nowhere to turn, since every provider has done the same thing, there are no real alternatives left, except cutting back on data usage.

Mobile internet has been set back in time.

Anonymous said...

The government would regulate it and severly damage, and probably tax us more to do lousy work! Private company's would charge us more for the work put in to create a better solution. Just as airlines (except SWA) start charging for first and second and plus bags you expect exemplary service and often when your bag does not arrive you are livid. The SWA philosophy leads well here, of making promises and not charging and actually CARING on the level of device your Customer is provided. If the are happy the use you more. I have recently moved from a great service coverage area with AT&T to one that I rely heavy on Wifi because the 3G signal is pathetic. Sadly as a Customer I am disappointed but have no avenue to change due to a contract. Companies will only operate where the profits are the highest. Greed will dictate the supply and demand for all the country over any need or wish we may have in the grand scheme of things.