This is why it's so much fun to do business with the mobile operators

"Quite frankly, we’re happy that we’re not first to market with the iPhone."--Dennis Strigl, Verizon COO, 2007 (link)

"I don't think Verizon needs the Nokia and Microsoft relationship."
--Tony Melone, Verizon CEO, 2011 (link)

There's a backstory to this.  Verizon sells CDMA phones, a technology which Nokia dropped years ago.  Microsoft jerked Verizon around on the availability of the Kin phone last year.  So Verizon doesn't love either company.  On top of all that, Verizon has always been a lagging adopter of new phones.  It has a reputation for doing more testing than the other operators, and doesn't mind being late on a product or technology.

Still, the quotes are very revealing of an almost subconscious arrogance that I often see in operators around the world.  They view their customers as possessions who are allowed to buy only the phones that the operator chooses to offer.  The operator sits in the middle and extracts money from everyone.  What Melone's really saying is that Microsoft and Nokia will have to pay him a lot of money in order to have the opportunity to sell phones to Verizon customers.  Never mind what the customers might want; all that matters is what the vendors do for the operator.

This is why the operators love the increasing competition between smartphone platforms.  It gives them that much more leverage to play them off against each other.

Picture yourself as a smartphone company trying to deliver a great new phone to customers.  What do you do about these restrictions?  It puts a lot more pressure on your financials and your ability to execute -- you need to create a strong brand through heavy marketing, and create products so iconic that people will demand them.

And if you're a phone customer looking to choose whichever phone you want?  The situation varies around the world.  In some places, phones have to be sold separate from mobile service.  That gives the greatest customer choice.  In many areas, you can buy a phone and then switch SIM cards to use a different network, but you lose the operator subsidy on the phone.  So it costs you hundreds of dollars to exercise freedom of choice.  But Verizon doesn't even support that level of choice, so you are stuck with only the phones that Verizon allows you to buy.

The options for Verizon customers:  Change operators (if you can find another one with coverage in your area).  Change the law to mandate free choice of phones.  Or change countries.


Mike Cane said...

>>>Still, the quotes are very revealing of an almost subconscious arrogance that I often see in operators around the world. They view their customers as possessions who are allowed to buy only the phones that the operator chooses to offer. The operator sits in the middle and extracts money from everyone.

Wow, does that so sound like Apple today, after demanding 30% from everyone who sells content!

Anonymous said...

Verizon's arrogance knows no bounds. I worked in a wireless retailer a while back when we started carrying Verizon phones. They had us all drive up to their facility a good 30 miles north for 8-hour training sessions. During those 8 hours (the only face-to-face training we would get from them), they spent 6 hours training us on the 5 reasons Verizon is the best carrier, and only 2 going over rate plans, policies, backend systems, and other things we would need to know to actually sell their service/products.

I also had a customer switch from Verizon to Sprint. I had told him Sprint's offerings, and being an existing Verizon customer, he wanted to go to the Verizon store to see if they would match the offer. He came back 20 minutes later - said that the Verizon rep looked him straight in the eye and said, 'We don't have to match Sprint's offers because we're better than they are.' Straight faced, didn't even crack a smile. Unbelievable.

There's a difference in confidence and arrogance.

Anonymous said...

In most of Europe, you don't really lose operator subsidies when you buy a phone separate from a contract, since the contract conditions for contracts without a subsidized phone are better. Inevitably, when you do the math it turns out that you're better off buying the phone from one of the cheaper retailers and get the contract separately.
BTW, I recently read a blog post that claims that now US carriers are starting to offer pay-as-you-go plans without subsidised phones that have better rates. So maybe the tide is turning there as well?

Douglass Turner said...

The experience of dealing with mobile operators is something folks whose mobile software development life began with iOS or Android would find hard to believe.

Check it out: From the late '90s to the early 00's I spent eight years doing mobile development and strategy in the Nordic region (based in Reykjavik). I got involved with a UK mobile startup doing mobile postcards: snap a photo and a physical postcard gets dropped in the post for the recipient. The great day finally arrived when we were summoned to a meeting with the UK-based mobile operator Vodafone. In those pre-historic days the mobile operators maintained complete control of the mobile handset "deck" thus defining what functionality the handset presented to the user.

I entered the Vodafone headquarters, a vast corporate palace with a large atrium with walls of exposed brick. I entered through large glass doors in a glass facade that rose 30 feet supported by elegant stainless steel. Ahead was the front desk made of dark exotic wood staffed with the requisite gorgeous blond babe receptionist, crystal vases containing fresh cut flowers at either side. Glancing to my right I was stunned to see a Michael Schumacher F1 Ferrari bolted to the wall ten feet off the ground. For good measure Schumi's signature was emblazoned across its side. As lead Ferrari F1 sponsor, Vodafone yearly paid tens of millions (GBP) to splash their logo across every square inch of that beautiful machine.

As my 4-man team schlepped in we realized quickly were not alone. This was essentially a mobile cattle call similar to what actors and dancers go through on a regular basis when auditioning for a Broadway play or Hollywood.

Our meeting with the Vodafone folks was just bizarre. We did our dog and pony show in a cramped, windowless office surrounded by Vodafone corporate operations drones with dour expressions who could care less. Long story short, the deal fell apart when I and others balked at the requirement that we each take out insurance to cover liability for millions of dollars of potential damages in the event our little app took down the mighty Vodafone network.

Here's the take away: mobile operators have only two concerns:

1) keep the network running
2) retain customers.

Nothing. Else. Matters.

Not smartphones. Not apps.

Text messaging (never originally intended as a public facing app!) is the best thing that ever happened to mobile operators: charge exorbitant rates for minimal bandwidth consumption and usable from any handset.

Mobile video scares operators to death!

Mobile operators are really no different then a power company or a water company. The roll trucks. I call them butt-crack industries. They are a utility that suddenly, accidentally, became fashionable. They never had any intention of being in the digital media business. This is all a horrible mistake.

Twitter: @dugla

Stark Ravin said...

I dislike government regulation as much as the next American, but given the market has broken down here, the only right thing to do to stimulate competition is to make it a law that phone makers only ship devices that work on all networks. Additionally, phones must be available for purchase separately and customers can have the operator get it running on their network. Whether that is through dropping in a SIM card or whatever.

The operator can still do device subsidies and contracts and all that, but customers should have the option to buy a device without encumbrances and to run it on any network in the US. All this is possible technologically; the only thing keeping it from happening are the carriers' onerous business practices.