06 December 2007

Wireless network openings

AT&T, of course, could not be left out of the limelight that has surrounded Verizon's recent announcement. As TechDirt reports, they now claim to have "opened" their network as well. As a GSM-based operator, it has always been possible for users to purchase an unlocked phone and put in AT&T's SIM card. This is basically what AT&T is announcing to the world.

It is clear that this misses the point a bit. In its announcement, Verizon suggested an "unbundled" pricing scheme for these new devices. AT&T makes no such offer ... as a user of an unlocked phone, purchased separately, I received no break on AT&T's monthly service, so I didn't benefit from an handset subsidy, yet I pay the same amount. Go Figure.

On a related note, you might find Om Malik's analysis interesting. He writes:

The wireless unit of Verizon (VZ) reported year-over-year subscriber growth of 12 percent, but a mere 5 percent rise in voice revenues. Data revenue saved the day, surging 63 percent and lifting the company to 15 percent revenue growth overall. Data revenue per user increased 43 percent, while voice revenue per user declined 5 percent — pushing data to 20 percent of revenues from 14 percent. The same report revealed a 10 percent decline in residential access lines. The voice business of Verizon Wireless, in other words, seems to have entered the same cycle of contraction suffered by Verizon’s wireline business in recent years.

Joining the open access bandwagon promises to keep data revenues growing strongly, but CEO Lowell McAdam faces some mighty difficult choices as the 80:20 ratio of voice to data revenues reverses. The legacy pricing model incorporates price discrimination that will prove awkward to preserve.

Consider the lucrative SMS business of shipping 160 character messages for 10 cents each, or roughly $1,000 per megabyte. What happens when all devices cleanly incorporate instant messaging? “Any app, any device” means VoIP-capable devices that transparently support voice and web browsing via data plans. Why would someone pay Verizon an extra $40 per month for voice services? Any data plan that makes video affordable makes voice essentially free.

Articles like this one in BusinessWeek lend some credence to this argument. While AT&T suggest that its networks are already "open", they are only open to unlocked GSM devices. Amazon's Kindle is a different kind of device that uses a different business model. If the history of the telephone industry is a useful lesson, we will not be able to predict the kinds of innovation in devices and device/service combinations that might emerge.

Do you agree with Om Malik's assessment? Assuming you do, does Verizon's network opening make more sense?


L3 said...

Very interesting. It's only a matter of time before there are ways out of paying for data plans, and with the amount of text messages sent these days, it won't take long for the info to spread on how to do it. - Mike

Martin Weiss said...

I agree -- if text message-based data is cheaper! This is clearly not the case on a per-message basis, but the economics are quite different if you buy "unlimited" bundles.

Right now, SMS is limited to ASCII, but some of us are old enough to recall when that was also true of email. The solution was to encode non-ASCII text using uuencode and uudecode. MIME handles this automatically for us today, and we don't think twice about sending attachments. It should be possible to use the same software for SMS.

The difference, at least right now, is that we wouldn't have TCP/IP connections over SMS. Would PPP help with that?