The Trojan Horse iPhone: How Apple will Break the Back of the Wireless Telco Cartel and Trigger Silicon Valley's Next Boom Cycle
By Tom Foremski - June 28, 2007
By Tom Foremski
The Telcos have become the biggest obstacle to the development of new technologies and services. They have become the most backward elements in our society when it comes to rolling out new technologies, applications, and services.
They have filed lawsuits to stop public wireless networks, and they constantly seek to control anything that could threaten their markets. They maintain the digital divide by keeping Internet access prices far higher than they should be.
They control the cell phone and all of its features, disabling built-in functions when it suits them. And they control the services can be offered over their networks.
They don't compete against each other, their pricing is almost identical, almost cartel-like. The only competitive activity they engage in is in advertising campaigns.
Lower telco costs only for the Telcos...
I've long wondered why does my cell phone bill continue to increase year after year--yet the number of hours I have to talk hasn't increased, the same black-spots are still there, and the overall service hasn't improved one iota.
As a veteran journalist covering the business of technology, I know too well that the Telcos have been aggressively adopting powerful communications technologies, such as VOIP, that have lowered their key operating costs significantly. So how is it that our Telco bills continue to increase year after year?
It seems as if that cell phone in your pocket, nestled against your wallet or purse, is somehow sucking ever more money out and sending it to the Telcos--with little to show in terms of new services or added value.
(M)iPhone or AT&T's phone?
Like everyone else around here I've been fascinated by the coming of Apple's iPhone. But while many focused on keyboard issues, or battery life, my question has been: How will AT&T disable or enable the iPhone's Wi-Fi capabilities?
Other Telcos are very sensitive to the issue of Wi-Fi and disable it on phones, or demand $20 per month or more to enable the function. Because easy Wi-Fi opens the door to cheaper calls and cheaper everything else...
Reading the early reviews, it seems that AT&T hasn't done anything to prevent the iPhone from accessing Wi-Fi in public hotspots, or at home. And AT&T doesn't seem to have much control over what applications can be run on the iPhone.
This great news because it means we will see a tremendous amount of innovation, and disruption.
The innovation will come from Silicon Valley and beyond, as startups and others develop applications and services delivered over the wireless Internet directly into people's pockets. The barriers erected by the Telcos will be gradually removed as Wi-Fi hotspots become more common and eventually ubiquitous.
The disruption will hit the Telcos as they lose their control over the gateways to the Internet. Their pain will be compounded by the expensive licenses paid for wireless spectrum while Wi-Fi uses free unlicensed spectrum.
The disruption for the Telcos will accelerate as Wi-Fi networks are built out, and as roaming technologies for Wi-Fi, such as those from Packet Design and elsewhere come into play.
(BTW, Apple TV is Apple's flanking attack on the cable TV cartel...same arguments as above, similar strategy.)
Silicon Valley's Babe Ruth
Steve Jobs has hit another one out of the ball park. For Apple, its a win-win, and win again strategy. It represents brilliant positioning.
If you look at the the TV commercials for the iPhone you might even wonder if it Apple needs AT&T. There is nothing shown in those commercials that requires a cell phone connection.
The TV commercials demonstrate the iPhone displaying family photos, allowing users to view a movie, search for a restaurant, view a Google-like map location. The AT&T logo appears for less than a second at the end of the ad.
And about a second of tech time is all that Apple requires from AT&T. Apple could have released the iPhone as a Wi-Fi phone but then its features would only work in Wi-Fi hotspots, which are patchy and unevenly distributed.
By linking up with AT&T Apple can offer the full integrated set of iPhone features in any urban location. As Wi-Fi is built out, as WiMax comes in, wireless Internet will be ubiquitous and AT&T's network becomes less and less necessary--without affecting the quality of iPhone services. The money that was paid to AT&T now becomes available for other services.
Interestingly, Apple stores are selling the iPhone without selling an AT&T two-year calling plan. I doubt AT&T stores will allow people to walk out with an iPhone without a calling plan.
Will others be able to mimic the success of the iPhone? It is doubtful that other carriers would allow a similar arrangement. But that won't stop companies such as Nokia, Samsung and others from selling unlocked phones with Wi-Fi enabled features directly to customers. They will benefit from Apple's lead.
Shake, rattle, and roll
Without the Telcos limiting access to the Internet, and trying to control handsets, services, and applications, we will see Silicon Valley launch into its next big boom cycle.
I've been here since 1984 and noticed that each Silicon Valley boom cycle is larger than the one before, and affects more people than the one before. This next one is going to be absolutely massive, more like a sonic boom, and it will shake things up the world over, imho.
- - -
Please also see:
Steve Gillmor:
CNET:
Wi-Fi phones a no-go, Siemens says — June 27, 2007
T-Mobile says hello to Wi-Fi calling service — June 27, 2007
ZDNet:
February 13th, 2007
Nortel's burn the boats strategy...
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Comments (3)
Yes I agree in some points and I do think that you have formed a very probable scenario for the impact of iPhone.
I do think the ecosystem of iPhone could change the wireless based businesses very rapidly.
Thank you for sharing this story with me !
Posted: June 28, 2007 2:24 AM
Judging by yesterday’s selloff, I think potential customers are starting to realize how expensive the iPhone will be. If you sign the mid-range $99.99/mo service plan after purchasing the 8GB iPhone model, that alone will set you back $3000 during the two-year contract (without any accessories)!
Other potential hurdles:
* You must be an AT&T customer to use the iPhone. With a market share of 20%, that means 80% of wireless customers must cancel their current contracts to sign with AT&T. Being a Sprint customer, I would have to pay a $175 cancellation on top of the $3000 price tag for the iPhone. AT&T’s exclusive contract runs through 2009.
* Only 4 & 8GB of hard drive space? My tiny video iPod holds 30 GB for less than $200.
* Recent surveys have shown that the majority of IT departments will not even consider the iPhone due to its PC incompatibilities & exclusive AT&T contract. That will dampen business spending & all but eliminate demand for the higher-tier contracts.
This is the ultimate “sell the news” scenario. On Jan 9th 2007, Steve Jobs announced the iPhone at the Macworld Conference & Expo. The stock has since been on fire rising 50% to $125, adding $30 billion to the company's market capitalization. Will the iPhone really hold that much value for Apple? This huge runup comes after a fantastic finish to 2006 after Apple’s stock bottomed out at $50 in October. Thus, nearly everyone holding Apple is sitting on huge gains.
Posted: June 28, 2007 8:28 AM
yes, I remember David Pogue on NPR after the launch talking about how much control Apple had wrested from AT&T in exchange for an exclusive, and how they had walked away from i think Verizon rather than give up on some of that control. What Apple sees in its best interests is much closer to users' actual best interests than the telcos or Hollywood. The wifi piece is huge. third party dev on cellphones is ever huger. cellphones will go the way of the web and telcos will provide the service and get the hell out of the way.
Posted: July 2, 2007 8:13 AM