A case for cellular carriers becoming the dumb pipe

Despite being on the approach of an effective duopoly with the AT&T-Mobile merger, cell carriers are living in fear right now of losing control over the user experience.  The focus is shifting from things the provider has controlled to a focus on the phones and the software they are running and the user experience that software provides.  Seeing this loss of vertical control, the carriers are in a panic, trying to figure out how to increase revenues for cell data. You really can’t believe that data caps are about a lack of capacity, or even the carriers’ unwillingness to build out more towers in smaller areas (which is expensive and takes awhile to do).  We’re quickly transitioning from a model in which you go to your carrier for everything, from picking out the phone to the accessories for it to the ringtones to the apps, to a model where you buy your phone from the Apple Store and might never actually set foot in your carrier’s retail store.

That loss of control seems scary for carriers, but the reality is that it’s liberating them.  You hear about companies laying of masses of workers, talking about how they want to focus more on their core businesses (read: the ones that make them more profit).  Running thousands of retail stores, many of which are owned by a third party, isn’t cheap.  Sure, they mitigate this with impressive markup on prices in store and by training the minimum wage employees to sell a clear plastic sticker ($20) to stick on the phone screen that’s made of much stronger Gorilla glass, but having the stores around is dead weight.  Offering a bunch of other ancillary services is costly, and it ultimately deflects from what we pay carriers for, which is providing a kick-ass network.

“Surely, Aaron,” you say skeptically, “this model of losing so much vertical control isn’t going to work.  I mean, this would be like asking Apple to just focus on software and license it out to third party hardware makers!”

Glad you asked, but no, that’s not really the same, because Apple is actually good at making both its hardware and software.  Carriers are shoddy at everything they do that isn’t being a network, except maybe charging too much for letting people use the network.  Furthermore, I can present you with a really fucking good example of a model in which the network providers are all dumb pipes: the internet.  This model works incredibly well, and it keeps the internet prices relatively low.  The argument could be made that they should improve in the US, but overall internet prices are great, and your ISP isn’t trying to make its bread and butter selling you a computer to connect to the internet with.  PeoplePC used to, but couldn’t make money doing it.  Yes, ISPs are often trying to bundle their service with other non-internet crap you don’t need, but for the most part they aren’t selling you the equipment you use to use these services (like the phone/TV/computer).

This model is for sure the best for consumers, and it would give the carriers the ability to focus their efforts completely on their product.  As feature phones with carrier-made app and ringtone stores are becoming increasingly passé as users get smartphones that come with their own app stores, there aren’t really going to be any new services carriers can offer.  In that respect, data is the final frontier of these services.

 

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