404 Dumb Pipes

Dumb Pipes

As Mobile World Congress is underway, I am reminded that at its core MWC is a telecommunications trade show. There was a time where the telecommunications element was a bigger deal than it is today. As I ponder the broader mobile industry, I keep returning the question of the role of carriers, and if they are nothing more than dumb pipes.

I pay money to my carrier so that I can keep a device in my pocket that can make calls and maintain a consistent connection to the Internet through their network. The carrier’s hook to many consumers, particularly Western ones, is a device subsidy. A carrier sells a smartphone at a subsidized cost. Making the device more affordable, even sometimes free to the consumer, in exchange for a multi-year commitment. Other than that element, my carrier is just a dumb pipe. Can they reverse this trend? I don’t see how.

A carrier’s true value, their real asset, can be summed up in this image.

cell-tower

Carriers own a cell tower that they upgrade to provide faster service and broader access. That’s about it. They used to have much more differentiation than they do today. Some had proprietary devices or solutions. Some were known for better quality or were the only ones available. Those days are long past in most cases. Pricing is a particular strategy that T-Mobile and Sprint are trying to compete with, but they have simply embraced their “dumb pipe-ness” sooner than other carriers.

What is left for carriers to offer that I will pay them for? This is the question they are confronted with; it is also one with no legitimately good answer to.

Cable companies, while also a “pipe” are not in as dire a predicament as wireless carriers. Cable companies invest in the infrastructure and also the content. As I pointed out a few days ago, there are rigorous rights in place to protect those investments in content.

Smart devices were ultimately the downfall of the wireless carriers when all the value moved to the handset and its ecosystem rather than their own proprietary ecosystem. This is the fear that some cable companies must face. Could smart devices eventually do the same thing to them? We can only hope.

Ultimately, this has all happened before. At one point in time, AT&T owned not just the infrastructure, but also the phone system they handed to customers. Very similar to the way a cable company installs a box in your home so you can get TV, AT&T gave you a box so you could make land-line phone calls. Eventually, the FCC broke up this monopoly and hardware innovation began. Similarly as wireless carriers lost control of the hardware we observed similar innovation in handsets. I’m guessing the same will be true when the cable company monopoly is over. We await the day when we can see hardware innovation beyond the outdated and fantastically terrible hardware our cable companies provide us with today.

I am yet to find a better way to look at the current environment than to recognize that the world will be a better place when we have more dumb pipes.

  • JDSoCal

    “Smart devices were ultimately the downfall of the wireless carriers when
    all the value moved to the handset and its ecosystem rather than their
    own proprietary ecosystem.”

    So I guess we can add the carriers to industries Steve Jobs creatively destroyed then.

    Samsung should also put up a statue of jobs, because without Steve convincing AT&T to sell the iPhone, none of this would have been possible, and they’d still be specializing in razor-margined refrigerators and flat screen TVs.

  • SockRolid

    I remember when Verizon was “The King of Lock-In.” They stored all your contacts in their own server farm so if you lost your dumbphone you could just buy another one and instantly speed-dial up a storm.

    Not any more. Verizon and all other carriers really are losing their grip. I can’t wait for “real 4G” to shake things up even more. There will only be one IP stream for both voice and data. Hence there won’t be any excuse to charge separately for voice and data plans. Looking forward to that day.

  • Hardik Panjwani

    Nice one. One issue here is that lobbying has become much more insidious now and that means it is going to be a long haul to the brave new world.

    Grammar Nazi: “Pricing is a particularly strategy that …”. That should be ‘a particular’ or ‘particularly a’.