Via Tom Evslin
This is the last in a series of posts analyzing the forces that might break the hold that carriers have on the mobile market. See also parts I, II, and III.
(10) Regulation
I saved regulation to last, although not to build suspense. Like most entrepreneurs, I recoil from the subject. But wireless spectrum is a commons. There may be better ways of managing the commons than the frequency allocation chart above, but even in a world of open spectrum and software-defined radio we’d still need a licensing regime for new devices.
I’m interested in what kind of regulatory changes we might see in the next five years and their impact on my business.
Network Neutrality
I missed most of the kerfuffle over network neutrality while traveling this year, but now that Congress is in the hands of Democrats legislation seems inevitable. Partisan lines have been drawn.
The central issue is how to prevent a wireline carrier from deliberately degrading service to a content provider that refuses to pay a fee: is self-regulation enough or do we need an umpire? No one is even suggesting that a cable company or DSL provider should have the right to block access to a content provider completely. But wireless carriers do this all the time. Many mobile content providers in the US cannot get their content onto any network. The more people use the mobile web, the more this becomes a free-speech issue - a smart mob can’t use other media to communicate. How long will regulators let this go, not just in the US but in Europe? Or will mobile operators offer network neutrality themselves in exchange for eliminating their liability for content that goes over the network?
Unlocked Phones
Carriers control the market because they control the phone. One way they do so is by ‘locking’ handsets to their network; they sell you a phone at a discount and one of the many strings attached is that you can’t take that phone to another provider.
But what if there is no contract? What if the contract is up? Why can’t I buy a CDMA phone directly from LG and demand that Sprint activate it on their network, so long as I pay for service? If I buy a phone from Sprint and switch to Verizon when my contract is up, I can take my phone number with me. Why can’t I take my phone?
A few weeks ago the Librarian of Congress (regulators are everywhere) granted an exemption under the DMCA covering software for unlocking cellphones. So far only Tracfone is seriously affected, because they subsidize handsets without forcing customers to sign a two-year contract. But regulators could go much further. Nothing would do more to increase competition in the US wireless market than legislation requiring carriers to accept other handsets on their network. Right now GSM providers can’t stop you; Verizon will allow it but makes it so hard that no one bothers; Sprint just says no. There is a clear precedent for change: the Carterfone decision.
Full Number Portability
Give someone control of a namespace and they will charge a rent for it. What would NetworkSolutions charge for a domain name if you couldn’t switch to a different registrar? IM interoperability wouldn’t be an issue if you could take your AOL screenname to Yahoo. But Wireless Number Portability is old news, right?
Not in Japan, where it was just introduced. Not in Canada, where they are still waiting. And we are all still waiting for Full Number Portability, between fixed and mobile networks. FNP makes it harder for carriers to charge a toll for terminating a call on a mobile network, a big issue in Europe if not in the US, because the customer can’t know in advance whether the number they are calling is mobile or not.
Restrictions on Subsidies
One way that carriers keep control of the handset is to lock it, but the way that they persuade us to give them that control is by subsidizing our purchase in the first place. Korean regulators have banned and encouraged subsidies at different times, to favor the adoption of certain technologies. Finland has always banned subsidies, to avoid favoring any. Neither country has a shortage of mobile phones as a result.
Banning subsidies makes operator pricing more transparent, and forces them to compete on price and service alone. If they use the savings to cut the price of voice and data, consumers are better off in the long run. If they shift the dollars into marketing instead, we just get more TV ads and expensive handsets. I don’t expect to see a ban in the US, but regulators in other countries may try it.
New Entrants
Regulators play a large role in deciding how many operators there will be in each market, by granting new licenses and approving or vetoing mergers. In the US there is not much on the horizon. Clearwire is rolling out a nationwide Wimax network in the US and European regulators will start auctioning Wimax licenses soon; we have yet to see whether Wimax can match the performance of cellular networks for mobile voice, but dual-mode GSM/Wimax handsets should be more reliable than the WiFi versions, and so cut into the revenue of the incumbent carriers.
Open Spectrum
In the next five years? Not a chance. Be grateful that the FM gadget for your iPod is finally legal in the UK. Hope that somebody can make Bluetooth easier to use. And be grateful for WiFi. Until everybody on your block gets it.