The Trojan Horse iPhone

Summary: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.

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.

Topics: AT&T, Apple, iPhone, Mobility, Wi-Fi

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

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