Long-term storm clouds brewing over AT&T, Verizon Wireless

Long-term storm clouds brewing over AT&T, Verizon Wireless

Summary: A series of events is happening, or about to happen, that threaten the business models of big wireless carriers such as Verizon Wireless and AT&T. Keep in mind that these storm clouds are just now building and the story will take years to play out.

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A series of events is happening, or about to happen, that threaten the business models of big wireless carriers such as Verizon Wireless and AT&T.

Keep in mind that these storm clouds are just now building and the story will take years to play out. And don't expect financial upheaval to appear just yet.

But the signs are there and they add up to turmoil in the wireless industry. The clouds that are brewing include:

Unlocked phones: If the iPhone doesn't sell another unit it will have accomplished one thing: It has motivated folks to unlock their phones via hacks. Amazing how an exclusive deal tethering the iPhone to AT&T can get hackers rolling.

The unlocking of the iPhone, detailed by Engadget, Jason O'Grady and others, sends a strong signal. The walled garden approach of wireless carriers may not work over the long term. Sure, we'll pay an access fee, but don't limit my browser and what I can do with my smartphone. The Web surfing in the iPhone illustrates the future it's just the network you use stinks. Unlocking phones everywhere--via paid and open source software--changes that equation.

UBS analyst John Hodulik said in a research note on Tuesday that AT&T is expected to gain market share courtesy of iPhone additions. That projection, however, assumes that iPhone buyers stick with AT&T. What happens if people buy the iPhone at an Apple store, use some open source software and hop onto T-Mobile or Verizon Wireless? We're not there yet since most of us won't play with the hacks, but it is a threat. If unlocked phones go mainstream look out.

As Michael Krigsman notes the silence from Apple is deafening even though AT&T iPhone buyers are contractually obligated to stick with Ma Bell. Apple has done nothing to deter these unlocking hacks and it would be shocking if this partnership ends well. Why?

Newfangled data devices and Wi-Fi: Apple's launch of the iPod touch reveals the company's strategy, which is more like iTrojan Horse, a phrase coined by RealMoney's Cody Willard (subscription required). Willard opined that Apple is learning from AT&T and then taking its business. Apple did the same thing to Motorola. He's right.

Look at your wireless phone bill. My usage is all data and very little voice. In fact, I'd be better off getting a wireless card and a prepaid phone for the four times a month I actually call someone. I may be an extreme case, but data will increasingly dominate. And once you put voice in its play Wi-Fi looks like an option.

If you can use your iPod to hop on the Net via Wi-Fi, surf and maybe even use a little VOIP to call someone do you really need to pay a wireless carrier's tolls? What happens when you get Wimax coverage everywhere? Suddenly, 3G--if you're lucky enough to have it--looks pretty damn pokey.

Sure, the iPod may cannibalize the iPhone, but Apple doesn't care.

The FCC's auction of 700 MHz wireless spectrum: The auction of the spectrum given up by television broadcasters is critical to the first two points actually working.

If Google, Apple or eBay actually win a piece of this auction it'll be very interesting to see what they do with it. My hunch: They'll try to build a walled garden too. Google wants to advertise. Apple wants to connect--and sell--its devices. And eBay wants to push Skype.

In the end though, an auction that goes to a non-incumbent may be bad news for wireless giants. These revolutionaries can upend existing business models and more importantly take away spectrum that would be used for next generation networks.

Bottom line: The stakes are high and the storm clouds are brewing. It won't happen overnight, but we have an interesting few years ahead.

Topics: AT&T, Apple, Verizon, Networking, Mobility, iPhone, Government US, Government, Google, Wi-Fi

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38 comments
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  • A few notes

    The article suggested that customers may take their phone to T-Mobile or Verizon Wireless, while this is true for T-Mobile - its impossible for the iPhone to suddenly appear on Verizon wireless due to incompatable technologies (GSM vs CDMA), unless apple is gearing up for a CDMA verison :)

    Ultimately though, the American consumers need to wake up and stop taking abuse from the big cell phone carriers and stand up for what little rights are preserved. They will find every way to lock you in to multi-year contracts, which IMHO is wrong, because the biggest threat to the current business model is the unlocked, out-of-contract customer, who spends a butt load of money and can walk anytime.

    The best thing apple can do is add bluetooth connectivity to the iTouch (with the Handsfree, A2DP, and Headset profiles) and someone make a gadget for Skype...and you have an instant VoIP device that anyone would pay 500 bucks for..it would be worth it,esp with the rollout of WIMAX.
    JT82
    • Notes on your Notes...

      [b]The article suggested that customers may take their phone to T-Mobile or Verizon Wireless, while this is true for T-Mobile - its impossible for the iPhone to suddenly appear on Verizon wireless due to incompatable technologies (GSM vs CDMA), unless apple is gearing up for a CDMA verison [/b]

      Unfortunately, If you bought the original iPhone which is GSM, you still can't magically morph it into a CDMA phone and toss it onto Verizon's network. You'd have to actually BUY another iPhone that's CDMA compliant. Another pile of money flushed away (unless you can find someone interested in buying it)... So unlocking it to go from AT&T to Verizon is a moot exercise any way you slice it.

      And then there's one more issue. When you buy a phone these days, it comes preloaded with software that helps it interact with the carrier's network and services. If you buy a Verizon branded phone, chances are excellent that it's been preprogrammed for VCast and other Verizon only services. A T-Mobile programmed phone can be programmed for Fave Fives. AT&T and Sprint have their own versions of these services. The Visual Voicemail feature that AT&T has with the iPhone is one such lock-in.

      They're NOT interoperable.

      Unlocking a phone has it's downside - you probably won't have access to some service or goodie your former carrier has to offer. NOR will you have the luxury of installing the goodies from another carrier. There may be subtle variations in the internal guts of the phone - even if it's a Motorola RAZR. In fact, that phone has more variations under the hood than you can shake a stick at.

      Unlocked (or "never locked") phones likewise come with this same sort of pitfall. While I truly heart my Motorola A1200, it's never been programmed with anything but the most basic features - i.e. making a call - by the dealer who sold it to me. I'm actually fine with that. I don't feel the urge to spend an extra $30 a month for e-mail and web browsing. I can send or recieve text messages but that's about as far as it gets. Heck, the phone even reports I'm on Cingular's network - mainly because AT&T and T-Mobile share their antenna network and more often than not, the closest tower to me was put up by Cingular.

      This whole mandate to have unlocked phones and such is going to be resisted, furiously, by the cell carriers. Why? Because minutes are a commodity they don't make nearly enough money on. ALL carriers make money by selling those ADDITIONAL services and features that are usually phone dependent. Not all GSM phones can do T-Mobile's Fave 5's. Not all phones can do iTunes music. The list goes on.

      And of course, there's the technology aspect - GSM vs CDMA. In order to make unlocked phones a universal constant, you'd have to force the carriers who've built their networks to abandon or convert them and join the remaining carriers on their GSM systems. That's NOT gonna happen anytime soon. Odds are if anyone were to mandate a standard cellular network, Verizon, Sprint, AllTell, MetroPCS and the other CDMA carriers are going to be the ones hurting. GSM is the world standard. Most tri- or quad-band GSM phones will work pretty much anywhere in the world. CDMA is only prevalent in the US. Therefore, GSM would be the smart direction to go.
      Wolfie2K3
  • Overstating the impact?

    The author talks as though the wireless carriers will not be involved in any of these events. If things do actually lean the direction of which he spoke, you can rest assured that the existing wireless carriers will be at the forefront if their is a profit to be made.
    GuidingLight
    • the author is visionary; Free Universal Broadband Access to Web 2.0 in USA

      The impact is USA only, but it is huge for the US economy. The digital economy is a revolution where there are huge opportunities for those wishing to catch the wind before storm. The sailing will be so fast that US companies like AT&T will be safe in port by the time it hits. Here is why.

      There is no huge investment in infrastructure necessary. There is no new legislation necessary. The only thing slowing the perfect storm of change is traitorous government officials seeking to privatize the dot commons and being made traitorous by transnational big business lobiests who represent out of country investors like Saudi monarchs, cartels and monopolies over US residents.

      Think not of ten years but ten Internet years, 2.5 regular years. We in the USA will be shopping, paying, banking, voting, researching, chatting, blogging, reporting suspected terrorist activities and perceived wrong doers from our work places, getting work done while mobile, working from home, photographing progress, tracking kidnappers, getting medical advice, saving gas via routing services, translating French, making piece instead of war and music and art, and vacationing a lot more because the USA will become the greatest economic engine of all of history. No European nation can match what we are doing for at least 3 decades. We are doing it with government regulation of the very air we breath and with the unique in-your-face form of democracy our founders envisioned hundreds of years ago.

      Great article! Great nation! When do we find out who are the great candidates for national office? These would be the ones without multinational big business strings attached.
      mighetto
      • anti-transnational corporate candidates

        "Great article! Great nation! When do we find out who are the great candidates for national office? These would be the ones without multinational big business strings attached."

        Vote Democrat Dennis Kucinich or Republican Ron Paul. Both have their hearts in the right places when it comes to public good. However, I personally endorse Kucinich because I believe that Libertarian economic policy is no good... at this point in declining economy we require direct government investment in infrastructure like during FDR's administration. Did you know that we still use a lot of the infrastructure built during his administration today?

        Monopolies must be broken, NAFTA and WTO repealed, and fractionated deposit banned. Inflation must be created via federal investment, not thru interest, usury, and financial bubbles. Read the American Monetary Act (monetary.org) and vote for Dennis Kucinich who is pushing the House version (and the Health care for all (H.R. 676), and the out of Iraq bill (HR 1234)) :D
        damasterwc
        • KOOLAID

          OMG, vote kucinich or ron paul? and what declining economy? We've had consistent gross domestic product growth for years and unemployment at 5% for years as well. Inflation is our only problem and that is something bolstered by idiots waging war against oil and pushing the use of a FOOD product as a fuel. FDR's "new deal" had the benefit of 25% unemployment and the ability to fire any government employee who didn't work. The government get's more than enough money to fix our infrastructure. It's going to their pet projects, not where it needs to be. Here in Oregon our road money goes to curb extensions, center lane beautification, BIKE LANES, light rail, trams to private hospitals, etc... then they want NEW taxes to fix bridges and roads. The private sector is not perfect, but government is a disaster.
          Chiefjoseph2
          • sorry guy

            unemployment figures are not reliable. they count only those drawing unemployment. does not count those who are underemployed or those whose benefits expired. 5% unemployment sounds wonderful, but look at where most of the new jobs from the "bush economy" are: food service and healthcare. starbucks and mcdonalds are hiring, hey so is enterprise... and healthcare shouldn't surprise you b/c of the aging population.

            i do agree that we need to have more control over who works for the government. the government has the potential to be good or bad... the government is only as good as the people that work for it.

            here is the flaw with private sector for economic redevelopment: there is only so much money in the private sector. when we're talking about developing water treatment plants, hospitals, schools, high speed rail where is the profit in this? the profit is minimal if any... therefore private sector development is out of the question.

            we don't need new taxes, all we need to do is repeal the existing federal reserve private banking system. look in your wallet. those are private issue dollars... we pay interest to a private banking entity for every dollar we "borrow" (i.e. they create). if you took all that interest that we pay every year, we can get rid of income tax completely for example.

            also with public money you would get money to repair infrastructure. the american society of civil engineers reports $1.6 trillion is needed to bring up our infrastructure to passing grade. bring on the new new deal!
            damasterwc
  • Other considerations

    1) Apple is getting a bit of the monthly $ from at&t that it will not get from T-Mobile. Its incentive is to sell hardware now - but the crack addiction to monthly revenue for each iPhone (to be taken over 2 years means - as indicated by St. Steve at the release of the product) has not set in yet. That Apple will actively support unlocks and tolerate T-Mobile taking things away would not be that indicated here. Consumers should also remember iPhone will only use EDGE at T-Mobile with no commitment from them to update it in the future as at&t has indicated. T-Mobile just reduced its monthly data rates to at&t $20 plan a few days ago which would imply they want to be competitive here - but no other commitment has been made.

    2)Sprint rollout of Wimax is a subscription service only... as compared to Wi-Fi cost to consumers is what? Nothing? So the take rate on this for a higher quality will be dependent on the real or perceived value of Wimax versus the Wi-Fi option. Of course the first 1mil or so iPhones do not support Wimax anyway.

    We are in for interesting times regardless.
    Jim888
    • T-Mo lowered their prices?

      [b]T-Mobile just reduced its monthly data rates to at&t $20 plan a few days ago which would imply they want to be competitive here - but no other commitment has been made.[/b]

      Odd, their web site still quotes $39.99 per month for Internet services on their phones. Er.. Yeah.. They just haven't updated their web site maybe?
      Wolfie2K3
  • RE: Long-term storm clouds brewing over AT&T, Verizon Wireless

    A few thoughts:

    1) A few hackers of the iPhone do not a trend make.
    2) The iPhone cannot be made to work on the VZW network without reengineering the device (VZW is a CDMA carrier).
    3) Walled gardens are a benefit to brands, labels and carriers. Walled gardens will not be relplaced for the opportunity to watch a poorly filmed grainy youtube video.
    4) The January auctions hopefully will be won by the incumbents. I doubt that there is anyone else out there with the expertise to execute the complex interactions and deployment of the network, customer service, revenue assurance, and billing solutions AND guarantee Quality of Service (QOS) - you want VOIP - have it! You get what you pay for.
    uscmbausmc
    • The Market Will Decide

      Ultimately, it is the combination of most compelling business model and consumer needs fullfilment which will determine the direction of wireless, media and telecom in the U.S.
      uscmbausmc
      • define market

        In a perfect world your thoughts on market direction would be valid. In the US economy, however, the market is driven by what products and services offer the highest profitability, and what the lowest level of service or product quality will be tolerated by the US consumer. Supply and demand with a definite twist in favor of the supplier.
        As a proof we need only to look to the offerings of the US auto industry, or even closer to the topic, the quality and service level of At&t.
        The needs of the US consumer will be determined by the profitability of the products or services offered to them, as we can be seen by the phenomena of AT&T, Apple, and the iPhone.
        sonoffar@...
    • Quality of Service (QoS) ??

      I'd like to hear more about this "Quality of Service" guarantee. My Verizon LG8100 is possibly the worst phone I've ever used. The voice-to-voice clarity is grainy at best and what other people hear on the other end of the line is:

      "Now *kchkch* the time *kchkch* good *kchkch* to come *kchkch* their *kchkch*."

      I denied this was happening for the first year until I swapped phones with a friend for a moment and, "Holy Cow, Batman!" It's amazing that anyone ever understands a word I say.

      It probably has NOT done much for my ongoing job search.

      BTW, the local Verizon service center says this is normal but don't worry 'cause I can buy a new phone when my contract runs out in December this year!

      Fortunately it's getting to the point where the battery won't hold a charge for more than 24 hours (and, like thrice before, I know they won't have a battery for it, "Like,'cause that's a really old phone ya got there, dude. Can we interest you in the new whizbanger 2008?") ;-)
      ttocsmij
  • In fact, I don't think there will be a market in a few years.

    I look at how fast broadband is covering the country and that almost everyone uses a wireless router as well as WiMAX starting to come into it's own and I wonder if there is any reason for anyone to even own a traditional "cell" phone in the future.

    It would not be a big task for say Cisco to build a wireless router that would allow VOIP to be shared without allowing any other access. Of course people would buy them for their own use and leave them open for others (as long as they can secure everything else). Heck, I can drive through most cities and find wireless hot spots everywhere. With WiMAX putting the finishing touches on "mesh networking" connectivity will be as common as sunlight during the day time.

    Given the drive to have wireless connectivity everywhere, I see no future at all for "cell phones". At least not in say 10 years.
    No_Ax_to_Grind
    • Things change, fortunately, if we let them

      Somewhere in our stuff is an old telephone set with a crank-driven magneto to ring down the line a few kilometers. Cellular technologies came as a welcome transition from arrogant land-line companies, and folks could now give and get help on the road. However, the cellular providers jumped on some very old marketing tricks: zonal agreements, maximal fees, contracts unbreakable for clients, locked devices, 'roaming' fees, more fees, pretty young things adorning their adverts. The profit taking proved phenomenal, capitalists bought new chateaux in the mountains of Switzerland, and the rest of the world now has, for it, a low-cost communication technology that enables it more effective business and terrorism.
      Ngallendou
  • No they won't be phased out! They'll morph!

    My startup provides services for mobile carriers among others like WebEx (Cisco company). Dan presents some great observations. The market will change and carriers will adapt. How? More after the jump - http://soonrs.com/blog/2007/09/13/no-the-big-wireless-carriers-will-not-be-phased-out/
    songzunhuang
  • I want an iPhone with 2 SIM card slots

    An iPhone with two SIM card slots would be the best solution, then you could have
    an unlocked slot for a local number and the other for your regular AT&T number --
    all on one phone!

    Ever since I purchased my first GSM phone in the UK in 1999 I have got them
    unlocked by the supplier --- Virgin in the UK and Cingular in the US. When I travel
    overseas I want to use a local SIM card so people within the country can call me
    without having to call overseas using my US number.

    I want to buy a iPhone but I will not unless I can get it officially unlocked by Apple
    or AT&T. I want the freedom to use local carriers when I travel. I do not want to
    switch from AT&T as my US carrier, so there's no loss to AT&T or Apple.

    Cingular gave me the unlock code for my Treo 650 two days after I purchased it a
    couple of years ago. I guess I will have to continue using my Treo until I can buy an
    iPhone that can be officially unlocked. Using a hack scares me as it is too easy for
    AT&T or Apple to disable it later.
    johnr@...
    • great idea

      Maybe someone will shift to RUIM (http://en.wikipedia.org/wiki/R-UIM) cards which are (1) compatible with GSM and CDMA technologies, and (2) physically compatible with GSM SIMs and can fit into existing GSM phones as they are an extension of the GSM 11.11 standard. Then it is all software after that. The software could even support more than one ID so you could store your local and global numbers and switch back and forth at will. Hey, Steve? iGlobalTalk, eh?
      ttocsmij
  • RE: Long-term storm clouds brewing over AT&T, Verizon Wireless

    This is all good, more like the sun finally coming out, rather than dark clouds!
    A big opportunity was lost a long time ago, when cellular incumbents smothered the potential of PCS in the crib, and turning it into "Cellular Jr.", rather than a wireless data oriented infrastructure. The big guys will still make money doing what they are good at, providing coverage and access. Just don't try and control or charge for the content.
    stephen@...
  • iPhone on Verizon??

    Huh? How would you use an iPhone on the Verizon network? It's CDMA not GSM.
    mrb12321