Wireless Telcos fear Google will turn them into 'dumb pipes' - they will hit back

Wireless Telcos fear Google will turn them into 'dumb pipes' - they will hit back

Summary: Google's mobile strategy has run into serious problems. Wireless telcos are concerned about becoming 'dumb pipes'...


Marguerite Reardon over at CNET has put together an excellent report on the Mobile World Congress 2010 GSMA in Barcelona.

It is the most important conference for the wireless Telco industry. And this year, there was a lot of concern about the growing power of Apple and also Google.

The wireless Telco companies are banding together to provide apps stores to counter Apple. But also, they are increasingly concerned about Google:

Vittorio Colao [Vodafone CEO] warned the telecommunications industry that companies controlling 70 percent to 80 percent of a market, such as Google in mobile search, should raise the attention of regulators.

Here is a list of things that Google has done that worry the wireless Telcos: - Its NexusOne handset. - Its Android handset OS. - Its investment in Clearwire, the WiMAX telco. - Its plans to build a high speed network for select communities. - Its large holdings of 'dark' optical fiber. - Google Voice. - Its position supporting network neutrality, which limits what Telcos can charge. - It has placed competing bids for US wireless spectrum. - Its Android apps. It's looking like Google is assembling many of the components it needs for a wireless Telco operator, but with the extra muscle that comes from dominating the search business. At the conference, Google was accused of trying to turn wireless operators into "dumb pipe providers."

Google CEO Eric Schmidt tried to calm the operators:

"We feel very strongly that we depend on the success of the carrier business," Schmidt said. "We need a sophisticated network for security and load balancing." ...Google is not looking to compete with wireless operators.

You can read the rest of the article here:

Google CEO comes to Barcelona in peace | 3GSM blog

Good luck to Eric Schmidt in trying to reassure the Telcos that Google is their friend and partner. Just look at the list above.

It seems as if Google has not considered the strategic implications of its actions on wireless operators, and its other partners.

Nearly all of its actions in the list above do nothing to increase revenues for Google.

They are all outside of its core business: selling advertising related to search.

Yet those actions have put the wireless operators on guard. They can now take steps that can impact Google's revenues much sooner than Google's actions can improve revenues for Google.

This is a strategic blunder on Google's part. If it was concerned about appearing as a partner and not a competitor, why did it not consider how its actions would be viewed by the Telcos?

This is bad news for Google because the wireless operators are in a much stronger position than Google.

- They have control over what network services they will support.

- They control which features they will support on phones on their networks.

- They can make alliances that are designed to work against Google's dominance.

The mobile market is very important to Google's future but so far, it has managed to upset a lot of strategic companies, Apple included.

Google forgets that the mobile market is not like the desktop Internet market.

The wireless operators saw what happened in the PC market where the dominance of Intel in hardware, and Microsoft in software, aggregated most of the value and profits.

PC makers were left with razor thin operating profits in single digits while Intel and Microsoft produced 60% plus profit margins.

That's why the wireless Telcos have resisted attempts by Intel to standardize the handset hardware, and from Microsoft to extend its dominance in software to the mobile phone market. They don't want a repeat of what happened in the PC market.

That's why there are a myriad operating systems and hardware platforms in the mobile space. They didn't let Intel and Microsoft turn them into "dumb pipe providers" and they won't allow Google and Apple to do it either.

Google will have to change tactics but it might be too late, it has put the entire wireless industry on guard.

- - - Please see: Google: Friend or foe to telecom giants? Google needs its own Telco service not a phone... Nine years later does Google still need 'adult supervision?'

Topics: Telcos, Google, Mobility, Networking, Wi-Fi

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  • Telcos are just dumb pipes

  • What I'd give for a dumb pipe!!!!

    A dumb pipe is ALL I WANT for an internet connection. When are they going to realize that?
  • they have no choice

    They will become dumb pipes wether they like it or not.
    In fact some of them like Verizon are already starting to
    promote this themselves through the partnership with
    Skype for unlimited free calls.

    It's what people want and it's an inevitable evolution of
    technology. The adoption of 4g will accelerate this with
    or without Google and Apple's involvement.
  • You gotta love it

    Telcos are scared because they are realizing that the cash cow is over. They can't keep charging 0.10 Euros for a text SMS message. They can't keep charging 0.50 Euros for 1MB of data. It's insane. In a parallel plane, look at Vonage, charing 18 dollars/month for their circus.

    Google is pushing in making their users smarter. And guess what, they are succeeding. Telcos will have to adapt and give us pipes, or Google will do it. Stop putting fancy labels to plain bits of data and charging for the pretty colors. If they don't evolve, their will land next to the music industry's grave.
  • It should be their interest to become "dumb pipes"

    Carriers ("Telco companies") are starting to look like the music and film industries. They too seem to be unable to see the big picture and adapt to the changing reality.
    You compared them to PC makers, which IMHO is wrong. PC makers sell a product. Carriers sell a service. This means they charge you monthly, while PC makers only charge you once.
    The situation today is: They charge you monthly + Sell you the devices + Large profit margins + Bind you with long term crippling contracts.
    That's not good for consumers, it's not good for the economy (mobile data pipes are a part of the infrastructure for a high-tech based economy) and in the long term, it's not even good for carriers (they were stuck a couple of years ago when they stopped being able to charge people more for their service, so they started selling content but they suck in that. Then Apple came along to show them how it's done).
    In many ways, carriers are spoiled. They think they can carry on forever selling not only their infrastructure and service but also anything that goes along with it (devices, content, applications...)
    They can't. And the sooner they realize it, the sooner they can go back to do what they're best in: building and maintaining super fast, super reliable "dumb pipes".
    All three advantages you mentioned they have are negative for the market. The third one seems borderline illegal. They shouldn't be able to dictate which content or services go on their infrastructure and they definitely shouldn't be able to make alliances to prevent other companies to "kidnap what they have rightfully stolen" (i.e. the right to sell devices and content).
    After all, the air they use to send the data through is NOT theirs to use, it was lent to them by the government (by giving them the frequencies). What right do they have to do whatever they want with it?

    In my opinion, the telcos' services and products appear to be over-priced. So, personally, I've wanted WiMax (or similar technology) to succeed, but Intel will need the help of other players like Google, Apple and Microsoft if it wants to be successful sooner rather than later.

    Google is in the best position to lead the way. It does not have burdensome relationships with the telcos as does Apple and Microsoft.

    Apple needs the telcos in order to sale the iPhone and promote the App Store, etc. But Apple only needs the telcos until a replacement network such as WiMax is available.

    Microsoft doesn?t want to offend the telcos because doing so will cause it to lose Windows Server and Windows Desktop revenues to Linux. Not offending the telcos is, I believe, is a tactical move by Microsoft. Certainly, Microsoft knows that the future of digital communications is ?dumb pipes? everywhere, so it?s really just timing issue with them.

    Of course the telcos will fight back. They have a long history of obtaining favorable influence from the Government (over the best interests of the public), and they?ve been lobbying the Government far longer than IT companies.

    But it won?t matter. Eventually the weight of common sense ? cheap, wired and wireless dumb pipes for everyone at anyplace and anytime throughout the world ? will prevail. Intel, and now Google?s vision will own the day, and the telcos, as we now think of them, will be no more. Instead we will think of them in the same manner as we now think of the water, gas, and electricity companies.
  • Nearly all of its actions in the list above do nothing to increase revenues

    That is dumb. All of them increase their reach, thus information, thus pointedness, thus profitability.