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

Google's mobile strategy has run into serious problems. Wireless telcos are concerned about becoming 'dumb pipes'...
Written by Tom Foremski, Contributor

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?'
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