Mobile carrier CEOs still want network control

SAN FRANCISCO--The wireless Web has prompted mobile operators to change their tune about open networks, but don't expect the mobile market to be as open as the PC Internet anytime soon.

From left to right: Steve Largent, CEO of CTIA; Robert Dotson, CEO of T-Mobile USA; Dan Hesse, CEO of Sprint Nextel; and Lowell McAdam, CEO of Verizon Wireless

(Credit: Marguerite Reardon/CNET News)

CEOs from three of the big four wireless operators in the U.S. took the stage during a keynote panel at the CTIA Fall 2008 trade show here Wednesday to discuss what they envision for open cell phone networks. While Robert Dotson of T-Mobile USA, Dan Hesse of Sprint Nextel, and Lowell McAdam of Verizon Wireless all agree on the importance of opening their networks to developers and allowing subscribers to access the mobile Internet freely, the executives still say mobile operators need to have some control over which devices come on their network.

"If you look at unfettered access on the network, all of us would agree that it's a pretty poor experience for users," T-Mobile's Dotson said. "There needs to be some stewardship or control."

T-Mobile is expected to be the first carrier to launch later this month a phone using Google's open-source operating system, Android.

Dotson further explained that as a GSM carrier, open access for devices has existed on T-Mobile's network from day one. People can buy unlocked phones and simply put in their T-Mobile SIM card for service. But he said there were advantages and disadvantages to this freedom, noting that customers who bring their own unlocked devices to the network have a "less than good experience."

"If you don't optimize the phone to make sure there is network integration when you send an MMS or e-mail it might not work well," he said. "Even though on the outside (an open device network) looks enticing, there still needs to be a minimum level of control to safeguard security and privacy."

Verizon Wireless' McAdam agreed. The company launched its Open Network Initiative almost a year ago. But even though the network is supposed to be open to any device, what Verizon is really doing is speeding up the certification process for device makers and application developers. McAdam showed off the first cell phone that is a product of the initiative, a $69 phone from prepaid service provider AirVoice. He said the device is commercially available, but he didn't elaborate on availability on the Verizon Wireless network or the pricing of the service.

McAdam emphasized that Verizon's open strategy, at least toward developers, means that the operator can bring more innovative devices, applications, and services to consumers much faster.

"There is an innovation tidal wave occurring right now," he said. "People making applications for the desktop want to move to mobile phones. We couldn't handle all that innovation into our business, so opening the doors, and still protecting the network, is the only way we have to this."

Sprint's Hesse admitted his company is still working on providing more openness for devices. But he said Sprint has a new speedier device authorization program under way for its 3G, or third-generation, network, noting that the operator is providing service for devices like Amazon.com's Kindle. He also said that Sprint is working on an open platform for application developers.

He said true openness will come with the company's new 4G WiMax network, which it is building with Clearwire.

"From a device perspective, we still have a ways to go," he said. "Really 4G and the embedded chip model for WiMax will allow people to bring whatever device, a laptop, camera or whatever to the network."

But Verizon's McAdam pointed out that offering more device openness will also mean higher prices for consumers.

"We've conditioned customers by putting very expensive computers in their hands for very few dollars," he said. "And now we're giving them the option to walk into a store in an open environment and pay more for a device. It will be a big transition."

That's why McAdam predicts that only 20 percent of customers will rapidly adopt the open model versus consumers who would rather take the phone subsidy in exchange for a contract. If Verizon and others can provide a decent experience on a more open network, more will follow, he said.

T-Mobile's Dotson agreed and said he expects the majority of T-Mobile's customers to buy traditionally integrated mobile devices.

"The BlackBerry is not an open platform," he said. "But it has a phenomenal e-mail experience. And there will continue to be a role for that seamless hardware integration that provides a great experience and richness."

But John Stanton, who founded Voicestream and Western Wireless, cautioned these CEOs in a later panel discussion with Craig McCaw, the current chairman of Clearwire and founder of McCaw Cellular Communications, that moving too far toward an open network will commoditize the wireless industry and significantly drive down profits. He said that operators need to focus on developing innovative services themselves. And they need to own content instead of letting others like Google or Yahoo do it for them.

"When you become a pure access provider in a saturated market, you grow at the rate of the economy," he said. "U.S. operators are running the risk of turning into commodity businesses instead of global content businesses with innovation that delivers higher profits."

[chris_d]

With a closed network and locked phones you can charge more for an inferior product. Which is exactly what these companies love to do.

[techie2479]

"We've conditioned customers by putting very expensive computers in their hands for very few dollars, ..." Is Lowell talking about the cell phones? Seriously? What a tool.

[ssaikia]

WIRELESS CARRIERS WILL NOT CREATE CONTENT USING CURRENT BUSINESS MODEL

In the current business model a wireless carrier delivers service by managing 3 elements : wireless spectrum, tower infrastructure and sales of services. If a carrier gets into the business of creating content then it (i.e., the carrier) will add another element to the mix. Content creation is a creative activity, similar to producing a movie, writing software etc. It is a risky activity. On the other hand the 3 elements (spectrum, infrastructure and sales) are pure operational activities that do not involve much risk (if you have money you can start a wireless carrier!!!!). It is unlikely that a carrier will take on an activity like content creation which is very different from operations management.