So today the American Federal Communications Commission decided to make the winner of the upcoming 700MHz spectrum auctions accept terminals and applications from 3rd-parties. This was at the suggestion of Google and others, and is excellent news for American consumers. It likely will lead to more handsets from which to choose and more innovative applications being available more quickly. Probably it also will mark the beginning of the end of the glory days for America’s incumbent mobile operators.
This ruling heralds much more difficult times for America’s coddled mobile operators. Handset choice and the ready access to innovative applications are not what they are known for. These will force them to change their current business models, which is likely to reduce their margins as well as their subscriber numbers. Their good times now have a hard stop.
For the incumbent mobile operators the changes will come even before the new operators open their doors. Subscribers interested in changing operators will flee as soon as their current contracts expire. The wider choice of handsets available to subscribers of these new mobile operators will be one motivation.
People outside the US might have trouble believing this. But Americans are allowed to choose a handset only from the limited offering of their service providers, typically no more than 30 or so handsets are offered at any one time. There are no “mobile telephone stores” in the US that are not affiliated with one or more mobile operators. To buy a handset in the US is to select a service provider. >.
To people outside the US accustomed to shopping at independent stores offering literally hundreds of different handsets for sale this may seem incredible. But Americans have for years put up with this situation. Most of them have no idea what they are missing. Finally, they will be given the same array of choice the rest of the world takes completely for granted.
The implications are enormous.
- The winners of the spectrum auctions are likely to deploy a GSM air interface.
- Vodafone will be shopping their Verizon shares post haste.
- Expect extreme conflict at America’s incumbent CDMA mobile operators.
- The “no contract” operators will make a short-term killing.
GSM has a long history of handsets that that function properly “out-of-the-box” without extensive testing with a specific service provider. Network interoperability is assured by the GSM logo. For CDMA operators the labor overhead of assuring that every handset available works properly with a CDMA network is simply too great. Sure, the CDG is supposed to enforce CDMA interoperability standards. But trust me, CDG is asleep at the switch. BTW, this means Vodafone is likely to be an unbeatable bidder in these auctions.
If the network is going to be GSM, Vodafone will be a key player. This auction is the foray into the American market that their stake in CDMA operator Verizon has long denied them. Remember, buy on the rumor, sell on the news, you heard it here first. Google may well find themselves bidding against Vodafone,
It is received wisdom on the Internet to cannibalize your own subscribers before your competition does. The CDMA incumbents will be sorely conflicted about how to handle this threat. Subscribers will be expected to leave in droves driven by increased handset choice and the availability of cooler applications. The operators will be on their own as the infrastructure providers have no dog in this fight: they’ll sell kit regardless of whether the air interface of the new network is GSM or CDMA.
As subscriber contracts with the incumbent operators expire many subscribers will want to “park” their existing mobile service with these no-contract operators while they wait for the new network to turn up.
As the new operator gains traction the incumbents will have to change their business models, and by then there may well be regulatory action to spur it.
I’m certain there will be a zillion gallons of ink spilled on this discussion even before such an operators moots their new service. Let the games begin!
It’s been pointed out elsewhere that Vodafone has recently reaffirmed their satisfaction with the way Verizon manages the Vodafone investment. How can that be? How can the investors be comfortable while others have effective control 20% of their investment? There is more of this story yet to be written.