Categories Open Network

Open Network Debates at CTIA Show

by mobileman (10/26/2007 - 16:09)

This past week was the annual CTIA Wireless IT show. I have been attending and speaking at this show since its inception in the late 1990s. This show was different from past events in a way that may not be fully

appreciated for some time. The conference promotes wireless data services to consumers and enterprises. In the early years, data on wireless networks was a real four-letter word.

When I was a Director at Lucent in the 1990s, it was not uncommon to have to explain to top executives the difference between content, enabling APIs, and operating systems. With those days in the collective rearview mirrors, we are at a stage where data revenue is accounting for 15% of carrier revenues -- and climbing. It was further announced at the show that the volume of SMS (text messages) in the U.S. is now 1 billion per day. On the surface, everything is pointing up.

In the middle of this self-congratulatory week, Walter Mossberg of the Wall Street Journal rained on the parade. His Wall Street Journal article declaring the mobile industry a closed “Soviet-style” planned economy was not taken well by the CTIA and its main clients, the wireless carriers. However, in the halls, bars and some of the panel sessions, his views were greeted with quiet (read: look-over-your-shoulder) applause.

This cry to open up the wireless carrier networks also occurs at a time when the FCC is about to auction a valuable chunk of the 700 MHz spectrum. This confluence of industry news, trends and events created the perfect storm for one of the more lively and controversial panel sessions in which I have ever participated.

The title of the session was “Off Portal: Razing the Closed Garden Wall.” My colleagues on the panel were the ever-affable, and never afraid to strongly state his mind, Andrew Bud of Mblox; the thoughtful professional of OpenMarket, Steve Shivers; Fredrik Ruben of Ericsson, who asserted a surprisingly aggressive view toward openness; and newcomer (at least to me) Jayanthi Rangarajan of Novarra, who was most outspoken on declaring that the Internet is the solution.

Mblox largely benefits from the status quo, as they have built a significant business in connecting content players to carriers. The other panelists were either neutral to pro-Openness, with Rangarajan being the most outspoken in declaring the open network, Internet-style agenda.

My position is this: We have grown the premium SMS market from $80M to more than $1 billion in three years. We have done that in an industry with the restrictions, conservativism and rules of the major carriers. The off-portal arena is where the bulk of entrepreneurial activity rests in the mobile industry. So, after we say “good job” and take a bow, the question is, how do we grow from $1 billion to $100 billion?

We cannot accomplish a two-order-of-magnitude increase within the existing industry structure. The mobile economy must become part of, and seamlessly integrated with, the e-commerce economy of the Internet and beyond. We must use the phone as a point-of-purchase device for goods and services that go well beyond ringtones, wallpapers, alerts and games.

There are two ways to achieve this lofty goal. The first way would be for the carriers to rethink the value chain that has been imposed on the markets and make their networks more open to the free flow of all means of commerce. The carriers have a huge embedded advantage to capitalize from this next wave of value creation: the ability to bill on behalf of, to provide location-based APIs, and to offer their own storefronts all place the carriers 90 yards ahead in a 100-yard dash.

The carriers should think of themselves as Amazon.com. Amazon has created a powerful commerce machine out of its platform. It has opened this platform to complementary and competitive services. By making its platform available at a reasonable cost competitive with the general the e-commerce market, Amazon has no doubt forestalled and eliminated the development of numerous competing services. In short, it is easier and more economic to use the Amazon platform for your e-commerce storefront than to build your own.

The wireless carriers can take a page from the Amazon playbook.

The second way in which this openness can occur is to remove value from the carriers (a la Mossberg), and turn their billions of dollars of investment into pure pipes. This will either happen by the creation of an open-network competitor via the 700 MHz auction, or through entrepreneurs and various disruptive technology that breaks down the walls.

In either scenario, change is inevitable. The choice is clear.

If I were the CEO of a carrier, I would recruit some of the best and brightest from leading e-commerce companies: Amazon, eBay, Google, Apple, etc., and also from companies such as Visa and American Express. I would charge these new executives with the task of infusing the necessary corporate-culture DNA to make the necessary changes within the carrier value chain that does not just preserve investment, but creates immense value out of a machine that is in many ways more powerful than the static Internet.

The carrier would have to reward these entrepreneurs in a similar manner to their potential outside of a carrier company. It would be a bold, big move.

If carrier companies choose instead to play defense and try to preserve what they have at the cost of stifling innovation, then they clearly lose.

Even with a 90-yard head start, if you stand still, you will lose.