Wireless Carriers Revive Dumb Pipe Idea
Like an old dog with no new tricks, European wireless carriers are resurrecting a failed wireline move and trying to extract more money from the likes of Google, Apple, and other Web and mobile companies that provide content over their wireless pipes. According to a Bloomberg News report, European carriers such as France Telecom, Telecom Italia, and Vodafone Group are pushing for new deals to get content providers to pay for their usage. The operators say the costs of building out their networks to handle growth in data traffic is outpacing data revenues, compromising their business models.
This is really about operators being upset that the Googles and Apples of the world are profiting from the pipes operators have built. Instead of realizing that they are about providing access—or building awesome content of their own—they sit at the table, begging for a chunk of profits from companies that have built something on top of the operator's networks. When begging doesn't work, they threaten to stifle access and innovation. The carriers are like old dogs that can't learn a new trick. The only trick they have right now is to pee on your rug.
Ed Whitacre, AT&T's former chief executive officer, tried to play this card a number of years ago on the wireline side, when he pushed content providers to pay a quality-of-service tariff. The plan didn't go through, but showed some of the operators' vacuous thinking. The fact that wireless carriers in Europe are saying some of the same things shows that they're either dumb or really bold. Either smacks of desperation.
Carriers Once Loved That Data Boom
What the carriers don't understand is that they provide access. Yes, mobile data usage is soaring, but that's the business the carriers are in.They rely on Google and others to get people to buy their data plans and their phones.Without great services, why would people want to pony up for a smartphone or data plan? It was great for the carriers just a couple of years ago when data revenue helped offset declining margins on voice.Now that data is exploding, the carriers are in a tough position.
Trying to get money from content providers is not the way to go. The carriers are already charging users for data and are in the midst of changing their pricing plans to reflect the flood of traffic stirred by user demand. Right now, their wireless businesses are still very profitable; for example, Verizon reported operating income of 29.9 percent on its wireless business.Operators should look at tweaking that model to manage traffic and revenue.We've advocated innovative pricing for data plans and dynamic pricing, which makes more sense in a world with limited bandwidth and spectrum. Carriers shouldn't try to build a double-sided market by dipping into the revenue of companies that have legitimately created valuable services on top of their networks. (A flour mill owner can't approach the baker for a cut of bread revenue.) Carriers shouldn't stifle innovation, potentially undermining the dynamism in the mobile world. Will popular app makers have to worry about paying if their apps consume bandwidth?
Wireless operators angry that Google and others are making money off their pipes should build services that appeal to users. If not, the carriers shouldn't argue that they're more than dumb pipes. The carriers may think they're mobilizing early to charge content providers. They may have more leverage than their wired counterparts. But reviving an unpopular model doesn't reflect bold thinking; it reveals an empty idea cupboard. Let's hope their U.S. wireless counterparts don't try the same trick here.
Also from GigaOM:
Mobile Broadband: Pricing for Profits (subscription required)