This could be a moment when the U.S. smartphone industry begins to change its ways for the better as pocket-sized supercomputers become essential.
I'm not talking about the launch of the newest iPhone model but about something far more fundamental: How Americans' smartphones access the internet. Cable company Comcast said Tuesday that it would proceed with a long-gestating plan to sell wireless phone service -- with a twist. Comcast's plan essentially involves a hybrid of home broadband and cellular airwaves. Calls, texts and web surfing on smartphones will be routed over Wi-Fi when it's available and, in principle, switch automatically to cellular networks when it isn't.
These Wi-Fi and cellular hybrid plans have been around for years from companies including Republic Wireless and Google (yes, really), but they are still very much a fringe idea in the U.S. Hybrid wireless service has fizzled pretty much everywhere it was tried in Europe, too. Given Comcast's tech, marketing and financial muscle, however, the company could be the best candidate to drag Wi-Fi plus cellular phone service into the mainstream.
That would be beneficial for all of us who rely on our smartphones -- both consumers and the companies whose users are on those phones. I've written before about the dangers of concentration in the U.S. wireless business. The duopoly of Verizon and AT&T means Americans pay among the highest prices in the world for mobile data. And as the front door to our digital lives, a handful of cellphone carriers have subtle abilities to shape winners and losers by deciding, for example, what apps or web services to favor over others. More competition, and more experiments with wireless functions and pricing, are the best weapons against monopoly power.
Many serious barriers remain to the broader adoption of hybrid Wi-Fi/cellular service. The technology to seamlessly hand off data and phone calls from Wif-Fi networks to cellular airwaves needs a lot of work. Smartphones have to be specially configured to support Wi-Fi working in tandem with cellular technology. And perhaps most of all, Wi-Fi wireless needs to overcome a similar fear that plagues electric cars. Just as people worry an electric car will run of out juice and strand them, people understandably worry that Wi-Fi service won't be available when they need it, rendering a smartphone into a useless piece of glass and circuits.
Those barriers are easing a bit. About two-thirds of smartphone traffic is already routed over Wi-Fi connections. And that percentage is growing, thanks to the time users spend at places where Wi-Fi is becoming close to ubiquitous.
Most of all, the Wi-Fi dependent cellular technology needs a corporate champion. I thought Google would be the one to sell the masses on this new approach, but it hasn't worked out that way. On paper, the U.S. cable TV industry isn't an ideal salesman for new wireless approaches, given cable companies' history of failures with wireless projects in the 'aughts. The biggest problem then remains the big risk today: A lack of attention from the cable companies on what was then an expensive project that required heavy consumer marketing.
The economics could work for Comcast this time around, but only if the company can limit its reliance on the cellular airwaves it is leasing from Verizon. Jonathan Chaplin at New Street Research estimates a cable company should generate 25 percent Ebitda margins on a hybrid Wi-Fi cellular service if it can funnel 75 percent of the smartphone internet traffic and 50 percent of voice calls and texts over Wi-Fi.
Comcast said on Tuesday that it would market its new wireless service in places where it already has TV and internet customers to persuade people to buy more of the company's offerings and stick with them longer. It's always possible Comcast's Wi-Fi project will flop just as many cable wireless projects have flopped before it. But if it works, Comcast could strangely become a much-needed innovation engine for our smartphone futures.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Other companies, including cable operator Cablevision, have offered wireless service that runs only over Wi-Fi networks, without a cellular airwaves backup.
Yes, it is ironic that I count a monopolist like Comcast as healthy competition. While Comcast is a gatekeeper in home broadband and TV, it is a gatecrasher in smartphone access.
It's worth noting some analysts don't think Comcast can continue long term with its wireless plan, which involves leasing cellular airwaves from Verizon. Instead, Comcast may eventually have to go deeper into the wireless business on its own by acquiring T-Mobile or paying billions of dollars to buy its own cellular spectrum.
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