Robin on Tech

In a previous post, I wrote that Apple’s iPhone is significant because it is the first truly data-centric phone to be aimed at consumers rather than business. The crucial thing about Apple’s strategy is their perception of the network operator – Cingular – as nothing more than a ‘pipe’ for voice and data. An interesting article in the Wall Street Journal has thrown some more light on this idea…

“Service providers usually hold enormous sway over how phones are developed and marketed — controlling every detail from processing power to the various features that come with the phone. Not so with Apple and Cingular… Cingular agreed to leave its brand off the body of the phone. Upsetting some Cingular insiders, it also abandoned its usual insistence that phone makers carry its software for Web surfing, ringtones and other services…”

“Mr. Jobs once referred to telecom operators as “orifices” that other companies, including phone makers, must go through to reach consumers. While meeting with Cingular and other wireless operators he often reminded them of his view, dismissing them as commodities and telling them that they would never understand the Web and entertainment industry the way Apple did”

The crucial point is that Apple knows that the networks don’t ‘get’ consumer data. Intead of seeing data as a valuable commodity – to be sold in great volume to as many customers as possible – the operators have tried to ration it, charge ludicrous prices and endlessly attempted to bundle their own content. Many consumers have been put off from using significant quantities of mobile data because of the operators’ interminable bungling:

• It has been much too expensive. For example, Orange UK’s ‘cheapest’ mobile data bundle is still £4 per month for 4mb…

• The tariffs have been opaque. Consumers have been unsure what they’re going to be billed for, and how much it would cost them. And because they perceive mobile data as expensive to begin with, they’ve been deterred from using it at all.

• The operators have created ‘walled gardens‘ and/or attempted to funnel traffic through their own WAP sites (e.g. Orange World). Most consumers aren’t savvy enough (or just can’t be bothered) to modify their mobile browser homepage. So for many users, an unedifying mobile data experience has begun and ended in the walled gardens of their own networks.

• The operators have concentrated on trying to sell their own content (e.g. ringtones and wallpapers) instead of promoting wider access to the web and email.

• The operators have crippled or impaired the data-capabilities of many handsets. For example, Orange completely disabled the Nokia Standby Screen (which provides convenient access to email) on many of it’s phones, and replaced it with the Orange Homescreen. Although the Orange Homscreen can now be switched off on newer handsets, the setting is buried in the configuration menu, so many users never discover it.

Until recently, the effect of these policies has been to drive customers away from using significant quantities of mobile data. The result of this self-inflicted failure to capitalise on their expensive 3G spectrum is that many operators have been forced to write down the value of those licenses.

Fortunately, things are starting to change. T-Mobile have led the way with their ‘Web ‘n’ Walk’ data bundles. Three have introduced the ‘X-Series’ mobile data package. And even Orange provides an (unpromoted) 1gb data bundle for £8 per month, providing you spend enough on voicecalls.

Jobs’ reference to operators as “orifices” may have been gratuitous, but it was not inaccurate. iPhone owners are going to be using far greater quantities of data than most owners of other consumer handsets. This might be partially attributable to the fact that the type of people who will own iPhones are the type of people who would use more data anyway. But, as I explained in a previous post the real reason is that Apple have created a phone which really makes mobile data a compelling proposition. Coupling easy-to-access, useful data-services with a cheap data tariff will persuade customers to use – and spend more on – data. The lower margins on mobile data will be vastly outweighed by the huge jump in volume.

Recent leaks suggests that Apple may not be the only new entrant to the handset manufacturing business. Google is apparently working on an interesting ‘Google Phone’ – which will similarly use the network operators as nothing more than “dumb pipes“.

At last, mobile data is becoming the commodity it always should have been, with the mobile operators acting only as pipes. The deal with Apple indicates Cingular’s tacit acceptance of its role as an “orifice” (or at least a ‘dumb pipe’!), not as a content provider. Few customers view their broadband ISP as anything other than a ‘pipe’ with which to access the internet. It’s about time that more mobile network operators allowed their subscribers to take the same view.