Last week Wired’s Ryan Singel wrote an article on cellular devices and the marketplace in which he describes how awful the cellular industry is for innovation even though the iPhone, Nexus One, EVO, and other Android devices have all been created within the current market structure.  Ironically, but somewhat off-topic, the article started off by stating that,

If the people who brought us television had played by the same rules that today’s wireless carriers impose — we’d probably all be listening to the radio.

We actually sort of were. I’m sure we all recall that up until last summer we were not a Digital Television only nation. Something that many other nations had already made the switch to 6-10 years earlier.  But the statement is relative to getting Singel’s main point off the ground: That we all should be able to do whatever we want with others property. The first mistake that is really made in this article is assuming that everyone agrees that wireless networks are common carrier.  Bare in mind that telecommunications networks are common carrier, but that mobile broadband networks are not currently regulated under Title II.

The second thing I noticed in Singel’s complaints about cellular contracts was his comment that,

Imagine if the wireless carriers controlled your wired broadband connection or your television set. You’d have to buy your television from your cable company, with a two-year contract, and when that ended, you’d have to ask them to unlock it so you could take it to another provider.

Fascinating!  That sounds exactly like my own DishNetwork deal.  Of course I didn’t buy my television from my satellite provider, but I do have to rent a box from them.  Why? Because it’s not mine!

And Neither is Your Cell Phone

To be more specific, neither is part of your cell phone if you purchase a phone at a discount.  This is the whole reason for the 1 to 2-year contract.  When you go to line up and buy a new iPhone 4 this Thursday and you get your 32GB device for $299 with a 2-year contract you really only own less than half of the device.  If you purchase off contract then you pay $699.  The contract provides a company like AT&T the ability to subsidize your purchase.  They are not handing you free money.  The balance is worked into the contract amount over the next two years, and you essentially pay off your phone by the end of that period.  Everyone involved in this process has something of value to trade.  The end user wants the phone for a reduced price up front.  The service provider wants to guarantee they will have a customer for a certain amount of time so that they can plan ahead with budgets, investments and upgrades to their network.

This is why companies have ETF’s (Early Termination Fees).  AT&T’s ETF on a smartphone like the iPhone is $325.  They must do this, and it is not at all surprising that AT&T raised its ETF on the iPhone this June from $175.  Consider that prior to this ETF price increase an individual could purchase an iPhone for as little as $99 on contract or $600 off contract.  Then consider that the individual could purchase the $99 phone and then turn around the next day and ETF the phone for $175, and be contract free for the low, low price of $274.  Know what that’s called? Stealing.

What is possibly in Apple or AT&T’s interest to allow people to steal from them?  Go ahead and tell me. That’s why there’s a comments section.  Singel complains that carriers tell Congress their networks are fragile and then tell their customers that they are strong.  He doesn’t feel carriers should have it both ways.  Well neither can the customer.  When you enter into a contract you either need to keep it or pay to get out of it.  You aren’t deciding where to go to lunch. It’s a contract.  It’s called that for a reason.  If you don’t want a contract, just pay the full price for the phone up front.

If the complaint is that you can’t go to a phone store and select your device and put it on any network you like (Which you can actually do on Verizon, but Singel didn’t bother to mention that.) then most of the time that just isn’t going to happen because device manufacturers are making deals with carriers to carry their device.  But a device maker will make deals with multiple carriers to open up choices to the customer.  This process happens in businesses all over our country, so I’m not sure what the problem is beyond ones favorite carrier not having their favorite phone.  Soda manufacturers fight for more shelf space in grocery stores, emergency and concierge services fight to get in a particular brand of car.  No one is petitioning the government for regulation to force OnStar into their Mercedes.

Business is Business

Singel goes on to say,

A company could make a phone with guts that mesh with a number of networks, making the wireless companies have to compete for your business.

This is what happens now.  Do you really think Apple, Nokia, Motorolla, and Sony play Russian roulette with a stack of carrier phone numbers and just sign their new phones on to a carrier by happenstance?  All these guys wheel and deal.  The incentive of the device manufacturer isn’t to see a carrier push their device into a back corner.  The incentive is to provide the device to a carrier or carriers that will push the device in the marketplace and help make it successful.

All of this antimosity in this area all seems to stem from the iPhone being locked down with AT&T.  Because if one were to take a look at the market, most phones are available on multiple carriers.  The only phones that are generally not available on multiple carriers are the “top dogs,” because the providers purposely tie them down in exclusivity agreements to draw customers to their company.  That’s strategy, not foul play. You know where these exclusivity agreements happen all the time?  The video game sector.  Do we see anyone lobbying Congress because they made a $300-$600 investment in a video game system and the competitor locked up an exclusive deal on the next big game? No, that would be silly.  Think about that for a minute.

All Networks for All Things

A fallacy that I believe is being made in Singel’s argument and his desire to open all networks to any device is that he is making the assumption that all devices will work the same on all networks.  So admittedly reading between the lines, this would come down to what the device offers, what services and applications it can run, and not about whether the actual hardware is compatible with the cellular network.

Additionally, many phones will have the internals to run on various networks, but will not have the ability to use certain data driven services due to the network itself or available back haul.  This is always a problem that no one wants to bring up when mentioning the infamous Carterfone as Singel does.  The Carterfone and any other device made for the POTS (Plane Old Telephone Service) didn’t require the sophistication to deal with multiple network designs.  Which may be why Sprint is allowing video chat on their network at the moment and AT&T is not.  It may be that AT&T’s network is not ready to deal with it, that they can’t afford the back haul to handle the millions of iPhone 4 clients they will have, or that they just agree with George and feel like streaming video is not suited for mobile networks.

Device cost will also be an issue here.  In some cases if device manufacturers were to make their devices compatible with all network types, the device would either lose other unique features to balance the cost, or it would potentially raise the cost beyond an acceptable market price and not perform well.  Either situation is a negative to the device manufacturer and the customer.

In the End

The argument Singel is driving at is that because the waves are in the air, and the waves are a “public utility” we all have a right to tell these companies who purchased the sole right to use the waves what to do with their billion dollar infrastructure investments.

To me this is like owning a boat that you want to take to the ocean.  Sure, the ocean is the public’s, but that doesn’t mean one can go use a privately owned boat ramp and do whatever they want with it to get the boat in the ocean.