Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
This week, we touch on the second part of the “wish list” – those items that are clearly more ambitious and idealistic. (For Part 1, click here.)
1. Job-creating net neutrality regulation. There will be a lot of hype this week about how carriers are killing the Internet, and how, given a foot of engineering rope, the wireless providers, telcos, and cable companies will take a yard and then some. One of this summer’s Reality Checks (“The Internet needs a new roof, not another layer of shingles”) dealt with this topic and serves as good background reading. If we impose net neutrality laws on wired and wireless services, more time and money will be spent proving compliance as opposed to improving packet delivery. We will, in short, create the same nation of “checkers” and “audit reporters” that plagued the telcos with divestiture (some of that ARMIS reporting continues to exist 25-plus years later!). Net neutrality will create jobs, but they are the wrong ones. Who adds the most value to the Internet – a college graduate that administrates content source compliance reports by network node, or one that focuses on engineering Netflix bit streams with greater efficiency and accuracy (or writing more efficient code in the first place)? The best job creating net neutrality legislation is no legislation at all. Let the market solve bandwidth prioritization issues.
Net neutrality is like too much Christmas egg nog – feels good at the moment, but there is a morning after. Resist feeding the false euphoria.
2. A replacement for universal service. Here’s a conversation starter for you – what organization receives over $7 billion in annual disbursements, whose sole purpose in life is to give it away to projects that normally would not have been able to survive a basic business case test and has been under the operation of an acting CEO for the past four years? The answer: The Universal Service Administration Corporation (http://www.usac.org ).
The principal of Universal Service is a good one, but it is based on the “black telephone principle” (one app, no design, limited productivity, a social good) not the “iPad principle” (tens of thousands of apps, a status symbol, significant productivity, worth the money to many). Simply put, when the high cost program was formed, there was one option available – the incumbent telco. Now, by their own admission, AT&T Mobility covers 97% of all Americans and Verizon Wireless is not far behind. And we have the cable companies and we still have the incumbent. Undoubtedly, there are higher costs to serve more sparsely populated areas, but is it keeping competition from Scottsbluff, Neb., or Eureka, Calif., (both have 3G wireless and cable local phone competition)? Nope.
As of the end of 2008, the USAC was holding $6.3 billion in cash for the USF. They can’t give it away! Plus we have allocated, but unspent stimulus money targeted for the rural community. And we have the subscriber line charges that are paid by all telecom customers to the carriers directly. And we have, at least in a few states, in-state switched access charges to support high cost areas.
Bottom line: the USAC has become a carrier charity and needs to be repurposed and ultimately replaced. Let’s repurpose and redistribute its functions, some to other departments in the executive branch, and others (like the high cost program) to the states that can best administer and determine the needs of their rural populations (the link above directly connects to their annual report).
3. A longer-term approach to China. As a Sprint Nextel Corp. shareholder, I am disappointed at their decision to select non-Chinese vendors for their network upgrade project. According to the The Wall Street Journal and The New York Times, senior government officials called Sprint Nextel to discuss their possible selection of Huawei Technologies Ltd. or ZTE Corp. prior to Sprint Nextel’s final bid selection. ZTE had even completed network certification for Federal Information Processing Standards. Selecting Western vendors (who make some of the equipment components Sprint Nextel will use in China) is going to add to the costs to deliver bandwidth for a carrier that has to execute this project flawlessly in order to stay competitive. Now they will have to borrow hundreds of millions (if not billions) more.
What’s even more confusing is that Cox Communications and Clearwire Corp., both wireless broadband providers (and likely both used by many laptops in the Northern Virginia area), are already using equipment made by Huawei, one of the aforementioned blackballed carriers. On top of that, it’s not a “tit for tat” – as we reported, Alcatel Lucent (Bell Labs) and several Chinese vendors signed a 1.2 billion Euro agreement just days before the U.S. government weighed in on Sprint Nextel’s options.
Chinese vendors have signed agreements with telecommunications companies in India (Reliance Wireless: $1.8 billion contract), Japan, Indonesia, Taiwan, Portugal, Poland, Peru, Bahrain and Trinidad & Tobago to provide 3G and 4G network solutions in the last 90 days. Both Huawei and ZTE are already handset/wireless modem providers to Verizon Wireless, AT&T Mobility, MetroPCS Communications Inc., Leap Wireless International Inc. and Sprint Nextel. We need to develop a consistent national policy to address the innovations and scale that China is building and not ignore them. It starts with spending $200 million to $300 million (perhaps take it from the USAC?) to enhance our software audit capabilities.
All USAC joking aside, the irony of this is that if the United States is serious about rural affordability, low latency for better health care, and growth throughout the country, it needs to embrace all sources of ideas to address this, not just ones generated by Western-controlled companies.
4. Usage-based ESPN or Big-Ten Network (for my iPad). On to a fun topic. Low probability, but fun. Many of you have already joined the tablet revolution (I have not, but I have been very nice this year, Santa!). After going to Apple Inc.’s iTunes store and ordering every-former-board-game-I played-as-a kid iPad edition, thoughts turn to what’s missing: live TV. Tablets are made for live TV. Buffer at will, but give me the play-by-play and I will pay. This is especially valuable when alumni are away from the local broadcasts of sporting events (e.g., a Metro Sports HD iPad app for followers of Kansas City area high school sports).
Technically, it’s fairly easy to do. Financially, the ad revenue will follow and fund (if the custome
r is paying for the pay-per-view, they are likely to be attractive c
ustomers for advertisers). Contractually, it’s a nightmare, and why this will likely be on my wish list for many years to come. Steve Jobs holds the keys to the ESPNTime app, given his participation on both Walt Disney Co. (parent company of ESPN) and Apple’s boards. Mr. Jobs, be the Santa for all sports nuts who love your iPad.
5. A new crop of veteran telecom entrepreneurs. Telecom, like most large industries, can be insular. We tend to hire our own (when was the last time Verizon Communications Inc. hired an Apple executive?), and huddle with our own at conventions and associations. Our industry is increasingly being shaped by software developers, many of whom lack the relationships to successfully match carriers to solution. We need new thinking from roll-up-the-sleeves risk takers quickly to solve problems that plague our industry.
More on this in the year-end column, but what if AT&T matched $1 million to $5 million in seed money to 10 of their under-40 executives to solve several problems: in-building/in-home coverage, (business) applications efficiency, small business solutions and retail store effectiveness? How would this improve their competitiveness, accelerate innovation, and potentially diversify their workforce (no offense, but the opportunities aren’t generating 20-something excitement about working for AT&T as much as the opportunities with Google Inc. and Apple)? What’s $50 million to AT&T (besides .3% of their current capital budget)?
Well, that’s the wish list. From repurposing and restructuring Universal Service to franchising Pandora, there’s a lot to do in our industry. After a year of treading water, the telecom industry will create shareholder value in 2010. As we pointed out in last week’s column, however, others are creating value faster.
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your commentsatjim@mobilesymmetry.com.
