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| Overpriced, underpowered, underutilized |
November 8, 2007 |
The looming battle over mobile content, price and speed—and who pays for it all
By Ian Harvey
 Networks get faster, devices proliferate, the subscriber base grows and content is still king.
But who pays for it and how much they pay is fast shaping up to be the next big battleground for the telecommunications companies which control the networks we use to access movies, voicemail, text, pictures and Web sites.
I earn a living immersed in the world of technology, playing with the latest gadgets and tools and seeing how they change the way we work, rest and play. But that’s also a great frustration, because after holding the future in your hand, nothing short-circuits the thrill of discovery faster than realizing Canadians will probably be the last to see these innovations in their everyday lives and, even then, we’ll probably be held to ransom for the privilege.
Last spring, when Ericsson brought its vision of the future to Toronto’s MaRS facility—the downtown technology and start-up incubator—I left feeling I’d walked away from a scrumptious buffet still hungry. It would be years before consumers really got to load up their plates.
The Ericsson demo reinforced what we already know: our mobiles, PCs, TVs, radios, home entertainment systems, car navigation— almost anything we do when working, resting or playing—is piped to us via a network, and increasingly that network is the Internet. The device we choose is simply the end point that connects to the Web. In the past, we’ve been willing to pay to access that Internet just as we’ve paid for access to land-line telephones which ran on proprietary networks and for cellphones, which are really radios connecting via another proprietary network.
That cozy telecom world, however, is changing. Why should we pay for land-line access when we can use Voice over IP? Why pay data charges for mobile access if we can pick up a Wi-Fi signal? Why subscribe to cable if downloading movies on demand or, better yet, streaming shows with IP TV is readily available?
It’s no coincidence the same folks who bring us our TV channels, Internet access and land lines also provide wireless. But right now they’re sweating as service provisioning becomes one big pipe with lots of different devices connecting people; in that scenario, price is the only thing that matters.
It scares them because on the one hand they could be reduced to a “dumb pipe” player: a network operator who builds and maintains the pipe in the form of fibre, wireless and cable, and then charges a toll fee from customers. At the same time, telecoms are trapped because any shift in direction jeopardizes other business models: build better broadband and Bell risks its land-line business as we go to VoIP, while Rogers could lose revenue from its video rental stores as consumers switch to movie downloads. Add Wi-Fi and users will stop burning minutes on their cell plans and switch to Skype mobile.
The fear is they’ll be forced to the sidelines while other “over the top” players rake in the big cash by selling goods and services on their networks. Witness the suggestion made by some providers that Google should be charged an access fee because the Internet giant attracts so much traffic over “their” networks.
Turf wars
To preserve their territory, telecoms like Bell, Telus and Rogers have played gatekeeper in their wireless businesses, demanding not only exclusive partnerships with any third-party supplier but, in many cases, the lion’s share of the revenue. Thus you can get a ring tone for $1 if you buy from a partner but will pay through the nose in data charges if you buy from someone else using your mobile.
Imagine if they had set up the Internet that way? Would it have evolved to what it is today? In the U.S. the battle that started with a shot at Google over net neutrality is escalating and will soon spread to Canada. Telecoms want to charge broadband subscribers a premium depending on what content they’re pushing or pulling over the Web. If I’m downloading movies from Cinema Now! for example, Rogers wants to hit me with a surcharge because a movie is a massive file compared to, say, an e-mail. Presumably, if I bought my download from Rogers it might waive that fee but that’s akin to going to the mall and being told unless you buy from The Bay, you’ll pay a hefty surcharge.
Unfortunately for consumers there is a “can’t-beat-’em-join-’em” movement and even the handset manufacturers are signing up. The over-hyped Apple iPhone can only be had with a two-year subscription to AT&T in the U.S. (though hackers have unlocked it) while content sites like YouTube have signed deals with carriers like Verizon and makers like LG to include a special button so users can access unique video content.
Détente instead
This so-called “walled garden” strategy only serves to limit consumer choices and increase frustration, but other scenarios are possible, said Mark Henderson, president and CEO of Ericsson Canada.
“Mobile operators will have to change their business model because the walled garden isn’t working,” Henderson said. Ericsson—and there are other vendors in this field with interesting ideas, such as Motorola and Nokia—sees a world connected by fibre optics in which all devices create and share content and communication in an extension of Web 2.0.
It translates like this: I’m at the dentist and they’re running behind so I call up some TV on my mobile. Nothing new there, except I’m pulling that content from my home satellite system. I’m not paying for the content because I already own it. I can do that already with a Slingbox but the difference here is that I decide the cooking show I’m watching is something my daughter Meaghan would also like, so I call her number in another window and ping her with a message: “Hey, check this out. Isn’t this the beet risotto you were talking about last week?” She tunes into the show by clicking the embedded link in the message and replies with an instant message: “Yeah, it’s a really great technique. The rice is not the usual Arborio, you should try it.”
After the cooking show, I surf over to a games site and see my friend Garry is also obviously bored somewhere because he’s logged on looking for a quick hand of poker. Since we need a couple more guys I use the push-to-talk feature to ask him if he’s called Ron or Grant. Turns out, Grant is on vacation but Ron’s in and he’s brought a friend. We deal the cards and get busy. Like the console game we usually play on the Sony PlayStation, the screen simulates a room in a casino, with avatars for each of us sitting around a table. When Gary messages, a little talk balloon appears by his head. He’s trash talking my strategy so I push-to-talk, giving the whole table an instant rebuttal. There’s an ad for Casino Rama on one of the walls and the centre of the table has a Molson beer logo, but we don’t mind.
It’s sponsorship like this that makes it affordable to play. For an hour or so of poker it’ll cost each of us $2 to $5 plus or minus whatever we win or lose. Not a bad deal at all. And if one of us is in a Wi-Fi zone, like I am at my dentist’s, there are no network charges.
So is this just a fantasy? Well, the interactions and the game aren’t—that’s possible today. The fantasy is the $2 to $5 per-hour network charge. Try adding at least one zero to those digits and that will explain why Canadians refuse to dip their toes in the fun pool today. There is currently no third-party advertising to offset nasty network charges.
Other revenue streams
Still, it’s always fun to dream about the future and in Ericsson’s Web 2.0 vision, connectivity is seamless regardless of whether you and your eTribe are sitting in front of your mobile, a PC or TV. Just as we share e-mail content, IM, videos and audio over our PCs, shifting that connectivity to a mobile or TV is just a matter of where you are and what you’re doing at the time.
The key to all this is ultra-high-speed networks. Almost everything we do today comes down to a network. The faster the network the more content we can push back and forth. For high-def movies you’ll need about 20 Mbps or more; if you want to watch an HD movie and your kids want to play Xbox Live, you’ll need more bandwidth. And so on as demand grows.
There’s just one problem. Canada has some of the slowest, most expensive broadband on the planet, and our cellphone networks aren’t much better. Compared to Japan, where rates are 100 Mbps, our average of 6 Mbps download and 800 Kbps upload speeds put us firmly in the Fred Flintstone lane of what we used to call the information highway.
Ironically, just last summer Rogers trumpeted it was bumping Internet speed to 8 Mbps from 6 Mbps. In tests I conducted it went from 5.8 Mbps to 6.3 Mbps. Not exactly Woohoo time.
To be fair, networks are speeding up as new subdivisions are built with fibre to the curb, but therein lies the chicken-or- the-egg dilemma: if consumers aren’t heartily embracing all the content services offered now, why bother to invest in building faster networks with more services they won’t buy anyway? And how do we converge consumer behaviour if there’s a financial sting when we opt to do it over mobile and wireless as opposed to wired and at home.
Ericsson’s poker game demo showed there are revenue opportunities online which could lessen the financial burden for the consumer and entice them to partake in more services, more often. The carriers may not know specifically who all their users are, but they can ascertain by usage patterns what demographic buckets they are likely to fall into based on frequency of texting, time of usage, type of downloads such as games, music and ring tones, and hours logged on gaming.
“Google, for example, wants to sell ads to a specific market,” Henderson said. “Carriers have high-value data on who their subscribers are. Why not charge a commission on the ad to Google for that? They know what the probable demographics are.” It’s a win-win-win. Google’s ad is better targeted, the carrier gets a slice and the mobile user will not face a financial barrier each time they use Google.
Surely the way to entice consumers to try new products and services is not to gouge them or put up barriers but to make it a seamless, affordable and, dare I say, fun experience. Who wants to download a $5 ring tone if you end up paying another $5 in data charges? Or a song for $0.99 if there’s another $5 data charge waiting on your monthly bill? We’re back to the nightmare mall.
Bigger, faster ... and cheaper
It’s not as though this is an alien concept. Nikos Angelopoulos, a partner in the communications and high-tech practice at Accenture’s Global Solutions Group in the U.K., points out that carriers bundle broadband to make it appear free, similar to the way Canadian mobile phone carriers give away phones to those who sign long-term contracts.
“Orange gives customers free broadband service if they spend more than £30 a month and have a 12-month contract,” he said. “They only get 2 Mbps but they can get 8 Mbps for another £5 a month. Virgin Media is the most attractive today: it advertises Four for Forty—that’s four services, telephony, mobile with free weekends and cheap weekdays, television and 2 Mbps broadband, for £40 a month.”
But as the marketplace gets saturated and late adopters are lured on board, he said, providers will have to work harder on differentiation, promoting consistently higher speeds and better service. And it’s precisely why Ericsson invited the media and assorted analysts to its show and tell, to amplify its message to the telecoms: if you want to grow your business, keep your subscribers happy and entice them into using new services you have to build bigger, faster networks and find innovative ways to pay for it. The telecoms know this already, of course. But caught like deer in the headlights, they’re apparently not ready to jump one way or the other.
Meanwhile, Canadians are past the appetizer stage and yearning for the main course—though we’re not going to mortgage the house for it.
The recipe isn’t that onerous: a little more competition, faster networks, converged wireless and wired plans, all-inclusive data and voice plans and a more consumer-friendly approach that mirrors the way the Internet developed will combine to kick-start the next phase of our digital evolution.
Having tasted a little of that future, I can tell you if the price is right we’ll all be hungry for more.
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