How We Lost Our Mobile Edge

I first realized in 2004 that Asian mobile networks and services were leaps and bounds ahead of our own, especially in Korea and Japan. Even in China, where I was, it was incredibly simple to switch between mobile providers. A friend of mine recently returned to California from Korea and felt that she was in a third-world country because she couldn’t watch TV on her American cellphone. I’ve heard before the explanation that it is easier for cellular companies to profitably deliver high-speed cellular service in areas of extremely high population density like Tokyo or Seoul, but that argument should not matter in places like NYC, which is as dense and rich as anywhere else, or in Silicon Valley, the laboratory for many communications advances.

Walt Mossberg’s Free My Phone article has gone a long way in answering for me the longstanding question of why the U.S. is “the laughingstock of the mobile-technology world, just as the cellphone is morphing into a powerful hand-held computer.” This writeup falls into the category of articles that everyone is glad someone wrote because it successfully provides a unifying theory of why something is the way it is. The heart of why America has third-world cellular service is that the mobile carriers control the entire ecosystem of services and products. Verizon and AT&T and Sprint et al control what sort of phone you can use, how often you can change to a competing service, and how much you have to pay for almost every service you use on your phone – all of that on top of the only REAL service they provide, which is access to their voice and data networks.

Imagine if your internet provider also controlled what kind of CPU you could use, what kind of OS, network card, keyboard, mouse. They would effectively control everything “downstream” and, assuming there are three big ISPs, they could collude to spend less on improving the speed of their networks and focus on squeezing the maximum ROI out of their existing infrastructures. That’s essentially what cellular providers do, and that explains why we pay a lot of money for slow cellular networks with a minimal set of services. Crap!

The Wired writer who wrote 10 Reasons to Hate Cellphone Carriers must have read Mossberg’s article. All of his serious points fit into why these carriers constrain the cellular ecosystem, and he casts a few additional stones, such as the fact that carriers lock their locks and cripple their handsets to restrict what users can do with their phones. Verizon or Sprint or AT&T will actually take a RAZR manufactured by Motorola and lock out pieces of functionality. Again, can you imagine your ISP taking a screwdriver to your personal computer to constrain what you do on their internet network, or your state modding your car once you cross a state border? Our PC industry continues to fulfill Moore’s Law because it is a market driven by entrepreneurial capitalism of the kind that the mobile industry lacks.

This kind of top-down market control also hurts the development of mobile applications. Most mobile applications startups I’m aware of rely on deals with carriers. These app providers need to ingratiate themselves to this small pond of mobile carriers, who then call the shots on how much to charge for each application download, and even then these application providers gain access to only a percentage of the mobile consumer market (since each carrier effectively “owns” its customers).

It will be interesting to watch Sprint in the coming years with them developing a WiMax network and unlocking their phones. Assuming they implement successfully, guts should be rewarded.

How We Lost Our Broadband Edge

As someone who prides in America’s technological leadership and generally despises rent-seeking, these three articles make my blood boil:
Part One of I, Cringely’s great writeup, Part Two, and Part Three

I have long wondered why internet (and cellular) networks are slower here than in Japan and Korea. Japan has 100-megabit-per-second (mbps) fiber-optic broadband internet for $14 per month while Americans pay $50 per month for 3-mbps. That’s $0.14 per mbps in Japan, in a country where everything else is more expensive, while we get far worse than $1.00 per mbps! And this is not because those Japanese telcos not operate at a loss. This should not be the case in the country that created Google and Cisco and the internet and cellular communications.

As I now understand it, we lost our telecommunications leadership because:

Reason One: Whereas other countries use telco infrastructure to provide internet, we use both telco infrastructure and cable TV infrastructure. That is much less efficient because that means that support “two completely separate and different technical infrastructures, two billing systems, two service departments, two head offices, two corporate jets.” Here is a case in which government enforcement of single standard adoption would have led to a much better economic outcome. And inefficiencies will continue to persist even as we transition to the faster fiber-optic because those newer networks will be exempt by law from sharing, meaning less competition.

Reason Two: We all got conned out of $200B. Between 1994 and 2004, the major telephone companies profited from higher phone rates, accelerated depreciation of their network assets, and direct tax credits that added up to around $200B. As contracted between local telecom utilities and all 50 states and DC, they were supposed to build out fiber and hybrid fiber-coax networks intended to bring bidirectional digital video service to millions of homes by the year 2000. The Telecommunications Act had set the mandate for this build-out, but the details were left to the states.

Instead of 45-mbps bidirectional service or 20-mbps, we got nothing. I still remember the 1.5-mbps download and 128-kbps upload connection we had in those days. The telecoms played a good game of stiff-arming and bait-and-switching the everyone else, such as when customers were charged $1.00 per month per customer to support Bellcore, a research organization. When Bellcore was sold, the profits went to the telcos instead of returning to customers, and the $1.00 charge remained in place even afterwards despite that it no longer supported anything. (I usually don’t pay attention to all the random charges on my utilities bills, but I’m going to start.)

These should be industries in which competition precludes such expensive rent-seeking from persisting, but lack of standards regulation failed to steer industry trends away from systemic inefficiencies (reason #1) while lack of negotiating, regulatory, and legal capacity failed to hold the telcos accountable for delivering the goods (reason #2).

I am considering switching to Sprint next year when they roll out their WiMAX. They still might not have as good a voice network as Verizon, but I would be willing to reward them for having the guts to move technology forward rather than lay on their rent-sought laurels.

My other big telco question still remains unanswered though: How did we lose our cellular leadership?

Terms:
DOCSIS 3 cable modems
fiber-optic versus hybrid fiber-coax – I’m guessing hybrid is slower than all fiber.