Buh-Bye, Wireless Guys

By Lyons, Daniel | Newsweek, February 15, 2010 | Go to article overview

Buh-Bye, Wireless Guys


Lyons, Daniel, Newsweek


Byline: Daniel Lyons

How Silicon Valley conquered the carriers.

I like to imagine that it happened this way: One day the computer guys in Silicon Valley looked over at the mobile-phone industry and realized those carriers have figured out the ultimate racket. They sell you a phone, lock you into a two-year contract, and anything you want to buy for the phone--accessories, ringtones, games--you have to buy from them. They control the whole thing, from top to bottom, and instead of getting a one-time sale, they get a recurring revenue stream. "Wow!" the computer guys said. "Why aren't we doing that? "

Well, now they are. Slowly but surely, companies like Apple and Google are wresting control away from the mobile carriers. Instead of a world where the companies that make the phones are just dumb hardware makers--silent partners who never get to touch the customer--Google and Apple are using the transition to smart phones as a way to flip the mobile-phone business model on its head.

Going forward, the phone makers will be the ones who deal with the customers and sell all the software and accessories. The carriers will be the silent partners, relegated to connecting calls and collecting a monthly fee.

Eventually, this means that we'll all be able to buy a phone and run it on any network we want, which is what we should have been able to do all along. There's a risk, however, that we're fleeing one cage only to run straight into another, and the only thing that will change is the name of our jailer.

This trend started with Apple's iPhone in 2007. AT&T wanted that sexy new smart phone so much that they agreed to cede some control to Apple. Instead of being the sole supplier of the phone, as had been the custom with U.S. carriers, AT&T agreed to let Apple sell the iPhone in its Apple stores, too. More significant, Apple--not AT&T--would sell the software apps for the iPhone, via Apple's online App Store. Plus, Apple would sell iPhone accessories. Bottom line: Apple, not AT&T, would control the ecosystem.

Now, with the iPad, Apple is taking things one step further. With the iPad, you don't need to get a wireless subscription to browse the Web, read online newspapers, or watch Hulu. The device, which lacks a phone, will run on Wi-Fi, and for many people that will be sufficient. …

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