Apple has seen the light

Wow! Who woulda thunk it? A tiger can change its stripes.

Apple has announced that it is opening the iPhone and iTouch to third-party applications. Yes, believe it. This is the same company that lost the PC wars to Microsoft and Intel because it refused to allow the Mac to be cloned or to license the Mac OS. This is the same company that only allowed iTunes songs to play on the iPod and only allowed the iPod to play songs bought through iTunes (or open source MP3 files). And, this is the same company that released a software patch and turned any “unlocked” (read: hacked) iPhones into useless bricks.

Suddenly, Apple has reversed itself on over 20 years of business strategy. Steve Jobs has all but admitted that that business strategy was wrong. The poster child for tight control has seen the light of open-market economics.

Why now? Why has Steve Jobs had this epiphany at this particular time? Two reasons: Facebook and MySpace. That’s right, Apple didn’t learn from the Mac debacle in its own history. Apple is reacting to what’s happening in the Web 2.0 world right now. And, the analogy is an apt one. Apple sees that Facebook is rapidly gaining on MySpace and that the reason for it is that Facebook opened its platform to third-party application developers. MySpace got so scared by Facebook’s growth that they could only counter by opening up their platform as well.

Apple understands that to maintain its position atop the cell phone world it has to do more. Other manufacturers are introducing touch-screen cell phones. The iPhone runs the risk of being just another handset in a crowded market. So, Apple pulled out its trump card, the one thing that Apple has that no other handset manufacturer has: the upper hand in the handset manufacturer / wireless carrier relationship. Through its deal with AT&T, Apple secured the power of self-determination. And, contrary to what both parties must have believed at the time, Apple decided to share that power with the rest of the world.

But, does Apple understand the ramifications of this decision? This has done so much more than just open up a platform for developers. What Apple has done will send shock waves throughout the wireless industry. By striking the iPhone deal with AT&T, Apple put a chink in the armor of the wireless carriers. Before that agreement, the carriers maintained a stranglehold on the device manufacturers and forced them to comply with a telephone-book sized list of requirements and constraints. The chink in the armor was that Apple negotiated the power to control the device, and even forced the carrier to create service plans specifically for their device.

By opening the iPhone platform to third-party developers, Apple has not only set the device manufacturers free from the carrier’s control, but has also now ushered in the age of Wireless Net Neutrality. Since all iPhone service plans include unlimited data plans, Apple has now created a world where any person anywhere can create a mobile application and not have to negotiate with the carriers for the privilege of deploying the application.

In over 20 years of trying, Apple was never able to overcome Microsoft. But, in less than one year, Apple has thwarted Verizon, Sprint, and AT&T.

Missing the Point: wireless carrier regulation bills

Today, Senator Mark Pryor introduced a bill to regulate the wireless carriers. As the RCR Wireless News article points out, the Pryor bill is backed by the wireless industry and will compete for backing with a bill introduced a mere 10 days ago by Senators Jay Rockefeller and Amy Klobuchar.

Consumer advocates are backing the Rockefeller-Klobuchar bill. The wireless industry is backing the Pryor bill. Both bills have good and bad points. Since the Rockefeller-Klobuchar bill arrived first, let’s start there. This piece of legislation would require the carriers to make their bills more transparent. The authors claim that carriers are mislabeling as governmental and regulatory fees what should just be considered standard operating costs and paid for in the normal monthly plan pricing. If anyone has actually reviewed their cell phone bills, they would probably agree that some clarity and “truth in billing” would be helpful.

The Pryor bill would put the FCC in charge of policing the wireless industry, and would close the current loophole that allows for each state to impose its own regulations. This is important because consumers and businesses should expect the same level of service no matter what state they are calling from. Allowing the states to impose their own regulations can only lead to fragmented, unequal service throughout the country.

So, what are the problems with the bills? With the Pryor bill, too little is imposed on the industry in terms of “truth in billing” and other consumer protections. With the Rockefeller-Klubochar, the FCC will investigate cell phone “locking,” which is a pointless and unnecessary study.

Here’s why cell phones are currently locked and why contracts call for $250 early termination fees: with the carriers subsidizing consumer phone purchases, acquisition costs are $300-$400 per customer. If a new customer signs up for a $40 per month plan, that’s an 8-10 month break even period. The carriers shouldn’t be expected to subsidize handset costs and then not be allowed to lock in customers.

Now, I’m not saying that the carriers should be allowed to lock in customers. I’m saying that everyone is looking at this from the wrong point of view. The aspect that nobody is talking about here is the power that the carriers wield with the handset manufacturers. If the handset was unbundled from the service, the whole ecosystem would prosper.

Of course, each group would gain something and give up something. Consumers would gain freedom to shop around for the handset of their choice, the service plan that best meets their needs, and would be able to switch when their needs change or a competitor in the market provides a better value proposition. But, consumers would have to pay full price for the handset. This is the common model in Europe, but the American consumer is spoiled by cheap handsets. Sorry consumers, you gotta give to get.

The carriers would reduce their acquisition costs. This would allow them to focus more on the service instead of misusing their money by paying for handsets that consumers have shown they are willing to pay for themselves, if the product is right. (See iPhone) But, carriers would then have to compete with each other more fiercely on service, which means an increased investment in innovation. And, the carriers would have to give up on the idea of locking in consumers with two-year contracts. That won’t be justified.

What also wouldn’t be justified is the carriers’ stranglehold on what services are delivered on the cell networks. Consumers in the US have been deprived of innovative new services that are commonplace in Asia and Europe. It’s time that the Democratically led Congress starts addressing the real issue: Wireless Net Neutrality. Isn’t the wireless industry clamoring for less regulation? Now’s the time for the carriers to walk the walk.