Deconstructing US Mobile Operators' Dominance, Part I

I don't trust my mobile operator, do you? I believe this sentiment comes from a loss of control: I'm locked in because of my term contract and I have no idea what my bill is going to be at end of the month. Prior to phone number portability, my phone number and therefore my identity was held hostage by my mobile operator. This anxiety has caused me to minimize my relationship with my mobile operator. I've opted not to adopt their menu of new services (e.g. data plans) thinking that each additional services is another opportunity for them to milk me on overage charges. The mobile operators, wanting to improve their ARPU ("are-pooh", Average Revenue Per User) and reduce churn, are really working against themselves by fostering a sense of distrust with their subscribers. Unfortunately, I don't think they'll change their business tactics. So I ask, why are mobile operators in the US able to exert such control over its subscribers? And in follow-up blog entries, we'll assess why their power stiffles innovation and what will cause them to losen their grip?

Why are Mobile Operators so Powerful in the US?
In my simplistic view of the world, there are two primary reasons for this uniquely American phenomenon. (1) We consumers fall for the free/subsidized handset bait, and (2) the myriad of network types makes it nearly impossible for consumers to purchase a handset independent of the mobile operator. The two reasons are interwined. Because most handsets and given/subsidize/sold by mobile carriers, third-party handset vendors in the US are essentially non-existent. And if you can find one, the handset costs are astronomical ($300-$800).

Mobile operators are smart business folks. They calculate the lifetime value of a customer ($40 x 18 months = $720) and figure out how much subsidy they can give up to bait in a new customer ($100). So the average Joe consumer files into the carrier store asking about the free phone promotion. He is hustled a calling plan with a 1 or 2 year term and accepts by providing his credit card. At that point, the mobile operator has got him good. If Joe read his contract carefully, he would have noticed that the cancellation of his contract amounts to about five months of service ($200). However the $40 plan is just the beginning. The sales person will try to "up-sell" him additional services, $2 here, $10 there. Before you know it, he's up to the $70/mo plan. An oh there's more, they're hoping that Joe can't count...minutes, kikobytes [sic.] and SMS messages, so they can charge him $0.35/min after he exceeds his calling plan. In fact, this is such a powerful subscriber "lock-in" model, all the US mobile operators are essentially playing a variant of this game.

The complexity and incompatibility of mobile networks, though not necessarily by design, have given mobile operators another mechanism to control subscribers and a disincentive to unify connectivity across networks. Why change when the going is so good? Because US mobile carriers are buyers of 90+% of the handsets, they control the features and capabilities of the handsets. As a result, they have specified handsets that are incompatible across networks and made it extremely difficult to introduce/distribute content onto/from the handset except though the mobile operator's "walled-garden." (Walled-garden content is a euphemistic term used by industry insiders that translate into: a means for mobile operators to charge toll for every transaction carried out on its network.) The net result of these tactics is that mobile operators can control handset distribution by maintaining incompatible, jargon-ridden networks. They have no incentive to distribute a handset that gives users the freedom to operate outside of their walled-garden.

Am I missing something here, please comment below.

Wikipedia: All the World's Knowledge for FREE

This is not a new revelation, but a recap of one the most interesting Open Source projects. While Open Source typically refers to software development projects such as the Linux kernel, the essence of Open Source movement espouses that knowledge belongs to humanity and not corporations. Wikipedia is a web-based encyclopedia that utilitizes volunteers from all around the world to contribute, edit, and comment on entries. The technology is based around a Wiki, which is a collaborative application that places editorial control to the community at large rather than a select group of editors. Editors are redefined to be contributors who provide "house-keeping" services to the Wiki community.

Wikipedia is a truly global effort in terms of topics, languages and points-of-view supported. The system's strength is in its cross linking capabilities. Just about every noun in Wikipedia is hyperlinked to another entry. The most amazing aspect of the Wikipedia community is the rate at which entries are updated. Today (November 1, 2004), just for kicks, I reread the entry on Osama bin Laden and an asute community member had already updated the news that bin Laden had claimed responsbility for September 11 just a week before. Beat that Brittanica!.

In terms of time scale, Wikipedia is nascent given that it aspires be a continuous chronical of life on Earth. New topics from different cultures, from different times can be appended to this massive fountain of knowledge as contributors with new information discover Wikipedia.

I personally believe that Wikipedia is as important to the internet as Google's search. Google's strength is to provide a sense of order and access to all the world's information (Google's claim anyway). Wikipedia provides structure and a self-sustainable way to organize all the world's knowledge. A powerful concept and tool indeed.