Apr 16, 2011

RSA vs. US cell phone service

In the context of AT&T's bid to acquire T-Mobile and further consolidate the already seriously monopolized US cell phone market, Horace Dediu explains why it is that American cell phone service sucks so bad:
The trouble is that US consumers have never had much choice and the US wireless marketplace has been a minefield of incompatibilities and obstacles to market forces.

To begin with, US carriers maintain multiple incompatible network standards. Phones which work on one network do not work on any other. A Sprint phone won’t work on AT&T or on Verizon. In fact, some Sprint phones won’t work on all of Sprint’s network as it still uses the iDen standard legacy from the Nextel acquisition. Even the iPhone which is designed for the AT&T network does not handle T-Mobile’s version of 3G. So a consumer cannot make a decision on devices independent of a decision on carrier. This is a phenomenon unique to the US[1].
When I got to South Africa I was fairly amazed that one could just swap out a SIM card to change a phone from one network to another. Of course, as Dediu makes clear, this is the standard throughout the world. It should also be noted that the South African cell phone market is also fairly consolidated; the two largest carriers of Vodacom and MTN make for an effective duopoly in much of the country. My guess is that those carriers are worldwide operators (Vodacom is a subsidary of English Vodafone if I'm not mistaken), so the compatibility has been already established. He continues:
Secondly, in the US carriers charge for incoming minutes and have shunned pre-paid customers. There was a time when SMS messages were not compatible between networks, which led to the emergence of RIM as the only wireless messaging solution available, though initially not to the average teenager.
This is again different than RSA. Here, incoming calls are always free and prepaid customers make up the vast bulk of all cell phone users. Yet more:
Thirdly, because of the multiple incompatible standards, network coverage in the US is still abysmal. Each carrier has had to build out parallel (incompatible) networks at great expense using non-standard equipment over a vast landmass. The result is not only a very expensive network whose capex demands high service fees, but a very poor quality network which is always both spotty and capacity constrained. Operators are therefore keen to lock customers in to post-paid plans to ensure cash flows that drive capital allocations. This is essentially an upmarket flight which does not encourage low end innovation.

These idiosyncrasies are rooted in historical regulatory rulings that led operators to create a uniquely American wireless market. The key regulation was that the US shall have no single wireless standard. In the spirit of laissez-faire this may make sense. But the result has been failure of the common good. This is sharply contrasted with other developed countries which (with notable exceptions) deliver superior service with high efficiency.
Though South African cell service is quite a bit more expensive than in the US, the coverage and options are unequivocally superior. South Africa is a poor- to middle-income country, but even out in my tiny rural village, nearly 100 km from the nearest small town, I have both Vodacom and MTN. Many places I've lived back home there is effectively only one option.

Dediu makes one final point:
It’s therefore perhaps stunning that the platforms that are currently winning in mobile computing are American: iOS and Android[2]. Note further that none of these winners came from the world of wireless or telecom. These new points of profit condensation in the industry entered from a different industry: computing. But are they now pursuing telecom-compliant strategies? Arguably no. I choose to call them mobile computing and not phone platforms specifically because they will tolerate the cellular regimes as long as they need to, and no longer. Once they will reach the perch of power, the industry will conform to them, not vice versa.
It's clearly not a lack of innovation or technical expertise that's holding back the US. Rather it's our wonky and irrational regulatory regime, coupled with the fact that large companies have almost completely captured government oversight (and not just in the telecom area, to be sure). It's hard and getting harder to have a decent country with the Senate standing in the way.

3 comments:

  1. Hmm. Good stuff to ponder. I hope your journalism career takes off quickly, because your pieces are always provocative and well-informed.

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  2. Glad you like it! I've got my fingers crossed too.

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  3. Good read Ryan.

    As someone who is currently doing iOS and android programming, I agree with the last Dediu quote you used. As time goes on, the phone companies will have to bend to the progression of the phone's capabilities.

    AT&T already had to jump through a bunch of hoops with apple before they even got the iPhone. It's a start, if nothing else!

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