What's do We Need from the Wireless Carriers? It's Competition Stupid!

Posted by DanJ01 on July 7, 2012 06:35 pm 10

In light of Nilay's feature about wireless carriers stifling innovation and the subsequent conversation about it in on this week's Vergecast, I wanted to lay out my dream for how the wireless industry should work. It is odd to me that this idea is not expressed more often, and how conversations often devolve the way they did on the Vergcast into either "total government control," or a "completely unregulated industry stack."

To me, both of these extremes are crazy, and unnecessary. I think it is very possible for government regulation to simply create capitalistic markets out of this industry, which is currently a horrible hybrid of multiple industries being controlled by a few companies that are able to leverage their cross-industry presence to destroy competition and consumer power.

To me, it seems pretty obvious that there are simply three separate industries here, and all we need to do is actually make them separate and competitive.

What we currently think of as "carriers" are controlling the entire vertical market of pipes, service, and hardware. These three parts of the industry need to each be their own markets, and be able to compete within those individual markets.

Level 1 – Pipes

The current carriers need to be regulated to only act as the back-end pipes. They should compete with each other on how well they can build out physical and wireless networks, and at what price points they can offer bandwidth for voice, sms, and data. The Pipes should sell their bandwidth wholesale to level 2, the service providers

Level 2 – Service Providers

Service Providers should be the consumer facing part of wireless service. These companies should purchase voice, sms, and internet bandwidth wholesale from the pipes, and then package it in a consumer service. These service providers will compete with each other based on how well they can manage the various bandwidth purchasing, features such as night/weekend minutes, customer service, coverage, and price.

Level 3 – Hardware / Retail

Hardware needs to be separated from everything else, and actually act as its own market. Considering the fact that more money is spent on mobile phones than any other personal consumer electronic category, this seems like a no-brainer. This would require slightly more regulation than other consumer electronics markets since things like computers, TV’s, land-line phones, etc. can be subsidized by service providers, but just aren’t because that is not how the market was set up. This is an area that just needs a hard reset in my opinion, and even if this regulation is lifted after 3-5 years or something, to start with, phone hardware needs to only be available for purchase as an independent product, not in association with a service provider or subsidy. This is necessary not only to protect the service providers from using subsidies to limit consumer power as they do now, but also to introduce competition and market forces into phone hardware. Right now, we just don’t know how much the market value of phones are. Even in Europe where phones can be bought off contract much more easily than in the US, the fact that they are all offered on contract also, really has not allowed phone hardware to have to compete on price.

Customer action -

With this system in place, a customer could go to a retailer and buy a phone, based on what price / features work best for them, and then go buy wireless service based on what price/ features work best for them. Thus, phone manufacturers, and wireless service providers would actually have to compete with one another based on the thing that they actually do. Ultimately, this would make phone sales work just like how it works with TV’s and cable service, computers and internet service, land-line phones and phone service, radios and radio service, etc.

So I’ve been talking a lot. Thoughts?