Embedded Wireless: A Step Towards Dumb Pipes?

from the open,-but-not-that-open dept

At a FierceWireless panel during the CES show today, panelists from Verizon, AT&T and T-Mobile discussed the progress the embedded sector has seen over the past year and is expected to show in 2010. Embedded wireless, from a consumer electronics perspective, means factory installing a cellular radio into a (non-phone) device. The devices range from the obvious Netbooks and Kindles, to the less obvious cameras and media players, and more. The panelists were keen to point out that in the past year, the pieces of the puzzle all fell into place — what had been lacking was affordable embedded modules, strong data networks, and flexible enough rate plans that didn’t try to capture $60 a month from every device. I would agree that the carriers have finally become eager to consider a range of pricing models, all in the past year. From ad hoc daily netbook connection fees, to the integrated pricing seen on the Kindle, the Nook, and Garmin Nav devices, we’re finally seeing some flexibility in the way carriers charge for data access. It’s about time, too: for too long mobile data followed the $80 Rule, where the only way to get cellular data was an $80/mo lengthy contract.

As an example of the changes from just the last year, Verizon Wireless previously offered just a $60/mo contract for laptop connectivity, where now they sell a prepaid day pass, a week pass, and different tiers of subscription plans. That’s good progress, but market forces are going to demand a wider range of solutions, and at more reasonable discounts for lower tiers. For example, how long will the market support Verizon’s 5GB/mo subscription at $60 and their 250MB plan at $40? The lower plan is 5% of the throughput at 66% of the price! Clearly, there is room for these prices to move a little more.

An interesting point raised by Sue Marek of FierceWireless was whether embedded connectivity deals like that on the Kindle relegate the carrier to dumb pipe status. After all, when a great embedded wireless user experience is created, the carrier becomes invisible. Good question, but I think the answer is no. The carrier becomes a white label partner, but not a dumb pipe. That’s because, so far, most of these deals have involved cooperation between the CE vendor and the telecom operator, in order to make the activation seamless and simple for the user. The carrier has been integral to the development, activation, and service management. That trend is likely to continue for the reason I explain in the following paragraph.

Consumer Electronics makers, like Garmin, could just put a GSM radio in their devices and say "connect to your choice of service provider by inserting your SIM". However, the cellular module costs are hovering just under $100, and that’s a big nugget to add to the Bill of Materials on any CE product. And the CE makers know that they have leverage, since they have the ability to steer their customers onto a specific wireless carrier, and that any carrier will be attracted to a block of new subscribers. Guess what happens… that old, familiar word, subsidy. If Garmin chooses to partner with a specific carrier, the carrier will pay for the opportunity and in effect subsidize the device’s radio. This brings down the cost, and the MSRP of the product, which in turn helps Garmin and the consumer. For this reason, until the radio modules are very cheap (like Wi-Fi modules are), we will generally see embedded wireless tied to a specific carrier.

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Comments on “Embedded Wireless: A Step Towards Dumb Pipes?”

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Derek Kerton (profile) says:

Re: $100 GSM module cost - not

Got a source for your pricing doubts? Can you show that cheaper prices are the norm? I’m not saying this is rock solid, but it was an Ericsson rep on the panel that roughed out that price, and they are the leading vendor.

If you look for cheaper module prices, make sure it’s multi-band 3G at least. I mean, I’m not sure we can go with your gut feeling and a comparison of 3g mini-pci modules with 20-yr old PHS technology on one band in China.

Meanwhile, I’ll look into it, too.

Derek Kerton (profile) says:

Re: Re: $100 GSM module cost - not

OK, did a little research. Prices are hard to find on these, since they are B2B sales, and most sales teams prefer to keep their deal terms secret, and negotiate each sale based on volumes, timing, etc. That said, here are some prices:

Quad-band, but only GPRS speed, $399

Quad-band, but only GPRS speed, $71

If you’re willing to buy one from a dude, used
Quad-band, one available, but only GPRS speed, $28

A 3G multi-mode, multi-band model, from $129 through $160

You know what, here’s a good Google search term that shows prices start at $129, and are easily found in the $200 and $300 ranges, too.

So, LaoMaozi. Your statement above is completely incorrect. You said they “cannot possibly” cost $100, but clearly they can.


Janneman says:

Poor Americans...

In South Africa, we already have an extremely tiered data pricing setup. Besides the data contracts (ranging from R189 for 500mb which is about $12) we have a pre-paid option that costs you R2 (about $0.35) per megabyte. And all this at 3.6mbps HSDPA through Vodacom (in an infrastructure partnership with Vodafone).

There is also the 7.2mbps HSPA option for a little extra.

There are also so many small WiFi service providers across the country that costs are driven down madly! I pay R300 (about $42) a month for 2GB cap through a very fast WiFi connection.

It seems your greed is keeping you from true development!

jsl4980 (profile) says:

Not dumb pipes yet...

They might not be dumb pipes at this year’s CES, but they’re definitely moving in that direction. If history has shown anything – when demand goes up people will get innovative and eventually prices will fall. The GSM/CDMA/802.11 radios will all fall in price drastically and hopefully we’ll see some competition between carriers trying to pull customers from one company to the other.

Hopefully in the not-too-distant future we’ll get phones that have a menu where you can choose your service provider and with a tap or two you can change carriers to the cheapest that month.

Derek Kerton (profile) says:

Re: Not dumb pipes yet...

Yes, the module prices are sure to fall over the next year or two. But bear in mind, the CE makers are now learning the power of pointing their customers at a specific cellular network. Even if the module price drops, most CE makers will still choose to get the subsidy from a carrier, and point their customers that way.

That said, once the module price is sub $20, some CE maker will just throw it into devices with the competitive advantage of “use any carrier”. The market will support both models.

I agree with you, going into mid-to-long-term future, we’re moving towards more dumb pipes. What I think will ultimately happen is that carriers will work within two extreme ways of doing business:

– dump pipe mode, where they sell cheap transport to customers or CE makers

– AOL mode, where they sell a range of services (voice, photo sharing, backup, messaging, etc.) on top of the transport. In this mode, they will appeal to customers who want a simpler, turnkey solution from one vendor. Unfortunately for them, the one vendor solution could also come from an Apple or Google.

And of course, there will be points in between. where a key service or two is bought from the carrier (ex: voice, SMS, video) but the rest chosen on the open mobile Internet.

Speaking more generally, and including CE and mobile phones: Wireless carriers are desperately trying to fight a future where a dumb pipe mode exists at all, and I think the effort is largely wasted. They should not compete on ALL fronts, they should not fight the tide, and they should not try to block consumers from what they want to access. None of these have ever been paths to success.

I think the right strategy for carriers is to pick their battles (ie: probably not maps and search, nor music retail), choose some services where they can TRULY produce a top tier offering, and compete in only those services (etc: voice, contact manager, LBS, SMS, Billing, etc.) For many other services, they should partner with best-in-class offerings, and for the whole range, leave the door open for customers.

The PC industry has proven that people stick with default settings – why else would Internet Explorer dominate the browser market. Carriers that offer decent, fairly priced default settings, but leave the door open for users to select other providers, will see more satisfied customers, and probably growth in service revenue, too.

Rafael A. Junquera (user link) says:

White label partners today, dumb pipes tomorrow

As commented by number 4. and the article itself, it is just a matter of time, which goes in line with what many are predicting. Becoming a dumb pipe will not happen overnight, but signs are clear, and there is no need to go to embbeded devices, Google is already challenging the traditional telco model with Nexus One.

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