Mobile Carriers Don't Want To Give Up SMS Without A Fight

from the what-a-racket dept

Apparently there was some tension at the Mobile World Congress—the world's largest mobile phone trade show—as the growing battle over text messaging took center stage. As you may know, SMS text-messaging is a rip-off, and a huge cash-cow for the mobile telecoms, who charge premium rates for a service that has an effective cost of zero (SMS messages are encoded into regular signals that cell towers have to send anyway). But they are losing a growing chunk of that income to data-based messaging services like BBM, iMessage, WhatsApp, Facebook Messenger and more. Naturally, they aren't happy, and they try to frame it as an unfair disruption of their business model:

Needless to say, mobile companies are not happy at the flood of free messaging services piggybacking on their networks. Telecom Italia chief executive Franco Bernabe told MWC that free messaging services are undercutting the ability of phone companies to invest in their networks. Paid texting, or SMS, has been a cash cow for phone companies which uses minimal network capacity.

The new players "have based their innovation in the mobile domain, without a deep understanding of the complex technical environment of our industry. This is increasingly creating significant problems to the overall service offered to the end user and driving additional investments for mobile operators," Bernabe said.

None of that makes a lick of sense. Bernabe is basically saying that everyone else has a responsibility to not build data apps that compete with telecom services, but unfortunately for him that's not how free markets work. Rather than seeing the huge opportunity that is the growing demand for wireless data access, the telecoms have decided to focus on the one thing that has stopped SMS from being completely replaced already: the lack of a single standard alternative. GMSA, a mobile industry group, has built a new cross-platform messaging service that they hope to get pre-installed on all cellphones and have become the standard for all text, photo and video messaging—though they haven't announced how much they plan to charge for the service. They claim that nine out of ten major device makers have signed up, with all eyes falling on Apple as the probable holdout: Apple is on a crusade to kill SMS messaging, and they likely would have succeeded by now if they weren't committed to their own walled-garden approach that pushes everyone towards iOS.

Of course, the same conference was also attended by the companies that have the telecoms so frightened. Joe Stipher, co-founder of messaging service Pinger, had a wiser perspective on the direction things are headed:

"Text messaging is free, and calling is going to be free," said Stipher, wearing jeans that contrasted with the dark suits favoured by thousands of mobile phone company executives attending the four-day 2012 Mobile World Congress that ended Thursday. "Data is going to be like electricity or water, not totally free, but do you worry about giving someone a glass of water at your home or letting them plug in? No."

I actually think that could be slightly better worded: in the future, there will be no more distinctions like "text" and "voice". Everything is just data anyway. But Stipher is absolutely right that bandwidth is becoming a generic utility, and that's something the telecoms have to accept. For some reason, they are terrified of becoming "dumb pipes"—they want to be "smart pipes" that charge premiums for different "kinds" of data, even though that's basically an imaginary concept. It's an odd attitude, because being a dumb pipe for something that everybody wants is a pretty good position, and if you accept it then you stand to make more money by letting people build whatever they want on top of what you provide. Truly, this would be the smart thing for a pipe to do, and Stipher has some fun with this by co-opting the term for himself. The carriers play along, using their own definition, and what results is an amusing portrayal of the mental disconnect that exists:

[Stipher] explained that "The carriers should be smart, reliable pipes" providing internet data access like utilities give reliable water and electricity, he said. "They need to focus on being good network operators."

[Rene] Obermann [chief executive of Germany's Deutsche Telekom] said carriers are at a crucial point at which they must "develop our own, innovative product suites" through cooperation with the smaller messaging companies. "The smart pipe will be one of the areas where (telecommunications companies) will show their innovation," he said.

Of course, Obermann's own company has a venture capital division that invested $7.5-million in Pinger, so maybe on some level he knows which way the winds are turning.

Filed Under: competition, data, smart pipes, sms, text messaging

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  1. identicon
    Andrew D. Todd, 4 Mar 2012 @ 8:36pm

    Re: Re: The Telecoms' Fear In One Sentence (to: illuminaut #6)

    I beg to correct you. The railroads did, and still do, practice monopolies, when they have the knowledge and leverage to do so. The difference was that the most premium railroad traffics tended to be anonymous to the railroad, in the sense that the railroad did not have need-to-know for the contents and ultimate destination. This inherently tended to limit the railroad's scope for discrimination.

    Imagine that in the year 1925, you took a first-class sleeper car from New York to Chicago. The sleeping car porter might have done some rudimentary valeting services, like shining your shoes, and ironing your suit, but since you would have been wearing a suit and tie like every other businessman, there was no great information in that. When you arrived at Chicago Union Station, you left your suitcase in the Left-Luggage Office, but took your briefcase with you. At the station entrance, you hailed a cab, and it was only when you were inside that the cabdriver asked you: "where to, sir?" The New York Central Railroad had no way to know whether you were going to visit the Corn Exchange, or the McCormick Harvester Company, or the University of Chicago, or Al Capone.

    Alternatively, suppose that it was the year 1921, that you were a Chicago meat-packing baron, and your Polish workers were on strike. Your response might be to take a trip down to a rural county in Georgia. Once there, you entered into negotiations with the local sheriff for contract labor, in the form of African-American field hands. Money changed hands, and the process was only incrementally different from buying slaves. You then rented a special train from the railroad, probably consisting of railroad dormitory cars, or maybe just boxcars. The railroad hauled this train up north to Chicago, and then hauled it out to your meatpacking plant. The train crossed from railroad property to your property without going over public property, and you housed your strikebreakers in a warehouse on the premises, in order to keep them isolated from the strikers. This was a form of business travel which the railroad knew all about.

    Now, let up consider sending things instead of people.

    First class mail traveled in mail cars which were hauled by the railroads, but crewed by postal employees. Railroad employees were not allowed to look at or touch letters. By 1870, the Post office had started carrying parcel post, for collection at the post office, at the rate of a [gold backed] penny per ounce (sixteen cents per pound, or about an hour's average wage), up to a limit of four pounds. In 1913, this was brought into conformity with international [ie. German] standards, by increasing the limit to eleven pounds at eight cents per pound. Rural Free Delivery had begun in 1896. The parcel express companies such as Wells-Fargo and American Express, of course, conformed broadly to postal standards by force of competition. By contrast, railroad freight rates in 1909, quoted in a Sears catalog, ranged from about twenty cents per hundred pounds (Chicago to Indiana) up to nearly four dollars per hundred pounds (Chicago to Arizona or California). Varying rates applied according to the class of merchandise. What this worked out to was that if you were buying a cast-iron stove or a horse buggy by mail-order, the railroad would know all about it; If you were buying a Winchester rifle, they probably would not know about it, and they would certainly not know what books you bought, or what newspapers you subscribed to.
    (1900 and 1909 Sears Catalogs, reprint editions; James H. Bruns, _Motorized Mail_, 1997).

    The kind of traffic the railroad really know about was the kind of traffic which was so heavy that the railroad had to deliver it to an industrial siding adjoining the place of use. The railroad knew all about coal, for example, and was prone to play favorites between different coal mines, and steel mills which used coal.

    Times have changed somewhat in the railroad business. There is much less passenger traffic. What there is, is in the form of Amtrak, with a government agency buying transit rights for its trains. If someone wants to ship migrant farm workers in large quantities, he uses a bus, probably an old school bus. A large section of the railroad's business is inter-modal freight, in which the railroad ships containers and truck trailers for shipping lines and parcel services without knowing what is inside them. However, there is a core of the old railroad business, involving things like coal, feed grain, and iron ore. These kind of products can only stand a rail fare of thirty to fifty dollars a ton, over a thousand-mile haul. Given the weight limits on trucks, the railroad is still the only game in town.

    The knowledgeableness of the internet and telecommunications runs a bit differently. Monopolistic ISP's know that small quantities of data going to and from Amazon are likely to involve a good bit of money-- and they want their percentage. Of course, a customer can resort to encryption, virtual private networking, and address cloaking, but the ISP would be attempting to sabotage such techniques, Great Firewall of China fashion. However, what makes the telecommunications network really knowledgeable is an application which is very time sensitive, where it becomes a problem if packets get routed indirectly, or an application which requires an unusually good subscriber loop. Videoconferencing, in short.

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