Stephen Foskett, Pack Rat

2008 – The Year the US Mobile Phone Market Normalizes

Posted on Jan 02, 2008 by Stephen

Rather than making a ton of predictions about the coming year, I’m going to make one big one: 2008 will be the year that the mobile phone market in the USA finally opens up, catching up to the standards of the rest of the world. For the first time, the average American will be able to walk into a store and buy a working phone, rather than signing their life away for a multi-year commitment. There are so many signs that this is on the way, fro Verizon and AT&T announcing supposed openness to the Google phone. But could that glitzy oddball, Sharper Image, end up being the one to lead us to the promised land? Read on, and pray with me that this is the year!

The Ugly American

Europeans are familiar with the conceptual separation of mobile phone service from mobile phone hardware, but it is hard for Americans to grasp. Although locked mobile phones and contracts are common “over there” too, alternatives abound. With ubiquitous GSM service (and the accompanying standard SIM cards), Nigel or Jean or Enzo can expect to walk into a local store, select a (quite expensive) mobile handset, stick his old SIM card into it to transfer the number (and his contacts), and start talking. They might need to replace that SIM sometimes, or swap carriers, and definitely pay more for many services, but the portability and choice found in most other markets would shock an American.

We’re shackled to a few carriers who claw and fight for their share of the locked-in phone users by dangling exclusive subsidized handsets at a million outlets in every town and mall. Want an iPhone or a Moto Q or a Centro? Sign up for two more years, please, and maybe pay a few hundred to get out of your old contract and switch carriers. And forget taking a phone from one carrier to another, or buying a new unlocked phone at any retail store – they simply didn’t exist!

The World Has Turned

We were told that this had to do with our unique geography. Building out a “cell” network was massively expensive, and carriers had to have a guaranteed customer base to justify the investment. Although roaming was cripplingly expensive, the (real analog) cell phone system worked pretty well, and there were just a few handsets to pick from anyway.

But now it’s a different world. While AT&T/Cingular and T-Mobile jumped on the Euro-GSM bandwagon, Verizon and Sprint stuck with Qualcomm and we saw massive investment in incompatible digital networks just as handsets, mobile broadband, and media applications exploded. Stir in some mergers, MVNO’s, prepaid wireless, number portability, crummy coverage, and a succession of Jesus Phones, and you have an American public that desperately wants a more open system.

Opening in 2007

The industry took steps toward openness in 2007, setting the stage for what will come this year. Here’s an update:

• Apple’s iPhone is released with a strong AT&T lock, but sales are shared with online and brick-and-glass Apple Stores. More importantly, Apple takes over most customer service duties and shaves off a large (though unspecified) portion of monthly revenues. The cost of the phone is high but in line with its glamorous high-end predecessors from Motorola and Nokia.
• One more thing about the iPhone: AT&T lets current customers upgrade without any penalties, no matter how new their contract was.
• Verizon announces an open network policy, which turns out to be less than it sounded but is still a step in the right direction.
• AT&T decides to pro-rate early contract termination fees and seconds Verizon’s “any phone” claim. They also put up with Apple’s demands in order to capture half a million new customers.
• Google’s Open Handset Alliance includes Sprint and Qualcomm as well as T-Mobile and other GSM makers, signaling that Android-powered devices will be available for all US networks. Although these “open” handsets will not necessarily be any less locked than current devices, a new flexible platform might enable new entrants to the unlocked market.
• Google is successful in adding open access language to the 700 MHz spectrum auction.

Sharpening 2008′s Image

American wireless providers and handset makers have spent 2007 dancing around open(er) access, but openness got a late push from perennial geek pariah, Sharper Image. The store gadget lovers love to hate unveiled a line of unlocked GSM phones in November. The predictable ridicule directed towards these rebranded phones in geek circles (once they noticed, in December) totally misses the point: Sharper Image is selling the first widely available over-the-counter unlocked phones in the USA, heralding the day when their customers (regular folks, not you) decide to upgrade just their handset. I predict a similar move from Radio Shack, Costco, Wal-Mart, Circuit City, or Best Buy in 2008. I also expect Sprint and T-Mobile to reiterate that unlocked phones are welcome on their networks.

There is one more interesting thing about Sharper Image: they have stores inside every major airport in the USA! The next time Nigel comes across the pond, he might start a revolution by buying an unlocked handset at the Sharper Image airport shop just like he would back home at The Carphone Warehouse. And won’t Joe and Jane Mainstreet love the option of replacing the AT&T phone they just dropped in the sink, without extending their contract?

Net nerds have long scoured eBay for the latest unlocked phones, but not everyone is comfortable about the online purchases from sellers they don’t know. Once average people start buying phones without service plans at a store they trust, the floodgates will open.

In 2009, all major retailers will offer off-brand unlocked GSM and CDMA phones. As Verizon shifts to 4G LTE (aka next-generation GSM), carrier lock-in will become optional, and the market will be the better for it.

Update:

If you’re interested in this line of reasoning, I recommend checking out the following articles:

• How Apple Will Use The iPhone To Take Over The Wireless Industry, and the follow-up, Apple Did Blow Up The Wireless Industry
• Research Note: iStrategy
• The Untold Story: How the iPhone Blew Up the Wireless Industry
• How the mobile phone market works in Asia and Europe

Tags: AT&T, GSM, iPhone, mobile phones, Sharper Image, Sprint, Verizon