Lots of people, including for example my CEO, say that the hand-held mobile is going to be a crucial, maybe a dominant, way for people to experience the Net; particularly on the other side of what we now call the digital divide. Only there’s an economic problem.

I don’t know anyone who’s really satisfied with the quality of the mobile Net experience; the iPhone seems to be pushing the edge of tolerable, as long as you’re on WiFi. But still, where’s the rich menu of multi-modal multi-media location-sensitive always-on exquisitely-personalized applications that the hardware and the Net ought to deliver? Surely there’s something more interesting than Blackberry-style mail?

Here’s one problem: fixed-rate data plans. With those, once the telco has your money they really want you on the network as little as possible; there’s no incentive to make it run faster or have better apps or lure you into using it more. Some of the network operators have this idea that the way to make money is to control the relationship with the customer and extract a piece of unit of payment that flows through a mobile device.

The conventional wisdom—and one I buy into—is that businesses ought to focus on their core competences. For mobile network operators, those would be bandwidth and billing. So, here’s a recipe for blowing up the mobile-network business and making the world better and also a whole lot of money.

  1. Discontinue all flat-rate mobile data plans.

  2. Offer a-la-carte data at a price that seems obscenely, ridiculously, low.

  3. Radically open up the network. Let anyone connect anything to it. Sell phones that make it really easy to download apps from anywhere and run them.

  4. Build a developer ecosystem. Make it effortless to get in. Build a hot-new-apps social network; maybe in alliance with one of the big existing social nets.

  5. Don’t ask developers for any money. But sell the use of your billing system at a really attractive rate, so people can sign up for apps and have it billed to their phone plan. Do it at a scale that an app can charge a dime a month and still make money on scale.

  6. Duck and cover, because the explosion of creativity and new business models will cause some casualties.

Seems like a no-brainer to me.



Contributions

Comment feed for ongoing:Comments feed

From: Jerome Lacoste (Sep 23 2007, at 23:12)

Several mobile phone operators in Norway sell subscriptions that cost nothing per month. Most operators sell per the minute with a 0.1 euro maximum rate.

Some operators have even started models in which calling people within the same provider is free. If that works, I guess most will follow ...

But what I am waiting for is an open phone a la open-moko) with inbuilt wifi and a free Wifi mesh in the city. I expect that, apart from a huge economy crisis, we should be able to have mostly free phone calls within 10 years.

Mobile phone operators could sell unlimited data plans with various speeds the same way ISP do today.

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From: Lenny (Sep 23 2007, at 23:27)

There's nothing wrong with flat rate as long as there's also a healthy, competitive market. Its absence is the big problem with mobile in North America.

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From: JanneM (Sep 24 2007, at 00:48)

I have a modern phone, on one of the big networks here in Japan. It means I have, at my fingertips, an insane amount of applications, data and services, from the silly and frivolous to the very useful. Games, music, web surfing, graphical navigation and map services (that uses both GPS and cell location data so it works everywhere, indoors or out), you name it, it's there.

And I use none of it. You see, I don't actually use enough network-related services to make it worthwhile to sign up for the flat-rate data plan. So I know that every time I press that online button I'm due to be nickel-and-dimed to death. The constant worry about what stuff cost, how many packets I might be using, how much will I be paying makes using everything so stressful, so dangerous-seeming that it's just not worth it.

The navigation thingy is very nifty. I've tried it and it's just immensely helpful when you live in a densely packed city like Osaka. You can tell it you want to go to a certain company at a certain address and it will literally show you what building entrance to take and what floor to press on the elevator. And it's not very expensive. But the expense is out of my control - once I start it it'll go on pushing data at me that I have to pay for, even before I know whether it was useful and whether it's worth it. I end up using a ratty, slightly outdated paper map instead; it's not going to come with a surprise bill at the end of the month.

We don't need less flat rate plans, we need more of them. Give me a "flat rate on the cheap" - perhaps I'm capped at a certain amount of traffic per month; perhaps I'll be the first to lose connection with a lot of users, whatever. But I'll be in charge of my costs, and that will make me start using the network with some degree of confidence again.

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From: Daniel Smith (Sep 24 2007, at 01:21)

Ugh. Please no.

Evidently one of the Australianisms you didn't experience while here was our mobile data billing.

Currently the cheapest mobile data available is $29/GB per month. If you blow your allowance, it jumps to 10c/MB; which is not uncommon.

Normal people *really* don't like that form of billing model for communications. Would you like your residential broadband billed by the byte? The mental friction involved in each microtransaction turns out to be a major inhibitor.

What needs to happen (and what caused DSL takeup to explode) was a range of plans that allow predictable expenditure ... either through all you can eat, which is prone to abuse; or capped plans that degrade gracefully. The only major ISP not offering plans like that here is the ex-monopoly telco.

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From: Mike Hayes (Sep 24 2007, at 01:23)

Hi Tim,

For an example of the kind of abuses being perpetrated by mobile operators, have a read of this:

http://wurfl.sourceforge.net/vodafonerant/index.htm

Vodafone UK brought in a stealth reformatting proxy for all mobile web access over the summer. The problem is that it replaces the user-agent string from the device with the user-agent string of the proxy, and it strips out the UAProf header item also.

At a theoretical level this breaks the mobile web, and at a real-world level it has caused technical and financial heartache to many independent content providers who rely on this information for content adaption.

Whether this is Vodafone UK being inconsiderate or attepting to create a walled garden is unclear, and frankly irrelevant. It's simply wrong.

Mike

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From: Tkil (Sep 24 2007, at 02:09)

[The "my CEO" link doesn't seem to work, btw.]

How is your proposal all that much different from the much-debated "micropayments", other than the fact that the mobile arena has a pre-installed oligopoly?

I do agree with other posters that the USA model has been a disaster for cell phone evolution; just compare the european options vs. those available here in the lower 48. I'm on Verizon (due to its network), but I hate its business policies. I really wish there were a more horizontal option available.

Finally, how is mobile all that different from fixed ("land line") operations? Would you want your home internet link metered by time or bytes transferred? Why or why not?

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From: Bahadir Yagan (Sep 24 2007, at 04:45)

There is work being done around similar ideas and emerging standard is IMS (http://en.wikipedia.org/wiki/IP_Multimedia_Subsystem)

Although not quite open to all developers there also exists a standard API (http://www.parlay.org) for developing applications for IMS implementations. Parlay also allows using acounting functions over diameter protocol.

Both IMS and Parlay are not limited to mobile networks.

FYI.

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From: Mike M (Sep 24 2007, at 05:35)

Canada has a flat rate data plan? Not in Toronto that I'm aware of. Without a data plan just downloading the Gmail application for my phone cost me 10 bucks in data charges to my cell account. I've since requested a data plan attached to my phone, and they gave me the only one they have: 5 bucks for 2 megabytes. Anything over 2 megabytes and I'm back into the 5c per kilobyte territory best described as buggery.

I have to agree with Lenny on this one: It's not the flat rates that are harmful, it's the lack of real competition. Everyone offers the same services, at basically the same rates. A few dollars off a plan here or there, but that's not competition, that's just an oligopoly providing the illusion of competition.

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From: Todd Spraggins (Sep 24 2007, at 07:00)

Dead On! Being in the Telecom business (equipment side) I am almost ashamed at the circles being ran around the incumbents from the web. There are lots of factors, but the most troubling for me has been pricing and I think you have reached the most plausible conclusion without getting too exotic. I shudder to think of what our water would taste like or how many black-out we would have to endure if "utilities" did not charge on usage; (which ensures the revenue necessary for capital improvements). Utilities that use flat rate pricing tend to require heavily regulated cross subsidies to remain equitable (yuck, not what I want in the Internet).

Furthermore, the money Telcos are leaving on the table by not opening up accounting, LBS, user profile, and the litany of other back office and network enablers is just a crime.

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From: Sam Penrose (Sep 24 2007, at 10:28)

You should read the work of Andrew Odlyzko:

http://www.dtc.umn.edu/~odlyzko/doc/recent.html

Notably "The history of communications and its implications for the Internet" and "The case against micropayments"

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From: Wes Felter (Sep 24 2007, at 11:27)

People are beating the "flat-rate plans have predictable cost" drum, but they are ignoring the unpredictability of having your account canceled with no warning for transferring "too much" data. I suspect business users would rather receive a $200 bill than "no service", although teenagers probably have the opposite preference.

The only part that bothers me here is step 5; I don't want to rent apps or encourage app developers to rent their apps to me just because they can.

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From: kcmarshall (Sep 24 2007, at 11:45)

I'll add my disagreement to your primary argument and then give you an "Amen, Brother" on the rest.

Americans like flat-rate pricing. We've had that for home Internet service since the days of dialup.

The problem is the 2-year contract and the walled garden model enforced by incumbent carriers. Verizon (et.al.) knows it has me locked in for long periods of time and that I have to use blessed applications on blessed hardware. Even AOL let users access their system using commodity hardware purchased on the open market...

The rest of your recommendations are spot on. Incumbents should turn wireless into a platform and let the marketplace (of developers _and_ customers) drive demand for the telco's product.

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From: David Warde-Farley (Sep 24 2007, at 14:05)

Tim, I think you're right about just about everything but the flat rate business. I personally was ONLY willing to get a mobile data plan if it was flat rate, and I managed it, only by buying one of the discontinued Danger Hiptop (aka Sidekick) models that Fido used to sell and still offers the plan for.

That said, even if we don't go to a flat rate plan, rates in Canada are <em>obscene</em>. This chart is quite telling, and yes, you read that right, <em>Rwanda</em> has more affordable mobile data than we do, by two orders of magnitude.

I should note that this isn't the only way in which mobile providers are screwing us; in case you haven't heard there's now a class action suit being launched over the $7 "system access fee" that everyone is charged in addition to the advertised rates. As a utility provider, infrastructure is their problem, not mine, and billing me extra for it is wrong to begin with, but apparently they've telling people that this was some sort of government levy.

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From: Dan Connolly (Sep 24 2007, at 15:05)

Hmm... what happened to "Fast and Always On"?

http://www.tbray.org/ongoing/When/200x/2003/03/17/FastAlwaysOn

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From: Wes Felter (Sep 25 2007, at 13:13)

Sprint opens their WiMax network, pundits declare "customers can't handle openness":

http://www.infoworld.com/article/07/09/25/Motorola-WiMax-chip-aims-at-new-device-market_1.html

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From: Douglas (Sep 25 2007, at 14:16)

One problem with your argument, is that the desktop web only really took off once we got always-on broadband connections. Billing per byte slows usage, but we only get strong competition when there is high usage, ie a big market to sell to. Let the telcos compete on service speed and reliability.

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From: walter (Sep 25 2007, at 16:57)

i have a cheap mobile relic with pay-and-talk plan. And I have a 12 in g4 that i can use with free wifi for email and voip. I'll never go with a cell contract or a data plan. no sir... just let me pay for what i use. i am then in control of my wallet. One of the biggest rackets around is the cell phone business and all their hidden charges and sneaky ways to get moola out of you. Data plans, admin fees, monthly plans ...yadayada. JUST SAY NO to the Cell Carriers, Save your money!

( i am hearing a tremendous amount of push back at the cell carriers.... folks are getting mad! )

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From: Fazal Majid (Sep 25 2007, at 17:33)

Someone else has already mentioned Odlyzko, but keep in mind that running a billing system is a significant expense in its own right. In fact, the cost of running the billing system can easily exceed the cost of the network itself.

When I worked at France Telecom, we had to buy 3 Sun E10000 servers (then Sun's highest end, well above $500K each), just to run our Internet billing, and that was for (then) fewer than one million subscribers. That doesn't even factor the project management and development costs, software licenses, not to mention project risk (2/3 of billing system projects fail). There is also far more customer service involved.

The economics term for billing systems and how they destroy collective utility is "deadweight loss". When the cost structure (fixed) is completely unrelated to any notion of metering, you have severe market distortion. It can only be sustained in the absence of effective competition.

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From: Paul (Sep 25 2007, at 20:30)

I think someone like Google could extended their checkout system to help mobile providers, and even consult for them on how to build out the network further. But I wouldn't count on a mobile provider to extend their billing system to include application providers while they are still incompetent with customer support.

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From: Henri Sivonen (Oct 07 2007, at 00:27)

I have a flat rate data plan (in Finland). It works and, as with wired broadband, it is the only way that lets you use the Internet without worrying about exceeding a quota.

The price without VAT is €7.23 per month for 384 kb/s downstream. The price was lowered a bit over a month ago in response to price cuts by another operator. If my operator hadn’t lowered its price, I would have switched operators.

My conclusion is that flat rate is good. Tying the handset and phone number to an operator is the bad thing. What you need is legally enforced number portability and the right to own your (unlocked) phone.

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