Are smart phones a threat to telecoms?

Published: July 5, 2010
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Wifi connections mean consumers no longer have to pay to communicate

Wifi connections mean consumers no longer have to pay to communicate

Telecoms control the centre field in the mobile telephony realm but they have been losing ground to a new generation of Internet-enabled smart phones. Telecoms have millions of subscribers in their reach, who pay recurring monthly fees. Phone manufactures, such as Nokia on the other hand, only book one-time revenues from their phone sales and then they often play by the rules of telecoms to gain access to their subscribers.

Current State of Affairs

As part of the deal with phone manufacturers, telecoms often demand control of what applications come bundled with the phone. They may feature their own services for news updates, ringtone downloads and the like, and have their logo constantly displayed on the front screen. This is all designed to control the user’s experience and build a ‘walled garden’ within which consumers can do what they want yet discourage them from going beyond these walls.

When Steve Jobs introduced the iPhone he grudgingly signed on a five-year exclusivity contract with US telecom AT&T to be able to get access to over 50 million mobile subscribers under AT&T. Other terms of the deal remained undisclosed but Steve Jobs made no secret about his resentment for telecoms and vowed to shake up their iron-clad grip on the mobile phone experience.

Paradigm Shift

Experts say instant messaging services provided by BlackBerry allow unlimited messaging across the globe and will ultimately cannibalise SMS. While telecoms are okay with this since they charge a premium for BlackBerry plans, the iPhone and android phones don’t require any special phone plan and instant messaging is completely free on those as well. Telecoms don’t earn a dime from it. Internet browsing through these phones also makes it easy to access news, ringtones and wallpapers, while applications like Skype for mobile phones allow free voice calls and threaten the core business of telecoms.

While land-lines were once threatened by mobile telephony, the latter is now threatened by Internet-enabled smart phones. In fact, the wifi capabilities of these phones circumvents telecoms altogether. A wireless connection at home or at the office allows users to chat with friends, browse the Internet or share pictures free of charge, directly from the phone. In response telecoms are now shifting to providing Internet services to homes directly through data plans on the phone. The biggest threat to telecoms from smart phones is that they may be reduced to nothing more than mere Internet Service Providers.

Published in The Express Tribune, July 5th, 2010.

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Reader Comments (5)

  • Saad Mengal
    Jul 5, 2010 - 12:28AM

    Thats pretty much the case, cause i rather use fring or skype to call my friends out of country through my wifi enabled nokia phone. Cause it wont cost me 26rs a minute or more. Its better. And in 5 years or more, when wifi is everywhere like hotspots and all. Like i saw Pizza Hut too having their free wifi for users. People will be always using WIFI for calling and texting. Id say telecom is pretty much Scr*d :)Recommend

  • Jul 5, 2010 - 1:20AM

    Their business models will certainly shift over the next decade, but I think they’ll end up including some media push, rather than just be straight ISPs. You’ll probably see internet delivery of various things increase, like PTCL is doing with their SMART bundle, for example, as the focus shifts from voice to data.

    The internet is a delivery mechanism, much like copper and the cell towers are delivery mechanisms. It’s not doomsday for these guys if they have to switch roads. As long as it’s billable, they’ll make (a lot of) money from it. After all, they worked out a way to make money from SMS and ringtones, and those weren’t not voice.

    The recurring fee will remain intact. We’ll just be paying for a different service offering.

    And, of all the people to reference, I think it’s funny that you cite Jobs. His dislike for AT&T largely stems from him not wanting to cede control. He’s not doing a whole lot that’s different with Apple’s devices and the app store. Glass houses?Recommend

  • Jul 5, 2010 - 2:36PM

    @Ahsan,

    Telecoms are fighting back to maintain the center but I doubt they will succeed in the long run. AT&T cancelled its unlimited data plan as did Orange in UK for the very reasons mentioned in the article. A lot of people don’t realize that municipal WiFi is already here and tech companies like Google are also taking personal initiatives to expand the reach of WiFi. If even a few selected areas within the city of Karachi got municipal WiFi we could see a big leap in IT awareness and enablement but I won’t hold my breath.

    To Jobs’ credit, he is largely responsible for catalyzing this paradigm shift (among many other) and disrupting the market. He managed to play the telecoms against one another which allowed Apple to strike a great deal with the largest U.S. telecom. A deal that gave Apple complete control over the phone’s design, did away with the walled garden, overhauled the sales process by taking the sign-up process online (a strategy worthy of an article in itself) and forcing AT&T to build visual voice-mail into its infrastructure. Motorola and Nokia could never have achieved this.Recommend

  • Jul 6, 2010 - 2:41AM

    I don’t see municipal WiFi becoming a widespread, staple offering. On a social level, it just needs to be affordable in order to permeate. On a political level, I have trouble envisioning the telco lobbies letting it happen, unless they’re in on the gig.

    That aside, the infrastructural cost is too great and the relative benefits don’t stack up. I see the upside that comes with ubiquity, but I don’t think there’s a need for that to be offered on the cheap. Consumers have historically been comfortable paying for services which are regarded as essential.

    PTCL or AT&T or BT giving away internet access? I won’t my breath either.

    As for Jobs and Apple, I’m a big fan of the iPhone, iPad, iPod, but it drives me nuts that I’m locked in to using iTunes for my media and that I have to rely on the iron-fisted App Store to allow me to extend the device.

    Is it not trading one restrictive environment for another? I don’t know how someone can appreciate Apple and resent AT&T, etc. It’s principally the same thing, and it’s as motivated by money as anything else. I can’t see how one becomes an altruistic saint and the other an evil profit-monger.Recommend

  • Tauseef
    Aug 28, 2010 - 10:46PM

    I’m a technophobe. The article however make a lot of sense.
    I would be on a look-out for more similar articles that explain technology in plain English.Recommend

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