The Chicken and the Egg: The device and the network – which came first

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Here is a question based on the proverbial ‘chicken and egg’ question ..

The next time you upgrade, will you choose the device first or will you choose the network?

With me, and all people I have asked this so far(no exceptions!) it is always the device ..

In other words, the upgrade cycles are always dictated by a specific device we want .. In my case, I may even pass the one year contract period(statutory period based on my last upgrade) .. and yet defer the upgrade unless .. I see a device I want ..

If I want a device and my network does not have it .. I may switch ..

At the moment, Operators subsidise handsets in many markets

With the launch of the iPhone and subsequent moves from other device manufacturers .. the interplay between handsets and operators may start to become more complex.

Specifically, as I have been saying for some time, the locus of power may shift away from the operators and towards the handset manufacturers ..

Indeed if the chicken and egg test is true, and I have not found any person so far who says that they will choose the network first , then the customers are going to decide the trends in the market(as they always do!)

(The exception is: Operators who offer fixed rate price plans – like Three in the UK – but that distinction is changing fast as almost all Operators are offering some form of fixed rate pricing)

Take subsidised handsets .. Why do we need subsidised handsets? The cost differential is not too much when spread over a year

Indeed .. subsidised handsets may well go hand in hand with non-transparent price plans..

The problem with pricelans at the moment is: No one can understand them!

Which means .. we are not sure what we are really paying for this subsidy .. and I bet it may well be more than the price of the handset itself

Take another idea: what about ad funded handsets?

Or

What about financing for handsets?

I believe that within one year after the launch of the iPhone, this interface between the handset and the operator will be changed dramatically in one or more of the following aspects

a) Devices supporting multiple network types(wifi, wimax)

b) The impact of iPhone itself on the Operators – the changes they have to make to work with the iPhone

c) Handsets subsidised by advertising

d) The Google phone

e) Third party financing for handsets(maybe starting with the iPhone) and then becoming commonplace

The guardian today has an interesting article called Now its Operators vs. the handset makers

It’s a fascinating article from a respected mainstream publication .. which starts with the paragraphs ..

The battle for control of your mobile phone is about to enter an interesting stage. You may think that you are in charge. After all, you press all the buttons. But in reality the operators have been calling the shots for years. They have been trying to keep you within their walled gardens of paid-for services and charging by the amount of data consumed, leaving you with open-ended bills. They have even been fiddling with handsets to discourage use of the wireless connection appearing in an increasing number of handsets that can make near-free phone calls if you are in a Wi-Fi area.

This is understandable in terms of a desire to recoup the billions shelled out on 3G licences, but unacceptable when they pretend this is what consumers want. What consumers want is cheap phone calls and affordable music downloads from the web. They don’t want to find out that the 99p track they downloaded ends up costing them £10 because operators have charged them for all the data passing through their networks.

It then goes on to talk about an upcoming Nokia phone: N81 which appears to be pitched at the music download/iPhone market

And says

Operators argue that they have to subsidise the handsets and don’t want phone manufacturers muscling in on their turf. To which Nokia replies that operators don’t have to subsidise handsets (it doesn’t happen in some countries) and no one is stopping operators doing what others are now doing in providing affordable music downloads and the ability to abandon your Sim card to make calls from your phone through the internet. Nokia rightly argues that if the operators don’t provide these services then other companies will provide them instead.

And finally ending with another key trend .. VOIP and WiFi

During my summer holiday in France I tested yet another VoIP service (from WiFiMobile) offering voice calls over the internet using my Nokia N80. Phoning Britain (without a Sim card) worked well for nearly all calls. It cost 2p a minute to phone a fixed line anywhere in the world or 14p a minute to UK mobiles (after paying a monthly fee of £7.99). The catch is you have to phone from a Wi-Fi hotspot. However, Wi-Fi is slowly being rolled out across Britain, though implementation of the more powerful WiMAX, with a longer reach, is hampered by lack of suitable spectrum. Meanwhile, operators had better prepare to offer more cheap Wi-Fi phone deals as well as music packages because, if they don’t, others will. Led by giants such as Nokia.

As a final caveat, I think Operators will evolve and will offer differentiation .. but this will be restricted to a few, more progressive operators who will address services like Identity, payments etc through their APIs.

The point is, currently – there is not enough differentiation between the Operators – and any distinction is artificial because

a) It is enabled by handsets

b) It is enabled by means such as price plans – which are complex, non transparent and – in the minds of the customer – not trusted

So, the conclusion is:

a) The chicken and the egg question is won by the handset manufacturers ..

b) But – both will evolve dramatically in the next year or so and especially the Operators will be forced to change existing policies and create differentiation

Image : http://scienceblogs.com/aetiology/upload/2007/01/chicken%20or%20egg%20sm.jpg

Comments

  1. michiel says:

    Hi Ajit,
    Interesting thoughts again. This question is also relevant in the Indonesian context, where I am doing a bit of research at the moment. What you see here is the existence of two main networks: one GSM, and one CDMA. CDMA is much cheaper for most users, although coverage is mostly limited to urban areas, and with some operators you have to apply for a temporary alternative number when moving to another city.
    I get the impression for many people choosing the network comes first when they think cost (CDMA). But when they think ‘prestige’ (a very important aspect of mobile phone culture here), its the device that comes first (GSM). Which is why many people here in Jakarta now carry around two handphones, one for each network. Often a cheap CDMA phone, and an expensive flashy GSM device.
    Integration may seem an option, but up till now, there are very few *fashionable* phones that support both GSM /and/ CDMA. And the same question plays again when it comes to data/3G networks, as shown in an interesting interview tech-blogger Budi Putra with the CEO of one of the fastest growing operators in Indonesia:
    http://asia.cnet.com/blogs/toekangit/post.htm?id=61955482.
    best! michiel

  2. André says:

    I don’t choose. I would never buy a phone from an operator. Especially not if they have modified it in any way (own software etc).
    I choose whichever device I want and then use my old operator gsm sim-card.
    And I don’t think a subsidized device saves you money in the long run. Someone got to pay for them and it sure isn’t the operators.