The Cutting Room

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His point is network operators break the link, common to most other consumer electronics industries, between providers and customers. They control the content, services and applications consumers can access on their mobile phones. “They try to replace the market system and, like the real Soviet ministries, they are a lousy substitute,” said Mossberg.

In the UK especially, the Apple iPhone has come under fire for its restrictive network distribution deal, which fits Mossberg’s Soviet analogy for both its five-year exclusivity period and for the fact O2 has disallowed VoIP calls on the handset in order to protect its own voice revenues.

But despite these restrictions, the iPhone actually represents a watershed moment for the mobile industry. Behind the scenes, the traditional business model looks to be changing, away from unilateral network rule and restricted consumer choice.

The revenue share deal Apple has agreed with O2 in the UK – like the deals it has struck with AT&T in the US, T-Mobile in Germany and Orange in France – cedes ground to the manufacturer in the traditional network/vendor arrangement.

Of course, revenue share is not a new concept – networks like the idea in principal as a way to share the cost of handset subsidies; manufacturers, naturally, prefer the money up front. The difference with the O2/Apple deal is the iPhone is not subsidised. It is a couple of hundred quid to O2 and £270 to the punter, up front, and O2 is still obliged to hand a percentage of user revenues to Apple every month.

The industry knows the iPhone, whatever its sales, represents more than just a new handset release. You could tell last week just by the timing of the related press announcements, from both large and small industry players.

And, actually, part of the networks’ drive to force down handset costs has seen T-Mobile and O2 parent company Telefónica go running into the arms of Apple cohort Google, with whom Apple shares a board member.

Something like 30 per cent of networks’ overall costs go on original stock purchases. Google’s proposed open source Linux platform, called Android, sets out to create a slicker handset operating system, in the process reducing costs to vendors and networks by establishing a common programming code for content and application developers.

Other major networks, including Vodafone and Orange, are conspicuous by their absence from Google’s ‘Open Handset Alliance’, the merry band of technology companies it has assembled behind the Android concept. But then – further proof the networks are retreating from their old Soviet industrial model – Vodafone last week threw its weight behind Nokia’s ‘Ovi’ digital content service, set up in direct competition to its own media ambitions. Vodafone joins Telefónica in its support of Nokia.

Telefónica (O2), then, as Apple’s UK network partner, a founding member of Google’s handset alliance and a supporter of Nokia’s media-play, suddenly looks like the most forward-looking of all the networks, even if it is giving a big chunk of change to Apple for its iPhone exclusive.

The point is, the Cold War for consumers is ending.

 

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