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Will The Real Smooth Operator Please Step Forward?

Wireless network operators have an unprecedented opportunity to jump off their churn and burn treadmill and create valuable and lasting relationships with end users, handset makers and application vendors and, if they really play their cards right, could even wean themselves off the handset subsidy habit that is further debilitating their businesses.

Here's what they need to do:

  • create app stores for mobile applications that function across all operating systems, allowing them to build loyalty with end users based on the kinds of apps they offer (mimicking iTunes, which is how Apple can seemingly charge customers anything it wants);
  • reduce how much they charge vendors and other mobile sites, allowing developers, social networks and other e-commerce sites to prosper and drive a great volume of sales over their networks are little or no incremental cost to the carrier;
  • stop subsidizing handsets and allow customers to pick their network of choice, which will lower customer acquisition costs while putting the onus on device vendors to create value rather than relying on the carriers to subsidize unjustified pricing structures.
This list wouldn't seem so unrealistic if we weren't talking about the likes of Verizon, AT&T, and Sprint, but the operators' respective corporate cultures are so protectionist and closed that it seems as if I were talking about some form of Utopian socialism. All it would take, though, is for one lone wolf to rethink its paradigm for all the carriers to have to follow suit.

Which will be the lone wolf? My first guess would have been Sprint, which as the subscriber also-ran among the top carriers, has the most to gain from shaking up the status quo. But its most recent earnings statements make it sound completely incoherent:

Our net subscriber losses have been caused principally by attracting fewer new subscribers on both [CDMA and iDEN wireless] networks in recent periods as compared to the number of subscriber deactivations experienced. We believe this reduction in new subscribers is primarily due to our competitors gaining a larger share of new wireless decisions and the relative success that certain of our competitors are enjoying with respect to retaining subscribers.
So they've lost market share because competitors have gained market share at their expense -- is that it? Brilliant deduction.

AT&T, which is in a losing fight with Verizon, would be another good candidate to shake things up, especially as the iPhone, its lone bright spot, is also bleeding it dry.

Data revenue growth was primarily driven by strong increases in wireless internet access, messaging, e-mail and data access revenues. This primarily resulted from increased use of more advanced integrated devices, including the Apple iPhone 3G...
But the source of this growth is also one of the direct causes of declining operating profits.
Operating income also decreased in part due to higher cost of sales in our wireless segment mainly attributed to the sales of the Apple iPhone 3G introduced in the middle of 2008. These factors resulted in a decrease in our operating income margin from 19.5% to 18.8%.
Despite all this, AT&T remains firmly entrenched in the past, and its management philosophy is nothing but a series of bromides about government regulation -- despite almost thirty years of deregulation that have allowed it to do pretty much as it pleases.
We have noted our opposition to proposals to impose "net neutrality" open access regulation... and to prohibit wireless providers from entering into exclusive arrangements with handset manufacturers. It is widely recognized that the wireless industry in the United States is characterized by innovation, differentiation, declining prices and extensive competition.
In reality, it is widely recognized that the wireless industry in the United States is hidebound, anticompetitive and lacking in significant innovation.

No, we can't really expect innovation from this quarter. But perhaps we can from Verizon, which has already shown a propensity for creative thinking -- like offering a free netbook to people signing up for its fiber optic cable service; and as I reported last week, Verizon spokesman Cliff Lee told me that the company is going to make some announcements in the wireless space in the near future.

When the dust settled on the 2007 battle between Verizon and Google for the famous C-block of 700 MHz wireless spectrum, Verizon had won the rights to the spectrum, but with conditions attached. It's now stuck with having to provide open access, and will have to think creatively about returning a profit on this perculiar investment.

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