Silicon Valley's assault on Mobile's Gated Kingdom
Barbarians at the IP gateway
Part one The Gated Kingdom guarded by the mobile industry is the last great frontier for Silicon Valley to crack.
These vast, vertically integrated companies handle much of our communication – and they make pots of money. But standards are set by closed-door cabals of equipment vendors and operators and move at glacial pace, locking out imaginative services and the creation of new markets.
If ever there was an area ripe for disruption, you’d think this would be it.
It’s hard to argue that for the past two decades this closed world has done us much harm. In the 2G era it brought mobile telephony and messaging to every corner of the world at very low cost. That allowed them to blanket the world in ubiquitous, fast data networking.
But 3G and smartphones have changed the dynamic – and can’t keep new entrants out. The seething mass of these "Over The Top" (OTT) players want to climb over the wall and steal the mobile industry's lunch.
SMS brings the operators $153bn every year (according to Ovum), yet a third of iPhone users are using an IP-based messaging app such as WhatsApp. Already Pinger has become the seventh biggest mobile operator in the United States – on the basis of an iPhone app.
Indeed, given the mobile industry’s stumbling attempts to capture revenue opportunities over the past decade, and particularly in the new apps world, it isn’t hard to imagine Facebook and Google becoming the face of mobile - relegating today’s giants to dumb bit pipes and mast maintainers. But just how likely is this?
Well, the industry at least recognises the threat. This week in Barcelona it’s fending off insurgents by touting its RCSe protocols. The first set allows limited access for third parties to the Gated Kingdom but on the industry’s own terms - the protocols were devised by network operators and equipment manufacturers. They’ll allow services like WhatsApp to interoperate with real telephone numbers. Perhaps.
I’ve had a look at the market, the gatekeepers and an innovative platform company in Munich that has a unique perspective on the Gated Kingdom. How it came to crack open the closed world is quite a fascinating tale.
Building a beachhead
A decade ago two Germans were beavering away miles from home - deep in the operations centre of Manx Telecom. They were trying to decipher the mobile industry’s SCCP (Signalling Connection Control Part) protocol used by Manx’s GSM network. It was an unusual place to be, as GSM operations centres were strictly closed to third parties. The pair were senior Nokia executive Ralph Eric Kunz and young engineer Thorsten Trapp. They were surprised by what they discovered.
Although SCCP is considered an "open" ITU protocol, the two developers found it impossible to get an application working that could make sense of the GSM data.
“The GSM specification is a black hole,” explains Trapp today. “Only 90 per cent of it is documented. The only way we could understand it is was by looking at the traffic.”
The two had to decode the traffic. But eventually they succeeded, and in doing so established a beachhead between the GSMA world and the IP world. The pair formed a company, Tyntec, to capitalise on their breakthrough. A long list of companies use it today: Pinger is one of those customers alongside a number of household names that, alas, I’m not permitted to mention. For now we’ll refer to them as extremely well-known Silicon Valley players. Today Trapp is CTO and Kunz left Nokia in 2007 to become Tyntec chairman.
Today Tyntec has greater ambitions. There are markets being created by the the unwashed hordes of innovative IP startups. The telco world moves slowly and vertical integration isn’t going to stop them.
Trapp points to a long history of GSMA standards that were “designed to fail” – such as picture messaging and the uber-architecture IMS. RCSe will be another one, he predicts. Without widespread handset support it’s not going to become ubiquitous, and even if it does, users will be hit by roaming costs and interoperability issues. But OTT players merely need an IP connection for their apps. Their apps are downloaded virally. They’re in with a shout. But they need help.
I found the most intriguing part of the OTT proposition that Tyntec envisages is that it offers telcos a cut of the revenue from new services, and increases demand for their services in unexpected ways.
Pinger’s TextFree makes a good case study.
Next page: How mobile operators can profit from OTT
More cultural issues
To cap off the cultural problems with telcos;
There is no real competition in the telco world, just like petrol stations, banks and every other mature market they all know that reducing prices only benefits customers, not vendors. The telcos have armies of people who went to school, served with or otherwise know key government personnel and regulators to make sure no nasty surprises come from that direction (thus the true scale of Ms Reding's achievements). The telcos also work very hard to ensure that their pricing cannot be usefully compared to any "competitor" pricing by ensuring the plans are sufficiently different. This leads to a poorly informed customer base which produces the inefficient market they need and keeps the customers as the prey.
Combine this culture of ensuring that all changes are slow and gradual so that the big players going in are still the big players afterwards (this is what industry standards bodies are really for) and the tacit agreement that you can compete on everything but reduced price or margin and you get the modern telco market. The companies who control the networks have such vast sums of money locked up in them that they make real estate investors look high-risk.
What is asked for if the telcos are to survive this at all is for one or more of the players who own the infrastructure to change the entire culture of their organisation and even so, they'll still be too big to innovate at the speed of the small players. They'll try to do what the banks do and be parasitic in the payment stream but Apple has already demonstrated they can be bypassed for this. They'll also try to prevent really disruptive services from using "their" network but this will be a managed retreat from regulators. It will be a bumpy and unpleasant road with many pitfalls (for the customers and shareholders) but I really don't see a Telco making big enough changes to do anything other than slow the inevitable.
I think the proper term is "Mobile Dungeon". The telecom operators have made screwing over their customers an operating principle.
You have a "plain" plan and want to do some websurfing ? Yes Sir, will cost 20 cent PER 10000 BYTES. Never mind the typical news site has now 1 MB size.
You want to send 160 characters to another phone ? That will cost you 10 cent at least.
You want to call a phone number which collects 4cents/minute from fixed line ? Sir, we will hose you 50 cent per minute from your mobile then.
The mobile telecom industry is full of idiots who would be unable to sell Moevenpick icecream during the hottest days on a full-of-people Mallorca beach. Sir, one nut costs 20 cents, so the total ice cream cone will cost you 1000*0,2 == 200 Euros. We only accept American Express, I am afraid. No cash please.
Re: Re: Data only
The internet is taking over everything. I dont have a sky subscription anymore. With 4od and iplayer and other online streaming services i can get all the tv that i want. I hardly make voice calls on my phone. Skype seems to work better for me. I use whatsapp for text. All i want is data. And i would bet there are lot more people out there like me. Its going to be a long strugle for mobile companies and cable companies.