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Mossberg: It’s Time to Free the Smartphone

Things are improving, but carriers still have too much power.

Vjeran Pavic for Re/code

Welcome to Mossberg, a new weekly commentary and reviews column on The Verge and Re/code by veteran tech journalist Walt Mossberg, now an executive editor at The Verge and editor at large of Re/code.

In 2010, Google tried an experiment — not with self-driving cars, or goofy eyeglasses, but with smartphone freedom. For the introduction of the very first Nexus phone — its showcase Android device — it attempted a disruptive business model.

Instead of being offered through carriers, the Nexus One was initially sold only online. I can still remember a very senior, very excited, Google executive showing me in advance how it would work. On one Web page, you’d configure and order your phone, unattached to any carrier. On the next page, he said, “you’d see the list of carriers bidding for your business.”

It was a great idea, because it separated the purchase of the phone from the choice of a network. That eliminated carrier influence over handset design and selection, and gave consumers maximum choice in both phone features and carriers.

But it flopped. Only one major carrier, tiny T-Mobile, was willing to participate. The others saw Google’s plan as a threat to their considerable control over the smartphone itself.
But conditions in the U.S. mobile phone market have lately begun to change in a way that loosens the carriers’ grip, and now, it’s time to finish the transformation here in the U.S. It’s time for U.S. operators to focus wholly on being first-class wireless carriers, not second-rate electronics retailers and app developers.

Until very recently, carrier control in the U.S. remained a major problem. Even the biggest brands, like Samsung, had to make special tweaks to seemingly identical models to please the network operators, or produce superfluous special models altogether to remain in their good graces.

Only Apple, possessed of a massively powerful brand and the first modern smartphone, managed to retain real independence from carriers. And it bought that freedom at a steep price: A years-long exclusive with AT&T in the U.S.

For their part, consumers were locked into two-year contracts that trapped them with a carrier, lured by ultimately costly subsidies that made a $650 phone look like it cost $199.

Fast forward to today, and two important things have happened to raise hopes that smartphone design, pricing and marketing can be finally fully pried from the fingers of network operators.

First, the deadly combination of phone subsidies and two-year contracts, which kept customers locked into a carrier and didn’t allow upgrading to new phones as often as they wanted, is fading. T-Mobile started this trend, and its bigger rivals are falling into line, the latest being giant Verizon.

Now, most carriers sell you a phone at full price, usually spread out in payments over a couple of years, and sell service plans separately without a two-year commitment or the built-in device subsidy. As long as you pay off the phone, or buy it for full price up front, you can change carriers whenever you want.

Second, something like Google’s bold but failed original Nexus plan is going gangbusters — in China. Multiple home-grown phone makers there, notably Xiaomi, sell often surprisingly classy phones largely online at low prices. They don’t worry about carriers. Consumers buy the phones, then separately buy plans from carriers and pop the relevant SIM card into their shiny new handsets.
It’s time to treat the smartphone like any other computing device, to leave the selling and supporting of them to the Best Buys, the Apple stores, the Amazons.

Apple, the country’s most important smartphone maker, took a huge step toward this future last week. It announced that it would sell new iPhones under its own installment plan, which will include a warranty — cutting out the carrier. The plan allows for an upgrade every year, which is obviously in Apple’s interests. And, ominously for the carriers, these will be unlocked iPhones, able to be switched from carrier to carrier at any time.

If that plan takes off with the iPhone, it will pressure carriers to focus on their actual product — the network — not phones made by others. It will incent them to compete wholly on such things as speed, coverage, reliability and the price of service.

Companies like Verizon and AT&T have invested billions to build and sell an intangible, but vital, product: The wireless network. Nearly everyone depends on major carriers, and nearly everyone can buy devices that make use of them, in tens of thousands of online and offline locations that aren’t tied to the carriers.

So why should the owners and sellers of the networks even have vast chains of stores? Why should they sell phones and tablets and subtly or otherwise steer customers to certain models? Why should they be able to dictate certain hardware and software features (like bloatware apps for carrier services) to weaker or more pliable manufacturers (pretty much every manufacturer not named Apple)?

Why, in an era when networks are well understood and most components standardized, should handset makers be required to undergo onerous “certification” processes that allow carriers to demand changes to the design of their devices if they want to use them on the network? One small-company American tech CEO told me the other day that it will cost him more to clear “certification” processes at the four big U.S. carriers than to build and sell the first major production run of a new handset he’s planning to launch.

And why should Android updates, including those that enhance security, be delayed for months by carriers?

“The first customer of a smartphone maker in the U.S. today has to be the carrier, and that’s not good for the consumer,” said David Morken, CEO of Republic Wireless, a small carrier that mainly routes calls and texts over Wi-Fi rather than cellular towers.
Think about this for a minute. Does your home landline broadband provider sell laptops or Rokus or iPads or any of the other things that make use of the Wi-Fi or wired connections it provides? Does it require Dell or HP to “certify” that their devices work with their networks. No, and no.

So why should wireless carriers be any different?

To find out, I called up Glenn Lurie, the CEO of AT&T Mobility, who served for many years as that carrier’s top liaison to Apple. Not surprisingly, Mr. Lurie strongly disagreed with the premise of this column.

“Our core business is building fantastic services,” he said. “The phone is a means to an end for us.”

AT&T has stores, he says, because “customers deserve choice” in phones, and AT&T’s stores carry many models. (Of course, so do Best Buy and Amazon.)

As for the certification process and the demands carriers put on handset makers, he said AT&T works “very closely with those manufacturers so they work well on our network.”

And he declared that “I foresee that customers will always have the capability to buy a phone from us.”
Well, there’s no law against Mr. Lurie continuing to sell phones, but I predict that, eventually, his company won’t be doing that. New, more attractive, direct-to-consumer models, like those now popular in China, will win out.

A few months ago, while in Beijing and Shenzhen visiting some of the top makers of Chinese-branded smartphones, I was repeatedly told that the number one thing that stopped these companies from entering the U.S. market was the power of the carriers.

(AT&T’s Mr. Lurie told me that he, too, was recently in China, and that he didn’t hear complaints from Chinese phone makers about carrier control in the U.S., adding, “We’re wide open to doing business with them.”)

I believe that wireless networks and phone makers became fused decades ago because the very idea of mobile telephony was a costly novelty. Unless there were networks, there’d be no market for mobile phones. Unless there were mobile phones, there’d be no market for networks.

It wasn’t unprecedented. After all, in their own early days, some TV networks and TV makers were commonly owned and Hollywood studios owned theater chains. These arrangements were eventually broken up by the government.

Most famously, in the 1970s, in the famous Carterfone case, the FCC finally stripped the old AT&T landline phone monopoly of its power to bar consumers from using any phone or device on its network of which it hadn’t approved. Sound familiar?

I’m not calling for any government action. I just want to see disruptive market forces applied here at home to the world’s most important electronic device.
The benefits would be huge. Competition in both spheres — handsets and networks — would be enhanced, once each stood alone and true prices and features became clearer. Updates for Android users would be much faster. And new entrants in handsets would come flooding into the U.S.

It’s 2015. The wireless network is an established necessity and the smartphone is a mature, if evolving, product. We need to finish the job in the U.S. of making them stand alone.

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