Handsets "Gouge" Operator Revenues
By Carlo Longino, Fri May 13 22:00:00 GMT 2005

A market research firm says that advanced features on mobile handsets are eating into operator revenue -- but users certainly don't, and shouldn't, care.

USB connections, removable memory cards and Wi-Fi capability cause a "problem" for mobile operators, says a market research firm. Evidently those pesky subscribers would rather transfer content from their computers to their handsets via a cable, memory card or Bluetooth and access the Net over Wi-Fi than use carriers' closed, and often expensive, systems.

The solution, according to the firm, is that "service providers and their mobile-phone suppliers must carefully orchestrate the combination of handset features and services offered to subscribers". That sounds an awful lot like "operators should get handset manufacturers to disable features that could let users perform even the simplest and most mundane functions for free". Ask Verizon Wireless how that works out.

These features are making their way into handsets because users want them, and because they're useful. Making money by throwing up roadblocks to simple tasks, like getting pictures off of a handset or music onto one, doesn't really constitute a business plan. And operators that stick to that are bound to fail in the long run. Too many carriers try to compete not necessarily by pleasing customers, but just by being the one that is the least worst at it.

The real problem in competing like that is it's really easy for somebody to come along, offer a better way of doing business that's more fair to users, and steal them away. Look at the rise of European MVNOs, many of which based their market entries on making tariffs easier and more fair for consumers. Price isn't always the only competitive metric -- the sometimes-nebulous idea of value comes in to play as well: a service with lots of pointless restrictions may not be able to hold up against a more expensive service that's more accommodating and more useful.

The way forward to solve this "problem" isn't in crippling handsets; it's for operators to figure out how to fit them in. That's not to say let users run wild and do anything for free, but rather operators need to better develop an ecosystem with users at the forefront, where everyone can succeed. For example, carriers could view something like Xingtone as a threat, because it lets users make their own ringtones, rather than buy them from an operators' store. But when users are spending $20 for a piece of software to keep from having to buy $3 or $5 ringtones, that should represent an opportunity, too. Why not license Xingtone and offer it as a service or on a subscription basis to users, or bundle it as part of a pre-paid package aimed at kids and make it a selling point?

There are plenty of ways for operators to win back any revenues they think they've lost from handsets that offer users a way around their services. But crippling handsets is the wrong way, the lazy way. Figuring out a way to make things better and more interesting for users by using the full capabilities of a handset may be harder work, but it's the right way and more lucrative way.