Like an old dog with no new tricks, European wireless carriers are resurrecting a failed wireline move and trying to extract more money from the likes of Google, Apple and other web and mobile companies providing content over their wireless pipes. According to a report in Bloomberg, European carriers such as France Telecom SA, Telecom Italia SA and Vodafone Group Plc are pushing for new deals to get content providers to pay for their usage. The operators say the costs of building out their networks to handle growth in data traffic is outpacing data revenues, compromising their business models.
This is really about operators being upset over the Googles and Apples of the world profiting off the pipes the operators have built. Instead of realizing they are about providing access or building awesome content of their own, they sit at the table begging for a chunk of profits from companies which have built something on top of the operator’s networks. When begging doesn’t work, they threaten to stifle access and innovation. The carriers are like old dogs that can’t learn a new trick. Unfortunately, right now, the only trick they have is peeing on your rug.
Ed Whitacre, AT&T’s former CEO, tried to play this card a number of years ago on the wireline side, pushing for content providers to pay a quality of service tariff. The plan didn’t go through, but it showed some of the vacuous thinking of operators. That wireless carriers in Europe are looking at flogging the same idea shows they’re either dumb or really bold. Either way, it smacks of desperation.
What the carriers don’t understand is that they provide access. Yes, mobile data usage is soaring but that’s the business the carriers are in. They rely on Google and others to get people to buy their data plans and their phones. Without great services, why would people want to pony up for a smartphone or a data plan? It was great just a couple of years ago when data revenue helped offset declining margins on voice. But now that data is exploding, it’s put the carriers in a tough position.
However, trying to get money from content providers is not the way to go. The carriers are already charging users for data, and are in the midst of changing their pricing plans to reflect the very real flood of traffic caused by user demand. Right now, their wireless businesses are still very profitable; for example, Verizon reported operating income on its wireless business of 29.9 percent. It’s preferable that the operators look at tweaking that model to manage traffic and revenue. We’ve advocated innovative pricing for data plans and dynamic pricing, which makes more sense in a world with limited bandwidth and spectrum. They shouldn’t try to build a double-sided market by dipping into the revenue of companies, who have legitimately created valuable services on top of their networks. A flour mill owner can’t approach the baker for a cut of his bread revenue. This would stifle innovation and potentially undermine the dynamism in the mobile world. Will popular app makers have to worry about paying as well if their apps are consuming bandwidth?
If the wireless operators are peeved at Google and others making money off their pipes — and they are no doubt mad — they should build their own services that appeal to users. Otherwise, the carriers shouldn’t argue that they’re more than dumb pipes. The carriers may think they’re getting out early on charging content providers and may have more leverage than their wired counterparts. But pushing an unpopular model again doesn’t reflect bold thinking; it really shows that the idea cupboard is bare. Let’s hope their American wireless counterparts don’t try the same trick here.
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