Monday, January 14, 2008

Wireless oligopolies versus innovation The big incumbent cellphone companies in the US (AT&T, Verizon, SprintNextel) charge among the highest prices in the world for some of the lousiest service in the world. That lousy service was shown off in the recent iPhone release, where despite the wonderful design and software, customers have found wireless Internet access excessively slow for interactive data applications, as US companies have fallen far behind others globally in terms of bringing technology to the market. Canada my even have it worse, according to an article in Telecom Reporter ("Canada's wireless gold mine ready for a shakeup", 1/5/08). As the author states "Let others be the mad scientists of the wireless world, endlessly tinkering in their labs to create cooler, faster cellphones. Canadian wireless carriers are comfortable concentrating on another mission: making money." There are three companies, all Canadian owned, that split up the wireless market in that country. They are Bell Canada, Rogers Communications, and Telus Corp. Because Canadian law restricts ownership to domestic companies, there is no chance of anyone coming in to shake up the market. And the Big Three have pretty well swallow all the competition. Life as is profitable, with $12.7-billion (Canadian) in revenues, and $5.6-billion in profits, double what they were five years ago. As one investor is quoted as saying "You had a nice, comfortable oligopoly." And, according one telecom expert, the service is seven worse than in the US. "The most innovative ideas are now data-centric and the high price of data transmission in Canada doesn't support an experimental culture," To remedy the problem, the Canadian government is setting aside some new wireless bandwidth for an auction, hoping to attract new competition and some possible innovation. Curiously, that's just what the US is about to do. Washington (through the FCC) is about to sell the part of the 700-MHz spectrum, expanding the wireless, with an auction scheduled for January 24. The spectrum has been divided into five blocks, one of which - much to the dismay of the warless oligopoly- will have to be operated as an open access network, allowing customers to use whatever equipment they want. The entire spectrum is expected to fetch $15 billion. It's generally considered that the main bidders will be Frontline Wireless, Verizon Wireless and AT&T. In other words, it may well happen that the same old oligopoly will be given more spectrum and that real competition will be closed out. There are 241 bidders now listed as qualified. Some seem to be just fronts for other companies, but some wealthy players including Google, Qualcomm, Chevron, and Vulcan Ventures (run by Microsoft co-founder Paul Allen). The participants have to come up with a hefty deposit, and that will winnow the field. Already one of the major contenders, a new company called Frontline wireless, dropped out at the last minute, apparently due to inability or unwillingness to pay the deposit. We are interested ins eeing whether the incumbents win out, or there is new competition in the market.  10:39:50 PM

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