Smartphone Lock-Ins Aren't As Bad as Some Claim

The Wall Street Journal mentioned yesterday that French authorities are ending France Telecom’s (FTE) 5-year exclusive (with its carrier Orange) for the iPhone (AAPL) in France. The WSJ quoted an analyst as saying the decision could cost Orange €200 million in lost revenues.

I missed the decision (rejecting an Orange appeal) when it came out last month. Some expect it will end the exclusive elsewhere in Europe. US law is different enough that (absent a socialist government in DC) I don’t see AT&T (T) losing its exclusive, while in other countries there are multiple iPhone carriers already.

Beyond my general aversion to government meddling in the free market (except to control monopolies), there are specific reasons that the decision by French authorities is a mistake. (No surprise there). Yes, I agree that the bundling increases switching costs and reduces competition between carriers — which is what the carriers are intending.

However, it is quite clear that in the US, such bundling increases competition among device makers — which is sorely needed in the high-end smartphone segment. If Verizon (VZ) can’t have the iPhone, it has to promote something else, as do Sprint (S) and T-Mobile.

In the US, this imperative for the rival carriers gave Google (GOOG) an entry with the G-1, as well as a channel for RIM (RIMM) and the Korean firms to offer their “me too” smart phones. It may allow Nokia (NOK) a chance someday to become a factor in the US market. And it's undeniable that the Sprint exclusive on the Pre is the only thing keeping Palm (PALM) alive as a smartphone supplier.

We need competition and innovation in smartphones to spur innovation in mobile networks. Despite their denials, the network operators are just running commoditized pipes between devices and the Internet, and as long as we have enough operators competing for business, it’s worth accepting a little bit of switching costs to maximize device choices.

To be fair to the European interventionists (not sure why), the US has a more fragmented and competitive mobile phone market than in countries where the privatized government ex-monopoly still dominates the mobile telecom landscape. Thus, the concern about ex-PTT domination is a real one in France, Germany and Japan. It seems less plausible in the UK, where the iPhone went to O2, the British Telecom (BT) spinoff that is in second place to Vodafone (VOD).

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Comments

[.crazylegs..:]

"as well as a channel for RIM (RIMM) and the Korean firms to offer their “me too” smart phones."

Joel - is it really fair to lump in RIM with the Korean device makers as a "me too"? Isn't RIM the leader in smartphones in the US?

Mar 06 12:43 PM

[bigmoney:]

>> the network operators are just running commoditized pipes between devices and the Internet,

I'm not sure about that. There are a number of variables. Coverage varies, and you may get plenty of coverage around your city, but poor coverage at your house, such as one-bar. And 3G/data is still evolving. Is it possible to have too much bandwidth?

Also, while the phones themselves may be impressive, the telecom carriers (I'm thinking of my own), often dumb down their phone, and disable important features, such as blue-tooth photo transfers to motivate you to buy cables, microSD, or move the photos through their network to charge extra fees. Along these lines, many phones are still using proprietary connectors so you get to replace all your cables & chargers every time you get a new phone.

All that said, I just got my first crackberry for work, and I am addicted. It's almost the ultimate phone, but not quite. One big issue is that it mixes corporate and personal email in one big folder, discouraging me from configuring personal email.

Mar 06 08:44 PM