Cell Phone Industry Gets 'Framed' by NYT

 |  Includes: DCM, GOOG, S, SSNLF, T
by: Joel West

The cell phone industry made the front page of the New York Times Monday, and it’s definitely not a good thing. Here’s the web headline:

Driven to Distraction
Promoting the Car Phone, Despite Risks
By Matt Richtel

Long before cellphones became common, industry pioneers were aware of the risks of multitasking behind the wheel. Their hunches have been validated by many scientific studies showing the dangers of talking while driving and, more recently, of texting.

Despite the mounting evidence, the industry built itself into a $150 billion business in the United States largely by winning over a crucial customer: the driver.

For years, it has marketed the virtues of cellphones to drivers. Indeed, the industry originally called them car phones and extolled them as useful status symbols in ads, like one from 1984 showing an executive behind the wheel that asked: “Can your secretary take dictation at 55 MPH?”

The way the story was framed, it read like a PR campaign for a class action suit against deep pocket cellphone makers and service providers. (When I read it, I wondered whether John Edwards was coming out of retirement to pay his child support.)

Sure enough, a few paragraphs later, after quoting the US industry’s spokesman (a former GOP congressman), the story legitimates its harshest critics:

Critics of the industry argue that its education efforts over the years provided a weak counterbalance to its encouragement of cellphone use by drivers and to its efforts to fight regulations banning the use of cellphones while driving, or at least requiring drivers to use hands-free devices.

The critics — including safety advocates, researchers and families of crash victims — say the industry should do more, by placing overt warnings on the packaging and screens of cellphones.

And, in fact, the lead article promotes a sidebar (also in Monday’s paper) entitled “A Victim’s Daughter Takes the Cellphone Industry to Court.” And the web version helpfully provides a copy of the complaint filed against Sprint Nextel (NYSE:S) and Samsung (OTC:SSNLF). With newspaper reporters, nine times out of ten this means that the main story was written to legitimate the sidebar, rather than seeking out the sidebar to illustrate the main story.

For now, I want to leave aside the bias of the “muckraking” newspapers that always side with litigants against big bad corporations. The article endorses a parallel to the great muckraking talisman of the 20th century, i.e. Watergate:

Clarence M. Ditlow, executive director at the Center for Auto Safety, a nonprofit advocacy group, was invited last month to speak about distracted driving by the Federal Communications Commission. He told the audience that the cellphone industry was selling a product consumers can use dangerously — without properly warning them or providing safeguards.

He added: “The only questions are: what did they know, and when did they know it?”

On a related problem, I’ll set aside the chronic error by reporters (as well-chronicled by John Stossel) of worrying about the wrong risks as members of the “Fear Industrial Complex.” I’m also not offering judgment on specific advertisements, or the (seemingly implausible) claim that drivers wouldn’t know that this is distracting unless the industry warned them.

Instead, I want to confront the historic ignorance of the premise of the story. The reason that mobile phones were promoted as car phones in 1983 is because that’s what they’d been for the previous three decades.

One snippet (and photo) from the story examines the October 13, 1953 press conference marking the first “official” US cellphone call, made on the Chicago Bell-operated network by a Bell Labs engineer.

Beginning in 1996, I studied the history and pre-history of the cellphone industry — in US, Japan, Germany, Sweden, Finland, and published papers in 2000.

The reason that 1st generation cellphones were marked as carphones was because they were designed as carphones — the successor to 30 years of carphones since the first one in St. Louis in 1946. To relieve chronic capacity problems, AT&T (NYSE:T) tried for 20 years to get FCC permission to launch a cellular system, and ran a test system in Chicago for six years before the “official” launch. (NTT’s (NYSE:DCM) 1979 official launch looked a lot like the AT&T field test.)

The Times reporter dismisses this as not relevant — that the niche phones of the 1960s (aka IMTS) had nothing to do with the mass market phones of the 1980s.

In 1983, everyone (except for a few crazy guys at Motorola (MOT)) were assuming they were carphones. If you read the Bell Labs design explanation for AMPS — as reported in the January 1979 issue of the Bell Labs Technical Journal — it describes a system with a small control unit on the transmission hump and a big, power-hungry radio in the trunk. In my research, I spoke to an early entrepreneur who made money installing these $2000+ systems in rich folks’ cars.

In fact, as I showed in a 2002 article, AT&T thought so little of the cellphone business opportunity that it gave away the business to the local Baby Bells. Talk about mistakes. Remember that PacBell was bought by Southwestern Bell because — after spinning out AirTouch — it was sickly and dying. Similar, AT&T was bought by Southwestern Bell after long distance went away as a viable business.

Of course, AT&T thought so little of cellphones because it had a McKinsey consulting report predict that the US would have a total of 1 million cellphones by 2000. (The actual number was 97 million).

So again, this says nothing about what was or was not appropriate advertising in 1990 or 1995. But cellphones were initially marketed by the Baby Bells as carphones because that was all that was technically feasible, that was what they’d been selling for decades, and (at least initially) that’s all they thought it would be.