Service providers: More on the "orifices"

Thursday, May 3, 2007

In the prelude to this article, we talked about the players in the industry. This then should give us a good idea of how the industry works. Or would it?

One would imagine that the service provider should be the key mover and shaker in the industry, of course keeping in mind that they are "serving" you and me. This suggests that both the chip and the platform vendors pretty much dance to their tunes. But let us dissect the situation a little further to get a better insight.

The service provider in a lot of markets is the closest to the end user. For example, in the US, Sprint or Verizon pretty much provide a selection of mobile phones to choose from, they offer the service packs and more often than not, the only people you have to interact with for most of your mobile needs are the customer service representatives in the stores or over phone. Other markets like India are dominated by service providers that allow the customer to purchase his choice of phone from a third party vendor as long as it is compatible with the spectrum and the standard.

The first model gives us some insight into the power wielded by the service providers.They have a certain degree of control over the chip and the phone vendors. They can demand that phones have capacity-enhancing features and other "cool stuff". They can also potentially auction for phones they would feature. This can get cut-throat with phone vendors trying to eke the best value for their phone while trying to capture market. But the headaches include constant customer nags about poor service. As was mentioned in an earlier article, it is unlikely in this scenario that the phone would be blamed for poor reception. To a certain extent, this is a fair expectation from the customer because the service provider has to be diligent in choosing its phones. It has to necessarily strike a balance between reasonable performance in terms of not being a burden on capacity, add-on features like cameras and mp3 players, sleek looks and of course low cost. Now, this is too much to ask for and something has clearly got to give. A low cost phone is clunky while a sleek feature-filled phone has poor reception quality.

The service providers also have to give in to the demands of both chip and phone manufacturers. Since their reputation is at stake, they have to go for reasonably well performing chips. Besides, they need to make sure that they have continuous technical support for the phone. So the ball is not always the Service Provider's to score. At least it is not a slamdunk.

On the other hand, there have been instances of them leveraging their power to obtain sweet deals from chip and equipment manufacturers. There are instances when minnows in the industry were used as pawns to obtain cheaper chipsets from the giants. And then there is the case of Reliance Communications, India threatening to roll out a GSM network throwing away its CDMA infrastructure. This got QualComm on its toes and Paul Jacobs to India! Of course, it appears that Sprint is playing the trick again. It was committed to using some extra spectrum it had in Dallas. It has signed up to use this resource towards rolling a fully functional WiMax network. I am inclined to look at it more as a veiled threat to QualComm than their commitment to the success of WiMax and their move away from 3GPP2. Careful analysis of the situation would reveal that Sprint has nothing much to lose while a bunch of vendors have invested a lot of resource into this effort. At the end, Sprint is likely to be contended if QualComm comes out with competitive EV-DO chipsets for the data market. It may be a ray of hope for the WiMax proponents to demonstrate its capabilities, but is not a defining win over CDMA.

Thus the service providers do control the industry to a large extent. But then they are not all powerful. After all, the service providers are not the true engineers of the wireless industry, they are merely facilitators for the technology to reach the paying public. So they have to successfully co-exist with vendors to maintain the balance of power.

In the sequel, we will examine further, this interplay with the vendors. Until then...

Posted by Vijay Nagarajan at 3:11 PM  

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