Jeremy Caplan of Time Magazine interviewed me for this article.

http://www.time.com/time/business/article/0,8599,1637763,00.html

Wednesday, Jun. 27, 2007

The iPhone’s Carrier Problem

By Jeremy Caplan

It’s one thing to get your hands on an iPhone, as folks camped out in front of Apple stores around the country will do by the weekend. But there’s no choice about the carrier: you only get AT&T (formerly Cingular) on an iPhone. And so far, the early reviews have not been kind to the mobile service and especially its cellular data network (“Pokey,” says the Wall Street Journal; “excruciatingly slow,” says the New York Times. A spokesman for AT&T said the company disagreed with those characterizations). Before the reviews emerged, AT&T tried to play down the speed issue and play up the new experience provided by Apple’s so-far well-received iPhone software. “It’s not just the speed of the uplink,” says Carlton Hill, an AT&T Vice-President. “It’s about the processor speed on a device and the application design that enhance the customer experience. There are a lot of ways to have an optimized data experience.” And the iPhone’s web capacities are said to improve dramatically when it can sync up with local Wi-Fi networks — if so, it would be a juxtaposition that may make the AT&T connection feel even slower.

Nevertheless, analysts expect that millions of consumers will eventually switch away from their current carrier to buy into Apple’s offering — and that says a lot about how frustrated people are with the wireless carriers. Forrester Research has found that the percentage of consumers who are happy with their carrier has fallen steadily year after year, and more than 80% of those surveyed by Measuredup.com, a customer service rating site, aren’t satisfied with their carrier’s service. Measuredup.com founder Marc Karasu says consumers are tired of carriers burning through hundreds of millions on ads while ignoring major service problems. “Customers are screaming for better service,” he says, “and if it doesn’t come from the carriers, it will come from someone else.”

Here’s a look at what frustrates consumers most (some solved on the iPhone, others not):

ONE: VOICE MAIL
Consumers are tired of wading through eight messages to hear the one they need (an inconvenience the iPhone is said to solve). And they are frustrated that carriers erase old messages and tightly cap your inbox. With data storage costs dropping, why can’t you keep your messages, or download them to your computer? Imagine if Yahoo! let you keep just 30 or 40 email messages at a time. (Instead they offer unlimited, free email storage). “People treat voice mail like toxic waste,” says Craig Walker, CEO and founder of GrandCentral, a startup that offers unlimited voice-mail storage. “They feel like they have to delete every single message. But what if they want to save something?” says Walker. “I have 10,000 emails in my inbox, which is incredibly valuable. I can go back and find an old message. People should be able to do the same thing with voice mail.” Consumers have long been able to save e-mails, forward them at will and access them in whatever order they want, so why is voice-mail stuck in the dark ages? The carriers haven’t improved voice-mail because it’s harder to market service features than, say, sexy phones that work exclusively on one network.

TWO: FEE CREEP
After shelling out $40 or $50 a month for a basic calling plan, carriers pinch consumers for additional bucks over and over again. Starting with an activation fee and ending with a cancellation fee if you decide to switch carriers or want to cancel your service, consumers are squeezed for dozens of add-on charges. For ring tones, video services, text messages, and just about any specialty service that comes along to provide a convenience, dollars are tacked on to your bill. Apple and AT&T are taking a step away from that fee-squeezing model by offering all-in packages that include data, video and text messaging. They start at $60 a month, though, and climb to $100 for 1,350 monthly minutes of calling. That means that if you get the $600 model and choose the top minutes package, you’re going to shell out more than $3000 over the course of the required two-year contract. Oh, and you’ll still have to pay $36 for activation.

THREE: WALLED GARDENS
The carriers continue to block access to their networks by mobile startups even as these innovators offer new ways to watch and share video, trade pictures, and use phones in new ways. “They control the industry but strangle innovation,” says mobile industry consultant Chetan Sharma. They limit the things you can do with your phone. They want you to pay them for picture messaging, so they restrict independent providers of that type of service. They want you to buy ringtones from them, so they cut off growth and innovation in that mini-industry. They would prefer you to buy music and video from them as well, and they would rather you not call internationally without using their high rates. All of this means that consumers are consistently cut off from inventive startups. The carriers control billing for add-ons, and service providers selling ringtones, music, video, etc are so new that they need the carriers’ help to gain a foothold. When the carriers do open up to partners, they often demand a 50% of revenue, far exceeding the below 20% share carriers get in other countries.

FOUR: SLOW INNOVATION
The mobile carriers have maintained unchallenged dominance over their markets — and their customers. That’s allowed them to preserve their potpourri of fees and to go slow on innovation, thus the stale approach to voice-mail and other services. Google recently proposed an auction system that would enable new players to buy into the wireless spectrum, an idea that could open the door to the sort of competition in the mobile world that enabled the high-speed access offered by better Internet Service Providers to topple AOL’s old stranglehold on its customers. The carriers argue that they have continued to innovate: “Over the last five years,” says Verizon Wireless spokeswoman Brenda Raney, “wireless phones have gone from simple calling devices to multifaceted device entertainment and productivity tools, because of broadband-like technology.” But American carriers have a long way to go. Phone service in the U.S. remains several steps behind Europe and Asia.

FIVE: SERVICE FAILURES
The leading Web merchants have set a high standard for quick response times and satisfaction guarantees. Consumers want to be listened to when they e-mail or call customer service. They hate waiting for 20 minutes on hold and they despise droning voice-mail menus with seven options, none of which is a real human on the other end of the line. If the carriers don’t step up their service, Google and other Web giants may find alternative routes for getting mobile services into the hands of consumers. Daniel Doutol, co-founder of SpinVox, an innovative voice-messaging startup, says it’s just a matter of time before companies like Google and Yahoo! compete more directly with the carriers. Both portals, like Apple, have fiercely loyal fans. About 55% of those asked in a survey by Equs Group, a market research firm, said they would happily buy a Google or Yahoo-branded phone. It’s a lucrative market: by 2010, about as many people will have a cell phone as a toothbrush.