Earlier this year, I referred to T-Mobile’s denial of the inevitable commoditization of mobile phone network operators. It's happened to everything else in telecom. Now even international long distance is effectively free, thanks to VoIP carriers like Skype and my new favorite Lingo (which includes unlimited long distance to 23 countries for $22/month).
Sometimes I want to say it's a train wreck waiting to happen. But after reading the weekend transcript of the Financial Times interview with Vodafone's CEO, I think the more accurate metaphor comes from aviation crashes: CFIT, controlled flight into terrain.
The CEO is Arun Sarin, a former Pac Bell executive who (only about 100 km from here) designed the technology for its industry-leading cellphone services in California during the 1980s including the 1984 LA Olympics. Sarin then helped Sam Ginn spin off PacTel Cellular to form AirTouch, which later got bought by Vodafone and then merged with Verizon's US properties to form Verizon Wireless.
The FT news article (full text here) highlights' Sarin's atypical opinion of the iPhone, but he's certainly right that 2.5G is a lousy way to watch YouTube. More seriously, The Register notes his excess optimism about his long-term pricing power due to inexorable increases in competition.
Sarin admits that the mobile phone service will be a flat monthly fee within 5-10 years, although he still hopes to exercise price discrimination with multiple minute bundles. Presumably he's not worried about existing flat-rate mobile phone services.
He also expresses the heartfelt desire that his pipes won't become commodities, and that his walled gardens will somehow compete with the likes of Google and Nokia. Vodafone will triumph because it owns the billing relationship and because no one can build LBS without paying it a toll:
"Most importantly, we have 240m customers. We have the relationship with the customer, they are either buying top-up cards from Vodafone, or we are billing them on a monthly basis. Just the simple fact we have the customer and billing relationship is a hugely powerful thing that nobody can take away from us. We could lose our customers and then, yes, they could be gone.So no one will get on the Vodafone network without paying Sarin's toll — faithfully recreating the AOL/BOL/CompuServe/NiftyServe walled garden model of the 1980s. Meanwhile, industry upstarts will be building a 21st century mobile version of the Internet with as much free (or cheap) third party content as possible. I guess it will be up to the next Vodafone CEO to deal with the consequences.
“The second thing is we know where the customers are, in terms of location. We know precisely where you are. Frankly only we know where you are. The handset manufacturer that sold you the handset does not know where you are. But we know where you are.
“So if you say at the most basic level say we have got a customer relationship, we have got billing and we know where you are, these are hugely important things. So whoever comes into the marketplace is going to have to work through us."
[Mixed metaphor alert] Sarin notes he still comes back to California (and Hawaii) to surf with his son, so he knows what a wipeout is. I guess he's trying to ride the wave as long as he can, but at 53 the eventual crash is going to come long before he reaches retirement age.