Spectrum of Greed

In a detailed industry report on the global and US wireless economy, Chetan Sharma points out many positive things about the wireless industries ability to generate revenue in even these difficult economic times.  Reading between the lines of the many industry sound bites provides an interesting set of facts related to mobile broadband.  The mobile equivalent of broadband today is the flat rate data plan.  By anyone’s measure, this is a poor substitute for land line broadband, but in our inbred wireless economy, this is as good as it gets.  As of the 3rd quarter of 2008, how many subscribers have a flat rate data plan you ask?  Why a whopping 13%.  Verizon has finally broken the barrier for data revenue exceeding 25% of their total revenue stream.  Of course, 40 to 50% of that revenue is generated from messaging related services, the fastest growing portion of the data market. 

Why would only 13% of all cell phone subscribers have a flat rate data plan?  Duh.  Perhaps because it is priced to farging high!  Especially considering the snail-like pace it continues to operate at, and finally the horrendously limited mobile devices that are able to use it.

Why wouldn’t providers improve speed and reduce prices to increase that percentage of customers that have the flat rate plan?  It is a simple concept called profit maximizing.  Consider the following quote from Ivan Seidenburg, CEO of Verizon Wireless:

“(Consumers) may pull back and not buy as many premium services,” he said. “But the question is will they pull back their spending on what we sell? Our view is that we will weather this. We sell the most indispensible device that consumers have, the mobile phone.”

He goes on to say they are in two core lines of business that are recession proof: wireless and broadband services.  Now is it just me, or does it bug anyone else that he keeps referring to wireless continually as phone, and separate from broadband.  DNA.

The continual reference to taking phone business away from land lines, and building out the wired broadband business leads to the inevitable conclusion that these providers are in two industries that they don’t want cannibalizing one another.  If you are trying to expand your land line business after making infrastructure investments, why would you want to cut your own throat by putting in faster wireless service for less money?  No self respecting capitalist would do that to him or herself.  It is only in an open, Darwinian market that another new competitor would do that to an established cash cow.  DNA.

In order to prevent such disruptive events from making it difficult to collect the roughly $60Billion of ONE VENDOR’s wireless revenue annually and to control the amounts necessary to maintain and expand coverage of the network, a pricing strategy that encourages customers to use a land line as opposed to a cell phone for internet is preferred.  The two largest vendors who control over 62% of the wireless data revenue in the US are the same two vendors who also have huge land line broadband subscriber bases and like the profit potential that this approach provides.  DNA

This wireless economy has a few very large companies at the trough, and they are doing everything in their power to make sure the runts don’t get in to the feeding - aided by the FCC.  They actually are into two troughs, and want to make sure that both troughs stay full.  The wireless (phone) trough, and the broadband (landline) trough.  Ne’er the two shall meet on their watch.  DNA