Jarich: In defense of U.S. operator innovation – Wi-Fi, alliances, apps vs. tiering and capping

Peter Jarich current analysis

Peter Jarich

With the 235th anniversary of American Independence just a few days behind us, I want to take a moment to recall a conversation I had last month.

Up in Boston for a conference on network traffic management, I got to the event towards the end of day one--spending the morning with customers in the area.  When I asked what I'd missed and how the sessions had been, I got a similar response from many different people. "Compared with the European version, this has been pretty boring--there's just not enough innovation with the operators here, particularly with wireless."  I pressed for an explanation. "The operators here are still stuck on unlimited data, while everywhere else they're implementing data caps, tiering, and implementing partnerships with Wi-Fi providers.  There's only so much you can do to sell them on the concept of actively managing their traffic for the sake of user experience and revenues."

They were the type of comments that just get accepted. The type with lots of nodding and agreement, and not too much discussion or investigation. I was just as much to blame for the lack of dissention as anyone, in part because, right or wrong, I'd heard this positioning before; North America has long been depicted as behind other mature markets when it comes to wireless services. In terms of service uptake and penetration. In terms of SMS adoption. In terms of network sharing to the extent that we've seen it elsewhere. In terms of network outsourcing in the name of efficiency. In terms of end-user device choice in the face of carrier-driven distribution. 

Some of this is fair, some not so much. We do have solid examples of network sharing, particularly around roaming agreements. Sprint and Clearwire are prime examples of network outsourcers. We were first with HSDPA, and early with LTE and femtocells. Yet, on the services front, the image of North America (or, at least, the U.S.) as a wireless backwater persists.

Often, the rationale is linked to pricing propositions--comparing, for example, what's available in the U.S. with the norm in Europe.  Based on Current Analysis' CurrentTRACK Mobile Broadband and U.S. pricing data surveys (looking at mobile broadband plans), it's easy to see if this is borne out when considered along three axes: capping (putting usage limits on tariffs), speed tiering (selling services not just on the amount of data consumed but also the bandwidth promised), and inclusion of Wi-Fi access in the service package. If the argument is that a greater use of these tools represents greater innovation, just how do the U.S. and Europe stack up?

  • Unlimited Data vs. Capping. In the U.S., unlimited is used by a few smaller players in an attempt to differentiate themselves, but only available at Sprint among the major national carriers (and, then, only for WiMAX access). In Europe, "unlimited" language is in 22 percent of mobile broadband packages, even if only 7 percent are truly unlimited.
  • Speed Tiering. To be fair, usage tiering in the form of throttling traffic after a user hits their usage cap is common in both the U.S. and Europe. It's employed by both T-Mobile and Leap in the U.S. and is often included in European fair use policies even when plans are sold as "unlimited." Less common is selling tiers of services based on bandwidth; it's not available in the U.S.--a stark contrast to Europe where about 50 percent of operators offer tiered speed packages.
  • Wi-Fi. While operators like Verizon Wireless have traditionally been painted as anti-Wi-Fi, Wi-Fi has been a much bigger part of the U.S. wireless landscape than in Europe--even the massive launches in China, Japan and South Korea could be positioned as those markets catching up.

source: Current Analysis

While a lack of speed tiering in the U.S. is obviously a missed opportunity for monetization (not to mention congestion management), and a greater use of Wi-Fi among the States' top operators is (in part) a result of the long history of hotspots here, it would be wrong to think of innovation beginning and ending with basic pricing terms. Looking beyond them, it's hard to ignore some of the other innovation taking place.

  • Lightsquared & Wholesale. While a majority of the recent press surrounding Lightsquared has centered on GPS and its network sharing arrangements with Sprint, none of this is really new--spectrum holders (or users) always guard their assets fiercely and network sharing is increasingly commonplace around the globe. What is novel is the concept of the wholesale mobile network, moving beyond just being an MVNO supplier to a network not tied to any embedded operator.
  • T-Mobile's Homegrown Apps. In counseling their customers on how to compete with Over The Top (OTT) players, most vendors recommend liberally leveraging network or customer relationship assets (traffic control, billing, trust, etc.). Kicking off its Bobsled brand, however, T-Mobile embarked on a strategy of taking the fight to its would-be competitors. The applications might never prove popular with customers. Many might fail. Where it's commonly argued that venture capital success rates of 10 percent are enviable, the key is in proverbially throwing things against a wall to see what sticks. 
  • Unholy Partnerships. Beyond leveraging network assets or trying to compete (semi-directly) with OTT players, there is a third way--what might be called, "jumping into bed with the devil." Where Skype and Google, for example, deliver services that many end-users might not make it through the day without, it's probably not appropriate to call them the devil. Nonetheless, the point is clear and it's just what we're seeing as Sprint becomes the inaugural operator partner for Google Wallet, Verizon ties its LTE launch to work with Skype and Sling, etc.
  • Real Wi-Fi Offload. The term "Wi-Fi Offload" gets used frequently, whether or not it's accurate. It's easy to see how Wi-Fi can serve to take traffic off of mobile networks. To this end, there's lots of work going on to make seamless device authentication and handover a reality--work involving standards like the IEEE's 802.11u or the 3GPP's ANDSF. More than simply delivering hotspot access for mobile users to access, this is what makes for a real offload solution. Yet, where operators like Telia might be gaining attention for their recent work with EAP-SIM authentication in Sweden, AT&T's been delivering a taste of what offload should be for a while, simplifying seamless authentication (and congestion management) thanks to device-side clients. 

Beyond any examples or data points, it's not hard to understand why it might seem that the U.S. should be less innovative than other markets. With nearly two-thirds of the country's subscribers in the hands of two operators, it might be argued that competitive pressures are weaker than elsewhere. A lack of national technology alignment--3GPP vs. 3GPP2--has been positioned as a drag on the market. Some people have pointed to the market's insularity, or simply the fact that the breadth and diversity of national markets in Europe or Asia lends itself to more experimentation. 

It might be just as fair, however, to look at "innovation" as a function of need. As a colleague notes, European operators "revere" the U.S. for its higher proportion of postpaid customers, better defense of data pricing, and longer history with Wi-Fi. As much as no operator can afford to rest on its laurels, aggressive innovation cannot always been seen as an indicator of a healthy business as much as it is a reaction to dire competitive situations. 

Peter Jarich is the Service Director leading Current Analysis telecom infrastructure practice. Follow him on Twitter: @pnjarich.