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Wednesday, February 17, 2010

U.S. Smartphone Adoption is Being Held Back by Wireless Carriers...YEAH I SAID IT!

It is amazing how much smartphones have grown in popularity in the last few years. The mobile market took much longer to mature than the general computing market. It took a licensable advanced and continually evolving computer architecture (ARM), shrinking process technology, dense memory capacities (both in solid-state and RAM), and optimization of open-source operating systems (Darwin and Linux) and software (Webkit) for mobile platforms to bring about an enjoyable media and internet-rich experience to mobile phones. The PC market was able to thrive with a proprietary computer architecture (x86), closed-source operating system (Windows), and inefficient software, but Moore's law and form factor made up for the loss of performance and capability caused by this approach.

Thanks to the steps (whether intentional or not) made in the computing market to share technological innovations and reduce cost, size, and power consumption, all while increasing performance and storage capacity, products such as the Apple iPhone, Windows Mobile 6.x, Palm WebOS, and the Blackberry have made it possible to not only schedule but also accomplish tasks and consume live on-demand content while in transit. Apple introduced the MessagePad, a 7" x 4" device running Newton that provided one of the first stylus-based implementations with PIM and sync technology. Palm brought about PIM and sync functionality and mobile applications with the Palm Pilot 1000, a 4.72" x 3" device running a 16MHz 68000 processor with only 128KB of RAM. The Nokia 9000 was one of the first mobile phones with web and PIM capabilities. By the time Windows CE evolved into PocketPC devices, ARM (pushed via Intel's XScale) clocked at 133MHz+ made it possible for software to play music (without needing an expansion Handspring module) and video. Once Direct3D support arrived on the Microsoft platform and 400MHz processors became commonplace, mobile gaming on general purpose devices took off. Returning to smartphones, the Symbian OS (now open-source) combined with an Ericsson R380 touch-screen phone brought about the first modern PDA phone, followed by the Handspring (now Palm) Treo. The RIM Blackberry smartphone was the first mobile email solution that was fast and robust, thanks to the enterprise server software developed by RIM.

Up until email and web services were made available on smartphones, the barrier of entry was cost of the device; aside from exclusivity and handset tied to a specific carrier, one could still opt for a standard voice plan and still take advantage of using Hot-or-Active sync'd and preinstalled applications. Admittedly, having 2 different wireless standards (CDMA vs. GSM) and locking people into multi-year contracts with a phone that was locked to that specific carrier did not help the industry as a whole, but the low cost of entry was beneficial to the explosion of mobile phone usage in the U.S.

Then came the Blackberry email plan, adding $15 a month to a voice plan. The wireless web plans were not compatible with all phones (in my case, the Kyocera 7135 on U.S. Cellular), and they were costly ($15 a month for each desired "service" or $1.50+ per access, $0.50/MB). Add on top of that text messaging fees (up to $20 a month for unlimited, $5 for 250 messages, $0.25 per message) and you're easily paying up to $70 a month per person for wireless service! No wonder text messages had such a delayed start in the states compared to Europe and Asia. And with slow adoption of text messages, there was a limited driving force to use MMS; U.S. phones are just starting to come standard with 2-5 megapixel cameras, but Nokia and Samsung were selling 5 megapixel feature phones over 2 years ago!

Then Apple came along with the iPhone. By incorporating innovations Apple and other mobile device companies have been developing for over 15 years, they released a device that could handle the multimedia, PDA, and mobile web needs of the populace. Adapting Safari and using a capacitive touch screen was certainly innovative, but arguably Apple's negotiation with a wireless carrier was the move to help spur mass adoption. Apple's iPod really took off once they released a Windows version and added a music store to iTunes, working with the labels on a solution they were comfortable with. Unfortunately, in the case of mobile data, the trend went in the opposite direction. Shortly after music within the iTunes store lost its DRM and maintained a relatively low cost that Apple dictated, the iPhone monthly plan went from unlimited data (using Edge) and 200 text messages for $60 a month (~$15-20 a month premium) to just unlimited data (using 3G or Edge) for $70 a month ($30 a month premium). For the equivalent plan to the original iPhone, an average iPhone user would be paying $75 + tax and fees. In other words, as much as Apple tried to redefine mobile usage and spur mass adoption, AT&T changes the terms once again and we're back to square one.

These days, buying a smartphone through a carrier typically involves signing a 2 year contract for a plan costing $70 a month or more. The Blackberry is still selling a large number phones due to being free or nearly free with contract, but I suspect that the majority of cell phone users are still hesitant to adopt a smartphone due to monthly plan costs. When the decision lies between choosing a feature phone with the option of basic web capabilities for $10 extra and a smartphone that requires the customer to pay $30 extra per month, most people will choose the feature phone unless they can really justify the expense. Let's not forget that modern smartphones have wifi, thus nullifying the need for the extra expense, yet it is forced upon the customer at purchase.

Interesting enough, PC can be built or purchased for under the cost of a smartphone at retail, yet the modern smartphone is more personal than a personal computer. Yes, people may argue that they do not need a smartphone, but at one point one may have made the same argument about the personal computer. As smartphones are becoming more advanced and PCs cheaper, it would be natural for them to appeal to a larger audience. But I know people personally who will not buy a smartphone because of how much it adds to the cost of a plan. Sprint is heading in the right direction with their Simply Everything plan (which includes unlimited data and texting), but Sprint (just like every other U.S. carrier except for T-Mobile) requires you to pay $70 a month for a plan. T-Mobile is also heading in the right direction by encouraging people to purchase a smartphone (like the Nexus One via Google) out-right and then opt to pay for the plan desired. As much as the U.S. audience loves free phones, I think that ultimately people will have to accept the full cost of the phone so that we can finally start to have a real mobile computer revolution, free from carrier intervention.

Finally though, I think that we are moments away from being able to purchase data-only as the base plan for all the services we desire. We shouldn't be required to pay for voice minutes or text messages; instead, we'll pay for data through a utility company and subscribe to voice and data services through independent providers. Yes, this means wireless data will be metered, but this way you will pay for exactly what you use. By reducing the base plan cost of a mobile device to a modest fee, people will be more willing to pay for smartphones and the data access that powers them, and we'll be able to change the way we look at mobile forever.

See also:
Smartphone Device & Chip Market Opportunities 2010
Editorial: Voice rate cuts, data rate hikes, and the case for metered billing