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Are U.S. Cellphone Carriers Calcified?

Last week, I spoke at a cellular-industry conference in Lake Como, Italy. (Yes, I know, life's rough. And no, I did not spot George Clooney.)Continue reading.

My topic was the increasing number of cool services that tie together the phone and the Internet. I've reviewed a number of these service in The Times recently: GrandCentral, which makes all your phones ring at once so people don't have to hunt you down (and was just bought by Google); Teleflip, which turns your e-mail into text messages on your phone; SimulScribe, which turns voicemail messages into text that arrives on your phone or in e-mail; and so on.

The talk went well, but in the end, I wound up learning as much from the attendees as they did from me.

The cellular industry is going through insanely rapid change. Almost everyone there - 800 attendees from 200 phone companies in 65 countries - was running scared of VOIP. That's voice over I.P., better known as Internet phone. VOIP includes cheapo unlimited home-phone service like Vonage, as well as absolutely free computer-to-computer calling with programs like Skype. It's all growing like crazy, which is making a huge dent in these companies' ARPU.

Oh, yeah - that's Average Revenue Per User. Telecom companies live and breathe ARPU. The talks at this conference were all about "Improving Your ARPU." (They *love* acronyms in this business. Typical seminar description: "Learn how ISM and FSM can decrease your OPEX and CAPEX and boost your ARPU!")

Most of these carriers intend to fight off VOIP by growing into a Double Play, Triple Play, or even Quad Play.

What, you don't know those terms either!?

If you're a single-play company, you just provide landline service. Add cellphone coverage, and you're a double play. Add Internet service and TV, and you're a quad play. You can see the same syndrome here in the U.S., too, as cellphone companies try to deliver TV service, cable companies roll out phone service, and so on.

On the exhibit floor, companies were demonstrating very, very cool next-generation services for the onrushing era of unified communications. FastWeb, a company that started only in 2000 and is now a $365 million quad-play company in Italy, lets its customers watch any TV show that's aired in the past three days, on any channel, whenever they like. It's like retroactive TiVo.

Other demos included upcoming services that let you text messages to and from characters inside Second Life, the virtual-reality game; a software module that brings your phone's incoming text messages onto your computer screen, so you don't miss them and can reply with your keyboard; and various systems that unify your communications (voice, text messages and chat, for example), giving you a single address book and mailbox for all of them.

You know how young people are spending $10 billion a year on ringtones, just because it lets them express themselves? The next big thing, I'm convinced, will be avatars. This feature, too, was on display: You design your own little character, or avatar, choosing a hairstyle, clothes, facial features and so on.

Then, whenever you call people, your character appears on their cellphone screens. I'll bet avatars will be the next huge teen fad in 2010 or so.

But don't look for any of these goodies here in the United States.

I get the distinct impression that American cellphone carriers are calcified, conservative and way behind their European and Asian counterparts. (For one thing, I wasn't aware of any cellphone companies from the United States at this conference.)

One guy at the conference told me that his company, which sells software modules to cell carriers, had developed visual voicemail - a highly touted feature of Apple's iPhone, in which your voicemail appears on the phone like e-mail messages - *three years ago.* It had no takers among American carriers. ("This week, our phones are ringing off the hook," he told me sardonically. "We're digging the CD's out of storage.")

I also remember hearing friends on the Palm Treo team tell me what a nightmare it was to sell their early phones to the American carriers, who traditionally wield veto power and design control over every feature of the phone. The Treo team had all kinds of great ideas for improving the design and software of cellphones - but those carriers turned up their noses with a "we know what's best" attitude.

As you can imagine, the iPhone was a primary conversation topic at this conference. Lots of grudging admiration and amazement at what Apple pulled off.

Not just technologically, either. The biggest impact of the iPhone may be the way Steve Jobs managed to change the phone maker/cell carrier relationship for the first time in years. "We'll give you an exclusive," Apple told AT&T, "and you'll let us do whatever we like. We're going to handle the billing. We're going to take the signup process out of your stores and let people do it at home. You're going to redesign your network so that it works with our visual voicemail system." And so on.

Stan Sigman, president and chief executive for wireless at AT&T, is on record as saying that he had no idea what Apple's phone would be like when he agreed to this-a deal that would have been unthinkable in the pre-Jobs era.

If the iPhone becomes a hit, then, it could wind up loosening the carriers' stranglehold on innovation. Maybe phone makers' imaginations will at last be unleashed, and a thousand iPhone-like breakthroughs might bloom.

The cellular executives at the conference didn't seem to oppose this development; indeed, several were thrilled by the shift, as though they'd been feeling just a little uneasy about the whole "we're-the-gatekeeper" thing themselves. That's really exciting stuff.

Note to the cell carriers: Go with this new flow. You'll only improve your ARPU.

(P.S. ... As longtime Pogue's Posts readers know, my biggest cellular pet peeve is the endless recording you hear when you reach someone's voicemail: "To page this person, press 2 now. You may leave a message at the tone. When you finish recording, you may hang up. Or press 5 for more options" - and so on.

At the conference, I asked one cellular executive if that message is deliberately recorded slowly and with as many words as possible, to eat up your airtime and make more ARPU for the cell carrier. I was half kidding - but he wasn't fooling around in his reply: "Yes."

The secret's out.)

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