Jan 23rd 2015

What the hell were they thinking?

Two stories appeared this week that have me questioning if a sort of corporate madness is sweeping North America. Yesterday we had BlackBerry CEO John Chen urging regulators to force app developers to port their applications to the BlackBerry platform. He argues “…if we are truly to have an open internet, policymakers should demand openness not just at the traffic/transport layer, but also at the content/applications layer of the ecosystem.” Good grief!

Chen uses the example of Netflix not making an app available for the Blackberry platform saying that Netflix has “discriminated against BlackBerry customers.” Well boo hoo, poor BlackBerry. Could it perhaps be that there are so few consumer uses of BlackBerry devices now that Netflix fails to see any return on an investment in development for the platform? And why are there so few consumers packing a BlackBerry? Could it be that, despite dominating the smartphone market for a good while, corporate arrogance overtook the firm and, although the signs were obvious to everyone else (except perhaps Nokia), it failed to move with the market? Dear reader, I’ll let you decide, but this latest salvo from Blackberry smells like desperation to me.

So, on to the other story and news earlier this week that Google has apparently done a deal to create a Mobile Virtual Network Operator (MVNO) using the networks of Sprint and T-Mobile. For those of you who don’t understand what an MVNO is, let me explain. Essentially, to the consumer, it looks just the same as any of the primary mobile service providers that own their own networks. MVNOs simply rent network capacity and other support services from the network owners – Virgin do it in the UK, Republic Wireless in the US and there are dozens of others.

The thing is most consumers actually couldn’t care less who owns the network, they are interested in price, service, brand etc. and that’s the problem for Sprint in my view. Google is probably the biggest brand in the world, it sells its own phones, it owns by far the most popular smartphone operating system, and many of the key apps, and it’s plugged in to the mobile ecosystem in a way that no other company is. It’s also been shown to be willing to spend a bit of cash (and it has plenty of it) to build a new business. Added to that, it’s in a unique position to use its combined resources to do some very innovative things. Could we see, for instance, Google making much more use of the growing availability of its own networks and public Wi-Fi services to route the bulk of the voice and data traffic over those networks instead of Sprint’s cellular network? That would divert the vast bulk of subscription revenue to Google, and Sprint would be relegated to providing the in-fill with cellular, and the revenues would be correspondingly reduced.

Having seen the same thing happen in the fixed line world, I’ve long believed that the natural position of mobile operators is as the provider of the ‘pipe’ and their job ought to be to fill up that pipe in the most profitable manner. They’ve fought kicking and screaming for many years to avoid that but it’s still happening and I can’t see that they have any alternative position. So, maybe Sprint executives have made the decision to go into the pipelines business but even if they have, I’m not sure it’s in their interest to be doing the deals with Google. Google’s motto “Don’t be evil” has been replaced in recent years with “Make pot loads of money”* and that’s inevitable in any publicly traded company – the primary obligation is to shareholders and shareholders want a return on investment.

Soon we might have Google running and controlling access to a mobile network, supplying its own smartphones, dictating what does and doesn’t happen within the operating system, owning some of the most popular applications and the data supplied by them, controlling the advertising platform etc. The power of that position makes me feel very uncomfortable and it ought to make others in the industry, including mobile operators, sit up and take notice.

I haven’t got a lot of sympathy for Roger Chen’s latest call to the regulators but at some point in time the regulators do need to start looking more seriously at Google’s growing dominance across markets, and their ability to manipulate those markets. In my experience companies with the capacity to manipulate markets and stifle competition typically do, unless the regulation is in place to stop it happening. Does anyone remember the banking crisis?

*Not really (just in case Google’s lawyers are reading)


Ian Hood
Ian Hood CEO