Competition: Cellular is Where It's AtCompetition: Cellular is Where It's At

The landline operations have become commoditized. Will the wireless business units be next?

Inspired by Dave Michels' post about a PBS documentary on MCI and Bill McGowan, I recently put together a slideshow depicting some of the highlights of the move toward competition in telecom equipment and services. Almost in passing—and influenced by some points that Michael Finneran made in an email exchange we had—I noted that cellular is where the action is today in terms of competition.

For a blueprint of how that might transpire, take a look at this article from GigaOm, which lays out the scenario for how the cellular carriers could lose their "ownership" of the end customer and become exactly what their landline operations have become, much to their chagrin: Bit haulers. Dumb pipes. Pick your metaphor, but whatever you call them, one thing you can be sure of is they'll fight it every step of the way if the same trend seems to be happening in cellular.

In a nutshell, the GigaOm argument is that mobile platform providers like Google will either wholesale cellular capacity and resell it, or will buy small providers outright. Consortia of these providers could then open up their networks such that any given mobile device would have the smarts and the access privileges to find the best available connection wherever it is, connecting to whatever consortium-affiliated network it can access, be it cellular or WiFi-hotspot. This isn't a new model, and it's one that even the big carriers have some experience with, as for example when AT&T partnered with Starbucks to provide WiFi access from coffee shops. The writer's idea is that when this represents a competitive business model to the dominant cellular providers, those providers will have to decide whether to resist it or embrace it, and this is the point where I part company with the author of the GigaOm piece.

I guess I have more confidence than the GigaOm author in the big cellular carriers' ability to fight the commoditization of their spectrum--or at the very least, the gusto with which they will put in the effort. On the one hand, they were unable to stop the commoditization of their wireline voice business; nor were they able to turn Internet access into anything other than a commodity bandwidth business. On the other hand, these very trends in the landline space have the effect of raising the stakes for the cellular business: In 2Q2011, cellular represented 50% of AT&T’s revenues, for the first quarter ever, up from 46% a year ago; wireline data grew from 25% to 26%, and wireline voice fell from 23% to 20%. AT&T and Verizon can ill afford to see their wireless services hollowed out at a time when they continue to have to invest in spectrum and infrastructure, and while the wireline business grows very slowly (for data) or shrinks (for voice).

So they'll fight it. Will they be successful? History doesn't offer many examples of companies resisting a commoditization trend. The carriers' ace in the hole has always been their roster of lawyers and lobbyists who, as noted in our slideshow, did a bang-up job of strangling the CLEC industry in its crib during the post-Telecom Act 1990s and 2000s. And yet they do suffer losses; it may be too early for the DoJ to declare victory in its battle against the AT&T/T-Mobile merger, but the deal has clearly suffered a major blow.

And, of course, if you peer back into the mists of time, you might just see the figure of a microwave transmitter take shape in the fog--and atop that installation, the dark-suited figure of a man named Bill McGowan, surveying the landscape and planning his campaign to take down the Bell System.