(Editor’s note: This is an opinion piece by Paul Grim, a General Partner at SunBridge Partners, the US affiliate of Japan-based SunBridge Corporation)

We recently celebrated President Reagan’s famous quotation from twenty years ago, a challenge to a closed regime that no one at the time ever imagined would open up and allow its subjects a real sense of freedom and choices.

So I would suggest that it’s time to set that challenge again, to another closed regime that no one today could imagine opening up and allowing its subjects a real sense of freedom and choices. Yes, I am talking about the wireless industry and its Warsaw Pact of walled gardens.

So while the iPhone does its Solidarnosc thing, who within the regime itself should be our candidate to lead the wireless Perestroika? I would suggest Mr. Robert Dotson, CEO of T-Mobile USA might just be our Gorbachev.

Fences may make good neighbors, but walls are bad for consumers

It’s easy to think that the wireless network operators are under attack from outside competition and are rapidly opening up, but the reality here is still quite different. Although off-deck content in Europe is up to 70-80% by some estimates, in the US it’s more like 30%. So what’s the impact? When Apple launched iTunes song downloads for 99 cents, Sprint responded with downloads inside its lovely walled garden for $2.50. I won’t bore you with all the other bread-line examples.

Once the majors are all running truly broadband wireless services (LTE, UMB and yes, maybe even WiMAX), one can hope that they will finally accept that the best way to maximize their revenues is to become a utility provider of internet access rather than a “value-add” content distributor. However, that would be the triumph of hope over experience.

So what will it take to change the model? Many including myself would love to see Apple as the instigator, but the recent iPhone launch only proves two things: there is frenzied demand for a better consumer experience in wireless, and that AT&T can’t yet deliver it even with a killer beta device from Apple (activation problems, losing your phone number, SIM card problems, you name it).

The iPhone may not tear down those walls, but the lowly WiFi router just might

Yes, there was a wireless industry bombshell announcement last week, but it wasn’t the iPhone launch: T-Mobile USA announced HotSpot@Home, arguably the first true Fixed-Mobile Convergence (FMC) offering that makes sense (David Pogue has done a great job of describing it here).

For ten years or more, the wireless industry has trumpeted the coming of FMC, but most efforts centered on cannibalizing fixed-line minutes in favor of wireless ones. However, the economics of wireless operators has prevented them from taking the leap to cannibalize both, in favor of FREE minutes.

But T-Mobile USA has always been an interesting beast in the wireless world: not big enough to fret about protecting its market position, and not well-funded enough to build out a decent 3G network, it can take risks in a way its peers would never dare. ‘T-Mo’ also happens to have a global footprint of WiFi hotspots, but hotspot revenues are also under pressure from free and all-you-can-eat multi-network offers like Boingo’s. Meantime, groups like Fon are lurking in the background, doing deals with TimeWarner and others to build FreeFi networks to compete against paid hotspots.

So with HotSpot@Home, T-Mo has launched an effort which is both rearguard (for its hotspot business) and revolutionary (for its cellular business). Why bother building out a 3G network when you can let your customers do it for you?

There is a very basic fact of economics at play here. Anyone who has to spend $50-100K per base station, or billions in total, to connect its users (that includes WiMax too) will be loath to open it up without a big toll booth on content, let alone give away minutes for free or nominal fees. Anyone who is spending $20 per access point has a lot more room to play around with their business model.

When Skype first arrived, people hoped it would put downward pressure on the cost of wireless minutes as well as regular phone calls. Wrong. More recently groups like Jajah and Eqo are trying to offer wireless workarounds, but they too may fail, because at the end of the day, it’s ‘My network, my rules’. No operator with any sense will allow content across its pipes that competes with its core business at a substantially lower cost.

Not a problem for T-Mo though! They plan to give away free routers to customers, so that users can make all calls-for free-from home. Wait, they can also make all calls-for free-in any T-Mobile hotspot, anywhere in the world, or any other open hotspot for that matter. And any calls started in a hotspot that switch to a T-Mobile base station stay connected-for free-until completed. Think about it for a minute-for a flat monthly fee, T-Mobile users will get ‘free’ calls anywhere in the world, most of the time, over other people’s networks, using minutes only when they start calls while on the road. And hey, with all the extra revenue they might get, maybe T-Mo can finance the build-out of a decent broadband network, and throw that open too!

The move from a per-minute, per-Megabyte, walled-garden ARPU mindset to a flat-fee, open-content internet access model will not be easy, and may not ultimately happen. But T-Mobile is certainly giving it a shot here, and I hope they succeed.

So Mr. Dotson, I say to you, Tear Down This Wall! (and good luck!)


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