Walled Channels

You may have seen the stories about mobile operators modifying the content of Web pages accessed via their networks - so-called "transcoding" or "contact adaptation". You may also have seen the story about Vodaphone and Orange in the UK requiring Nokia to strip out the VOIP functionality in the N95, to stop users bypassing the mobile carrier for voice services.

What I think we are seeing is the first signs of responses amongst mobile operators worried about being disintermediated by WiFi in mobile devices and their carrier revenue stream collapsing.

Just about every third person I've met in the mobile world over the past two years had the "revolutionary" plan to roll out mesh urban WiFi to a city free, provided the city council signs up to use it for comms with their mobile staff and vehicles with the entrepreneur allowed to sell the remaining bandwidth for profit.

The content adaptation gateway could be viewed as either:

(a) a way of building dependency in the user community, presumably, they hope by word of mouth reporting on how much better it is to access this stuff via Vodaphone's "wonderful gateway" - i.e. it's a way of adding value (maybe badly, feom a technical standpoint) when ccessing sites via Vodaphone over accessing the same sites ia WiFi without Vodaphone.

(b) it's a precursor to a walled garden to be offered by Vodaphone with some cunning plan or other to add yet more value - if Google can have a Google-phone, why can't Vodaphone have a search/mediator internet device. What marketeers want is a channel they can completely control, a "Walled Channel", to coin a phrase, without any of those annoying obstacles to their business model like pop-up blockers, de-flashers, etc. If you can't have a device you can control completely, e.g. the Google-phone, maybe the carriers have realised that offering to marketeers a channel that can be controlled is a new revenue stream opportunity.

From one perspective, you can have some sympathy with the mobile operators - they are staring in the face the same collapse in bulk traffic revenue that BT had to face but it's not coming from direct competition by similar operators allowed to break in to your monopoly, i.e. they would find it hard to solve this by pricing responses.

Instead it's a classic disruptive technology event. Handset manufacturers add WiFi because users want it and it's a way of differentiating your handset from the pack. The carriers don't want it because it destroys their traditional revenue model. It's a bit like the arrival of recordable CDs - the manufacturers of disks and burners loved it but the copyright owners hated it and did all they could to stop it (remember Sony's covert root kit customer relations own goal). The i-Pod generation regard content as free and connectivity as either free or non-volume based. The corporate world has to get their head around this and soon.

Incidentally, the same kind of disruptive technology problem for the carriers is NFC (Near Field Communication - like RFID but with two smart active devices), now starting to appear in mobile handsets - the carriers will find themselves disintermedated from a huge chunk of transaction business. What's the betting we see carriers start demanding Nokia et al make the NFC technology do some sort of "authentication/ verification" (in the name of customer security, naturally) via their networks before an NFC-enabled payment can take place?

The truth is that, if WiFi emerges as a credible *mobile* (as opposed to home and hotspot) carrier for voice and data services (and there are lots of reasons, both technical and marketing why it hasn't done so yet, although we are now seeing the start of the necessary "consumerisation" of this with the WiFi SkyPE handset), then the mobile carriers are in trouble. Here in the UK, they way overpaid for 3G licenses and they now realise they will probably never recoup that cost. The only obvious alternatives are either to add value to all kinds of traffic carried via their networks or dig deep in their pockets again and start buying up the mesh WiFi operators (and NFC payment mediators) once they break the market and gain significant share.

The one thing most comments seem to agree on is that this development is unlikely to have been created only for the benefit of the mobile network customers. An old cynic like me would find it hard to disagree...

(Originally posted in the Mobile Monday discussion group)