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MARCH 21, 2002

NEWS ANALYSIS By Stephen H. Wildstrom

The Techno-Culture Clash in Telecom

On display at the industry’s big trade show: Tensions between wireless carriers and their hardware and software partners

Software companies run on Internet time. Speed is everything, and if the product that is shipped doesn’t quite work, it can always be fixed in the next release. The handheld-computer industry works on PC time. It’s more important to get the product right out of the box, because hardware is difficult to fix. Time-to-market considerations still dominate the process.

Then there’s the wireless-carrier industry, which works on telephone time. The goal from the get-go is 99.999% reliability, so the rule for both hardware and software is test and test some more, to make sure that products work properly and don’t interfere with the operation of the network. Telephone time is the toughest standard of all.

But a new, carrier-dominated world was very much on display Mar. 18-20 at the Cellular Telecommunications & Internet Assn.’s Wireless 2002 show in Orlando, Fla. Computer-oriented companies such as Hewlett-Packard, Compaq, and Handspring are rolling out devices with built-in support for the new data networks being offered all over the world. At the same time, large-scale wireless-data deployments by corporate customers are taking the voice-oriented carriers into territory they don’t understand very well.

“THOSE FIVE NINES.”  “In the dot-com days, you could talk to an Internet company and have a service up and running in a couple of days,” says Gregg Armstrong, chief operating officer of Starfish Software, a Motorola unit that makes software to synchronize data across multiple devices. “The quality was often not very satisfactory. Now, before the carriers will deploy anything, they want to do extensive testing because they need those five nines of reliability.”

As PC and Internet players move into the world of carriers, they’re being forced to change the way they do business. A device can be used on networks using CDMA technology, such as Sprint and Verizon Wireless, only if it has been “provisioned” by the carrier, so carriers must approve all devices.

Customers of GSM networks, offered by VoiceStream and all European carriers, can, in effect, provision their own devices by moving a little card called a subscriber-information module from one device to another. But a retail model in which carriers are expected to subsidize the cost of phones and handhelds means the network operators are in control of what gets sold.

Hardware makers, who once got products to market as quickly as humanly possible, now face months of negotiation followed by months of testing. Furthermore, says Joe Sipher, vice-president for product marketing at handheld maker Handspring, “carriers want everything on their networks to look as much alike as possible, while hardware makers want to differentiate their products as much as possible.”

BRANDED HANDSETS.  The tension between carriers and their hardware and software partners has as much to do with business models as with technology. It has been the carrier who acquired the customer and the carrier who billed the customer — even for services provided, usually invisibly, by third parties. Some carriers, notably Sprint, have only recently begun to allow hardware makers to put their own brands on handsets.

“At least for the next couple of years, the carriers will continue to own the customers,” says Bruce Chatterly, CEO of Seattle-based ViAir, whose applications help carriers give customers access to Internet and corporate e-mail accounts. But companies with strong brands of their own, like Compaq and Microsoft, want a bigger piece of the action.

One product unveiled at the CTIA show is a good example of the complexity engendered by all the new requirements. Called the Thera by Audiovox, it’s co-branded by Audiovox Communications and Sprint PCS, which will provide both the data network and the sales and marketing force. The connection to the network is provided by a Sierra Wireless radio modem. Yet the Thera itself was designed and manufactured by Toshiba to use Microsoft’s Pocket PC 2002 software platform.

WARY OF REDMOND.  Microsoft probably faces the greatest challenge in this new world. For one thing, carriers have not traditionally been its big customers. They mostly favor Sun Microsystems gear in their data centers, regarding Windows servers as neither secure nor reliable enough to make the cut as “carrier grade.” More important, Microsoft’s reputation as a company that manages to walk away with the lion’s share of the profit in any relationship makes carriers extremely wary of partnering with Redmond.

Microsoft has been making some inroads, mainly with wireless Pocket PC 2002 models. European carrier mmO2 (formerly BT Cellnet) will brand and sell a Pocket PC for use on its GSM network (the hardware comes from HTC in Taiwan). But Microsoft has had a tougher slog getting carriers to embrace its Smart Phone, a smaller unit based on a stripped-down version of Windows CE and intended primarily for voice use. The software marker has finally gotten some carrier deals for the Smart Phone, but it has had to work with a third-tier handset maker, Britain’s Sendo.

The carriers, too, face challenges adapting to the changing market. The more they succeed in being the customers’ single point of contact, the more responsibility they take for customer satisfaction with hardware and software provided by others. But if they don’t supervise the whole package, they may be pushed out to serve as only commodity suppliers of bandwidth. “They run the risk of being reduced to dumb pipes,” says Richard Siber, a partner in Accenture, whose Mobile Service Bureau is a software and services product designed to help carriers manage wireless deployments for enterprise customers.

In the end, the carrier, hardware makers, and software companies will all have to find a way to work as a team. They all need each other now. And, with luck, the wireless-data business will have enough growth so that all can prosper. But look for some interesting clashes in culture along the way.