How Can We Disrupt The Cell Carriers?

cell tower

Editor’s note: Hemant Taneja is managing director at General Catalyst. Follow him on Twitter @htaneja.

Every time I pick up my iPhone lately, I’ve been asking myself: Why do we call this a “phone”?

If my “phone” habits are any indicator, we shouldn’t be calling this a phone at all. On the iPhone, I don’t like taking phone calls. I’ve moved the green phone application button away from the bottom tray and replaced it with other apps I use frequently. If Apple allowed us to actually delete the phone app, I’d bet some of us would do it right away. In our evolving relationship with mobile phones, I wonder when we are going to stop calling it a “phone.” It’s semantics, but the words are important and affect our mindset. If we’re using precise language, these devices are really computers with data-collecting sensors and processors that happen to have voice capabilities as a feature.

Part of the mindset problem is unfortunately highlighted by the carriers business models and pricing plans. Carriers charge 80% of monthly fees for voice and the rest for data when, in fact, for many of us our usage patterns are actually the inverse. As a result, carriers segment our data usage and stifle innovation and worse, consumer adoption, at the application layer. If you’re not lucky enough to be “grandfathered” into an unlimited data plan, you have to monitor your data pull for fear of paying exorbitant overage fees.

This is the result of a structural issue in the wireless carrier industry. The carriers are running a series of systems today — a voice network, a voicemail system, a SMS platform, and a data network — when the reality is that all they truly need is a data network with “phone” as well as asynchronous messaging applications that already exist. The carriers’ legacy architecture is artificially placing a large cost on consumers and, worse, stifling adoption at the application layer.

There is too much pressure on these antiquated pricing models. For instance, will applications who monetize our usage end up paying a carrier like an 800-number would? Or, could applications subsidize our data costs in different ways? For instance, if I’m on Twitter for 80% of my mobile usage, which goes against my data plan, would Twitter offer some payment back to the carrier? Or, could an application pay me directly for using it after a certain threshold, which I could use to offset my monthly costs? There are more questions than answers here, but it will be interesting to see which carrier has the foresight to work with handset makers and application developers to make this more sustainable for end-users.

There’s much that needs fixing here. The handset makers are doing their part. The app developers are doing great work. We are all paying through the nose for these great experiences and utilities. But, the party won’t last. The carriers have to carry their weight. The first thing we have to do is stop thinking about a device like the iPhone as a “phone.” It’s really a computer that just happens to make calls over cell towers. And, when we start using the right language, we will start to change our mindset, our demands, and hopefully, the carriers will take notice. In fact, they may have no choice but to do so.

In my view, the root problem is that there is no competition in the wireless carrier industry. They have no incentive to properly keep up with innovation in the hardware platforms and the application ecosystem. It would be nice to see entrepreneurs focus on disrupting this industry. Conceivably, a company (or set of companies) could emerge to redefine the device away from being a “phone” to something new.

My gut tells me that if someone could offer a $50/month plan with the core set of applications including messaging (voice, data, and video) off of a data-centric network, it could present a great value proposition for consumers. Consumers don’t want to think about blowing through their data plans every time they download a video or upload a photo. I don’t think building such a company has to be very capital-intensive proposition, given all the online mechanisms that available to acquire customers and vast ecosystem of applications that already exist.

What do you all think? How can we force the carriers to change or build something new?

[image via flickr/acidpix]


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