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Weekly Column

Patricide: Your Telephone Company's Biggest Threat for Last-Mile Competition May Come From Its Own Mobile Phone Operation

Status: [CLOSED]
By Robert X. Cringely

The house next door to mine is filled with girls who attend the College of Charleston -- one house with five girls and no telephone. How can that be? They each have a mobile phone. Remember when mobile phones were expensive and rare? Well, those days are gone. Throw in some interesting third-party hardware, and suddenly the greatest threat to the old landline phone company now comes from mobile phones. And ironically, many of those mobile phone companies are owned by the same landline monopoly they appear to be trying to kill.

It wasn't supposed to be this way. When mobile phones came to America, they were expensive to buy and use. I remember paying more than $1,000 for a car phone. The analog phone system allowed a maximum of 660 simultaneous users per cell tower, which means the typical $500,000 capital investment had to be amortized over at most a few thousand customers. No wonder airtime was so expensive. It had to be just to make the numbers work.

But eventually something happened. Capital costs fell, as they tend to do for any electronic devices that are produced in large numbers. Competitors appeared, driving down per-minute costs. Digital services and smart antennas allowed an order of magnitude increase in users per cell. And in response to these changes, the number of people using mobile phones exploded. Today, there are 140 million in the U.S. alone, spending an average of $44 per month.

All of which was wonderful news for the landline phone companies right up until the number of phone lines in America started to decrease after a century of growth. Three things led to this decline in total phone lines, which began around 2000: 1) DSL and cable modems led to fewer people ordering second phone lines just for dial-up web surfing, 2) e-mail and file attachments idled so many fax machines that people and businesses started to abandon dedicated fax lines, and 3) young people replaced their hard-wired phones with mobile models that reflected their nomadic lifestyles.

But if you owned a house, you still needed a regular phone line, right? Wrong.

I work at home, which sadly means I live at work. So at our house we have a four-line Panasonic cordless phone system. Line one is a regular analog phone line from BellSouth. Line three is a VoIP line running over a cable modem. Line four is a VoIP line running over a DSL modem. And line two, which I so cleverly skipped past, is connected to a CellSocket, a charging station into which is plugged a Verizon mobile phone. The CellSocket makes the mobile handset act just like a hard-wired phone, complete with dial tone. You can't tell the difference, except maybe the VoIP lines sound a little better.

At first, I put my mobile phone in the CellSocket, so I could get mobile calls at home. But now I just keep a spare phone there so we are never without a line two. The extra phone was free and the extra line costs $9.99 per month as part of my family package. That's less than half the cost of a spare hard-wired line and (probably because my kids are so small) we've never gone over our maximum monthly minutes.

There are several devices on the market like my CellSocket, which sells for less than $100. All the manufacturers seem to license technology from a company called Telular, which makes a much more expensive box that bolts to your wall and performs the same function albeit with an external antenna. If you live 100 miles from the nearest city and still want phone service, Telular is for you. But more significantly, Telular technology makes mobile phones a viable threat to fixed wired phone service. If I can get a wireless phone line for half the price, why should I even have a landline?

Why, indeed?

But that still leaves us needing a phone line for Internet access, right? Wrong.

Cable modems already provide clear competition for Ma Bell for both Internet access and VoIP phone service, but now there is another alternative: the Junxion Box. A Junxion box turns your cellular Internet connection into a WiFi network or an Ethernet socket.

The Junxion Box, which costs $599, comes from Junxion, Inc., a four-person Seattle startup. Google uses Junxion Boxes to put WiFi hotspots on its shuttle buses going between the East Bay and the San Francisco Peninsula in California. It works with Verizon, Sprint, and Cingular networks and -- with an EvDO card installed, for example -- can reach speeds over a megabit-per-second.

Of course, $599 is a lot of money but what did your first DSL modem cost? This, too, will come down.

Now imagine for a moment what life COULD be like without having a hardwired telephone or cable connection, just a Junxion Box and maybe a CellSocket. No, forget the CellSocket, we'll go with just the Junxion Box.

Unlimited cellular data service costs a pretty uniform $79.95 per month. If you are outside a big metro area, forget about getting real broadband for at least another couple of years. But if you are in New York, Boston, Washington DC, or many other big cities, this could work. For phone service, use a VoIP company like Vonage, Packet8, or dozens of others. For Internet service your mobile company is your ISP. Using the Junxion Box you can have either a wired or wireless LAN. And for video entertainment, there's always Bit Torrent, right?

Now take it a step further. Though the mobile data companies could try to put a stop to this activity based on bandwidth hogging, I think the competition of three to four companies in each market will eventually put a stop to that. Certainly, the bandwidth (or at least the bandwidth potential) is there. Here's word from a friend who has spent a lifetime as a network engineer for phone and cable companies: "If lots of folks switched over to mobile, the mobile networks couldn't handle it as they're currently spec'd. However, adding capacity is not a big deal either. So, I don't see it as an issue. It won't happen overnight and the wireless carriers can upgrade/add capacity as needed to meet their traffic engineering targets."

Yeah, but what about video? Well, Xvid files seem to run around 350 megabytes per hour for high definition content. At one megabit-per-second it would take 47 minutes to download that hour show.

The great advantage of wireless data, though, is that it can support very efficient multicasting. For only a very small part of the total bandwidth budget, a data cell could offer multicasts of everything you can currently find on cable TV. Now throw-in Digital Fountain support, and anyone who tuned-in anytime during the hour could not only get the parts of the show yet to come, they could also get the parts of the show that have already been aired. Weird, eh?

This of course creates huge business issues for the mobile phone companies and for their parents, which are typically old-time phone companies. The parent companies don't want to lose hard-wired customers, but they like gaining mobile customers. They function in a competitive marketplace where they'd love to steal customers from cable companies. Despite the ownership issues, this all comes down pretty much in favor of wireless.

A national wireless company like Verizon or Sprint cares much more about stealing customers from the much larger part of the country where they DON'T provide wired phone service than for the smaller part of the country where they do. There are generally partners, too, that don't care about such competition issues (Vodaphone in the case of Verizon) and the companies by law have completely separate operations up through the P&L. Generally, the only employee the wired and wireless companies have in common is the CEO, and he's typically fixated solely on which golden parachute is bigger.

We are entering an interesting period. Cellular data is going to eventually play a huge role along with the WiMax services that I expect to be dominated by Nextel and Sprint. The result will be more bad news for the old phone companies (except for their investments) and potentially even bad news for some cable companies. But for the girls next door and you and me, the best days of Internet service are yet to come.

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