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Driving on the right-hand side in a left-hand wireless world.

In Picking Winners, Mark Goldberg makes the case that governments shouldn't intervene in picking standards for technologies.  He cites beta vs VHS, Windows vs Linux, IM services and social networks, as some of his examples.   In large part I agree with him, but let's dissect each of these in a little more detail, because they are each different in important ways. 

In the case of beta vs VHS, market conditions decided the winner.  Sony tried to monopolize the market for home recordings by creating a higher quality recording solution, and consumers flocked to the variety of video devices, choice of manufacturer, longer recording times, and lower prices of Matsushita's competing VHS standard.  Matsushita was smart and played the horizontal licensing game to Sony's vertically integrated proprietary stack, niching Sony's beta as a professional recording solution only.  Consumer choice was well served here.

In Windows vs. Linux, competition is made possible because the underlying technology stack — the PC — is a commodity built from a public specification.  Moreover, the application specification is also publicly available, allowing anyone to build applications for these platforms. The historic anti-trust decision which required manufacturers to not build the Windows royalty into the PC if the customer didn't want Windows, paved the way for competition to emerge on an equal footing. Consumer choice is also well served here.

The world of IM services is sadly not one that we should hold up as an example.  At the moment we have five mostly closed and mostly not interoperable platforms.  Granted, there has been some movement as Yahoo and Microsoft have agreed to interoperate, but it still boils down to consumers choosing to either install all the IM clients, or deciding which of their friends and associates to not communicate with using IM.  Consumer choice is poorly served. 

Social networks are similar phenomena to IM networks.  Despite the emergence of standards like FOAF, it is not possible at this time to easily move from one social network to another.  With the notable exception of Facebook, it's also not possible to easily build applications for the network. 

So what does this have to do with wireless networks?  We can generally say that in technology products built from components where some degree of horizontal commoditization has occurred, whether through market forces or by fiat, there exist opportunities for businesses to prosper serving segments and niches of the market.  In technology products that don't have that horizontal commoditization, these opportunities don't exist.  The Canadian wireless network is, today, three vertically integrated networks built on two incompatible technologies.  Moreover, a unified standard is unlikely to emerge because the three players in that space like the lock-in provided by the incompatible technologies.  It makes it incredibly difficult for applications providers to do business here, and limits the choices the consumer has rather dramatically.

Let's take another example: cameras.  I own Nikon gear, and have done so for nearly 25 years.  It's the product of a decision my wife made in 1984 (buying a Nikon film camera), and an accumulation of expensive accessories (mostly lenses)  that are incompatible with any other camera manufacturers products.  When we bought the D50 last summer, no other manufacturer was really a consideration.  We're locked in.  No choice here.

How about a more universal example: power.  At the turn of the 19th century, Edison lost the fight with Tesla over direct current versus alternating, but then the governments of the world implemented competing national standards everywhere. What would the world be like if there was a single unified power standard (let's say 220V AC), and one plug standard?  Electronics products wouldn't all have converting power supplies, which convert the power from one standard to another at the edge of the grid, and the business of providing those endless cases of adaptors for travellers would cease to exist.  We would be able to move anywhere in the world without having to buy new appliances at the destination.  And consumers would be served with lower cost products that didn't require converting power supplies and and the confusion of multiple plug ends.

Power is a commodity, and it's a mostly open commodity due to the ubiquity of conversion technologies.

The wireless infrastructure is also a commodity.  The Europeans got it right when they recognized this and mandated GSM over CDMA.  One or the other didn't really matter, by the way.    There are technical differences between GSM and CDMA, but at the end of the day nobody except industry people and operators care. What was important was standardization because it allows the ecosystem around the rest of the technology stack to flourish.  By choosing not to choose, however, regulators have allowed an artificial lock-in to occur built around networking technologies. The absurdity of the latest round of telephones with CDMA built in for North America, and GSM for the rest of the world illustrates this problem very neatly.  Two standards, two sets of royalties, and lord knows how many radios results in a limited choice of handsets, and more expense for the consumer.   It's as if we allowed right-hand and left-hand drive cars in North America, built separate highways for each and invited the road operators and auto manufacturers to compete. Then, because some people's houses and businesses are on one road/auto standard and others on another, the industry decided to build cars with two steering wheels that can drive on either road standard.

Consumers are best served when commodities are delivered in standard ways. And because monopolies tend to act in the best interests of shareholders rather than consumers I would argue, in disagreement with my friend Mark, that when the market reaches a point where competition is not being served, standards should be dictated. 

{ 8 comments… add one }

  • Mark Goldberg August 14, 2007, 9:31 am

    I agree with your conclusion completely.

    By the way, corporations, not just monopolies, don’t just TEND to act in the best interests of shareholders – they should ALWAYS act in the best interests of shareholders – it is their duty to do so.

    Fortunately, acting in the interests of client satisfaction is good for business and therefore the behaviour coincides with both shareholder and consumer interests.

    Utility monopolies get regulated to safeguard consumer interests.

    Our only point of discord may be in defining that “point where competition is not being served.” At what point does regulation get in the way?

  • Jason Yeung August 14, 2007, 9:40 am

    Agreed. I’m currently in Hong Kong and the mobile operators over there haven’t failed to amaze me yet. I signed on to a plan from one of the operators that provide 500 minutes daytime and unlimited data for about the price of a cheap lunch at a fast food joint in Canada.

    – Jason

  • Alec August 14, 2007, 11:02 am

    You’re exactly right Mark. Corporations always act in the best interests of shareholders, and most of the time shareholder interests and consumer interests coincide. A monopoly simply distorts the gap between consumer and shareholder interests.

  • Brad Templeton August 14, 2007, 12:55 pm

    Your answer is only right if you accept the assumption that the government should sell monopoly rights to wireless spectrum, and that only a handful of companies can buy them. Compare instead to the formerly unwanted 2.4ghz spectrum, where we get a plethora of options, 802.11 in various forms, bluetooth, xbee, dect — let them fight it out and see who wins.

    Handset protocol is a silly thing to standardize on. It's provider contracts that lock us in, not handsets. There is a healthy market in handsets on ebay even with provider contract lock in!

    You aren't locked into nikon, again, thanks to the ebay market. You can sell all your nikon lenses and buy other used canon lenses at only a fairly minor loss. If it were a more common thing to do, you could probably find a service to swap them for you.

    To give you a counter example, SIP was languishing and Skype came along and ignored the standards and got an order of magnitude more people using VoIP and using it well.

  • Jason Yeung August 15, 2007, 6:31 am

    And also, in a country like Hong Kong, there exists CDMA SIM cards (R-UIM cards) which enable a user to switch to another CDMA carrier by swapping the card.

    It doesn't matter though, as pretty much no one uses CDMA over there – it's all GSM.

    – Jason

  • Alec August 15, 2007, 7:27 am

    I’m with you Brad on the notion that this is only required if you accept that governments should be selling monopolies on spectrum. As for handset protocols, at least in this country even if you had an open contract you wouldn’t have the option to take the handset you purchased with your own money to another carrier. Rogers is the only GSM carrier, and Bell and Telus only sell CDMA contracts which are locked to their networks. So far as I can tell there is no such thing, anywhere in the world, as an unlocked CDMA handset.

    And yes, you COULD sell your incompatible equipment on EBay. It’s kind of like saying that we’d all have a different kind of computer for connecting to different kinds of networks (say, Mac’s for AOL, Windows for Compuserve, and Linux for the Internet), and if you decided you wanted to be on a different network, you could just go exchange the computer for one that would work on the new network you wanted to be on.

    VoIP did languish – lousy sound, bad user experience. Along came Skype and fixed the issues with sound quality, ease of use, cost… boom! usage exploded. It was, and still is, hardly a mature market. Cellular phones, OTOH, are mature, and customers really do want the choices being denied in this market.

  • Jason Yeung August 15, 2007, 10:29 am

    Alec,

    There are so called “unlocked” CDMA phones, but it depends whether the carrier in question will accept th4 ESN number. I also have a Telus phone with two NAMs loaded – one for Telus service in Canada, and one for Page Plus (Verizon MVNO) for US. I can use the same phone and easily switch over to the other carrier.

    – Jason

  • Jim August 16, 2007, 11:54 am

    I think that "society" should be defined as the individual people of it and the good of society should therefore be defined as the good of the individual people in it. Certainly it can be argued that certain causes are not being served well by individual property rights, and if we allow those causes of the moment to be defined as the good of society, then we can run roughshod over individuals repeatedly, and in any way we like, coming up with new causes and new "goods of society" continually (over in Windsor today, peoples' homes were just taken by the government for a new border crossing. The people will basically be paid what the government says they will be paid, backed up by government police force. The people will have two years to "negotiate" a selling price for their property and homes — with government guns as the final argument — this is immoral!). But morality should be our first priority. We don't pollute other peoples' property here in the West, even though it might improve the economy, because it's just not the right thing to do. Similarly, we shouldn't use direct injury against individuals (defined as taking of property or threats or the use of physical coercive force), even if it might serve customers or consumers. Direct injury is still worse than companies, for example, changing their Java implementations so that programs running on other OSes won't run on their OSes, or giving away their browser for free in order to undercut the competition. We shouldn't be using direct injury to force a competitor out of the market when he is otherwise managing to remain in it; people are not for hurting. It's not right to run over peoples' bodies in search of a better tomorrow. People are an end in themselves, not the means to an end. This explains why, in the USA, which historically has a great libertarian background, the legal and governmental system tends not to dictate standards and choose who can or cannot buy and sell.
    The idea of libertarianism is consistent individual property rights, not the good of the economy. The direct good of identifiable individual people is the first priority, not abstract collectivism, not even in the name of the good of the economy, even though property rights in the free market has a net benefit to the economy, and is a huge selling point in favor of libertarianism; benefit to the economy is a selling point of libertarianism, not its definition.
    Initiation of direct injury against individuals should be considered to be immoral, and consistently prohibited. That principle should be the acid test given to all laws, policies, and actions, individual or collective.
    Please see
    http://www.geocities.com/forpropertyrights/index…. for this key principle,
    and http://saunderslog.com/2007/07/30/small-l-liberta… (previously)

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