Back in the first article of this series I described how the demarcation point between you and the telco has had large consequences for the shift in power away from the telco. Consumers benefited when an industry was built up around providing innovative (and not so innovative) products and services to them once the telco was kicked out of the home. That was for legacy telephone service provided over copper loops. Now we come to wireless where many of the same battles are being re-fought.
About 2 out of 3 Canadians have a cell phone. In some parts of the world the proportion is much higher, and in a few places cell phones outnumber people. Yet for all this phenomenal success the industry is relatively new, having only achieved notable commercial stature about 25 years ago. This industry was not instigated by telcos, instead being driven by entrepreneurs. The telephone companies saw little need to lead the charge since there was little utility in the new service, being expensive and perhaps only of interest to a niche market. When it did gather significant momentum and they saw that cellular service would certainly grow to challenge their monopoly on telephony, they swooped in and bought out the entrepreneurs. These transactions benefited everyone, including consumers, either by making them rich or providing other benefits. This was mostly a US story since in most other countries, notably in Europe, it was the traditional telco that typically introduced cell phone service.
In those early days the phones were analogue and, while sophisticated for the time, were unintelligent devices; it was still difficult to get computer hardware and software into those tiny devices, and in any case they would have had little to work with since there was no general-use data channel. That only became generally available a little over a decade ago.
Standards were still unstable so we also had the situation where the mobile service provider had to also control the phones that could use its network. In important respects the environment was very similar to wired telephony back in the 1950s and 1960s, pre-Carterphone. There was no demarcation point; the mobile phone provider owned the whole shot, even your phone, regardless of whether you leased or purchased it. The phone was nominally untethered by the fact it was wireless, yet the tendrils of control were so strong you could almost see the wires trailing on the ground behind you as you moved about.
Cell phone technology has evolved. Pick up your phone and see if you can find a demarcation point. It should be clear that it isn't outside the phone since that is all owned by the network operator, including the spectrum, towers and switching equipment. Do you own the phone? You did purchase it, so in one sense you do. To use a weak analogy, let's compare this to software. You do not truly own the Windows software on your computer; it is owned by Microsoft. You are licensed to use it within certain limits they define, often called RTU - Right To Use - in the business. Similarly, while you own your phone, your use of it is limited. Sure you can throw it out the window or stomp on it if you please, but when it comes to actually using it, you find that the operator controls the phone.
The phone is tied to the network and uniquely identifies you and your service contract. This is accomplished by hard-coded data within the phone. It is possible to break this lock with some expense or with time and ingenuity. This is less necessary now since, depending on the technology in use, many phone have the network codes on a separable device - the SIM card. This means you have more control over the phone you purchased, except for when you want to use an operator's over-the-air voice and data services. That is generally considered a reasonable compromise. You could say that the demarcation point is in the socket on the phone into which the SIM card is inserted.
The SIM card came about largely as a result of government action in Europe. There was always something functionally similar inside the phone, but regulations caused it to be exposed to subscriber control. It existed because phone manufacturers, including companies like Nokia, Samsung, Motorola and others, sell their products to many operators with unique requirements on how the phones need to be controlled. Good engineering and cost management dictated that the customization should be constrained to as few components in the phone as possible.
We should not skip over the business reasons why the wireless operator feels compelled to control the cell phone. They typically offer it as a loss leader packaged in with a service contract. Marketing departments know that consumers are put off by a high initial price. So they lower the up-front price by selling the phone to you well below cost, sometimes for free, knowing that they'll capture the revenue during the contract life. Simple arithmetic dictates that the charges for service are well above cost. If we paid full price for the phone and paid a lower monthly rate, in the end the total expenditure would be about the same. It's just marketing. Except that once they have you, you keep paying every month, usually even past the original contract term. They like that, and they use various techniques to dissuade you from switching, some of which can be of questionable ethics.
Coming back to the phone, we have a clear demarcation point on the modern cell phone, or at least most of them. Yet we still do need to connect to a wireless operator's network to get to use the phone. In the early days this wasn't too controversial since all you did was make and receive phone calls: a phone was just a phone. That is no longer the case. Now we have smart phones. These are exemplified by Apple's iPhone which is a leader in this rapidly-growing market segment. In time we can expect that all cell phones will be smart phones, exploiting the data connections they employ and the increasing internal capability to support a wide-range of software applications.
In my next article I'll take on smart phones, from their first appearance to their probable future, continuing my focus on how the telephone companies continue to control the phone.
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