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Cell Service Providers Get A Wake-Up Call From Business Users

Cell network operators, used to exercising strict control over phone features, are under pressure to change.

Cellular service providers rule their networks with iron fists, an ongoing source of frustration to millions of their customers. Disabled cell phone features, locked phones that work only on one network, a "walled garden" where Web access is controlled by the carrier--some call it cell phone tyranny. But change is in the airwaves, driven in part by business adoption of smartphones, where this play-by-our-rules approach won't be accepted.

By some estimates, nine in 10 cell phones in the United States are sold by carriers, nearly reverse the ratio in other countries. Cellular carriers subsidize the price of phones, then use their dominant positions to impose multiyear contracts with hefty termination fees, offer roaming plans that are useless outside the United States, restrict Web-enabled phones to limited Internet access, and exclude handset features they deem threatening to their business models.

"We're locked in a system that enriches and empowers the service providers at the expense of consumers and equipment providers," argues Reed Hundt, former FCC chairman and now with startup Frontline Wireless, formed to build a wireless broadband network to challenge the incumbents.

Next month's launch of the Apple iPhone will be as notable for what's wrong with the cellular industry as for breakthrough smartphone design at a premium price. The iPhone will be sold exclusively by AT&T Mobility, formerly Cingular Wireless, and will work only on AT&T's network. Anyone wanting an iPhone and not already an AT&T customer will need to switch providers. And the iPhone will operate over AT&T's outdated GSM network, known as Edge, not over the carrier's faster 3G network.

chart: What's In The Way Of Wireless Innovation?
Yet the iPhone is poised to break through one technical barrier imposed by carriers on most phones--it will be capable of switching from cell mode to Wi-Fi when it detects a network hotspot. Wi-Fi--despite its wide availability and appeal--is impossible to access from most cell phones because carriers have been slow to support any wireless technology that competes with their own. For example, when Nokia released the E61 smartphone in Europe last year, Wi-Fi support came built in. But when Cingular introduced the same phone in the United States last fall, Wi-Fi support was missing.

Voice over IP is another network service cell carriers have been slow to support but IT departments want. Ben Holder, CIO of Unifi, a yarn manufacturer, says his company's BlackBerry users would benefit "a lot" from both Wi-Fi and VoIP if only they could get it. "Business users are now behaving more like consumers," Holder says. "They want more of the same features and functions as consumers."

Carriers influence the capabilities of cell phones and smartphones by getting involved in the design process. Among the features they have sway over besides Wi-Fi: Bluetooth, GPS, file sharing, and e-mail clients. "The carriers want to be the gatekeepers for everything in the wireless industry, from application design to the handset," says Tim Wu, a professor at Columbia University School of Law and author of a recent report that scrutinizes cell carrier practices. Wu charges carriers with crippling, blocking, and modifying certain features, and he argues they make it tough on developers who want to write applications for the devices that connect to their networks.

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Truphone, a provider of voice-over-IP software for cell phones, earlier this month said it would consider legal action against Vodafone, which doesn't provide service in the United States but is part owner of Verizon Wireless, because Vodafone won't support VoIP on devices connecting to its network. Likewise, France-based carrier Orange excludes VoIP and instant messaging from its service plans. Neither Vodafone nor Orange returned calls seeking comment.

Cell carriers could face a backlash as more customers demand dual-mode devices and mobile VoIP. "It's going to get harder and harder to hold back a technology that people want," says Truphone CEO James Tagg. "The mobile VoIP genie is very much out of the bottle."

Cell carriers deny that they intentionally block features customer want and say that, in the interests of reliability and security, their networks can't be opened to every feature that comes along. AT&T doesn't disable cell phone features, though it may exclude features that customers don't require, says a spokesman. Sprint requires a clear business case and customer demand to include specific features, says a spokeswoman.

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