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.
But T-Mobile and AT&T have chosen to follow the industry practice of locking their U.S.-distributed phones, says an executive with a handset manufacturer who declined to be identified. So while in theory anyone can buy a GSM phone and a SIM card and get service from any GSM provider, in practice the number of U.S. users willing to go to such lengths is probably less than 1%.

It's a balancing act, says RIM CEO Balsillie -- Photo by Mark Lennihan/AP

It's a balancing act, says RIM CEO Balsillie

Photo by Mark Lennihan/AP
Smartphone manufacturers walk a fine line between feature-craving end users and the cell carriers that distribute their products. "We only have a certain amount of capacity to execute [customer desires] like providing 3G support with every protocol across the world in every band," says Jim Balsillie, CEO of BlackBerry maker Research In Motion. "We're always balancing those things: the capacity to deliver, the strong voice that you're dealing with, how much distinctive strategy the carrier has, and what's going to fit in the market."

Motorola CEO Ed Zander apparently reached his breaking point over the way cell carriers control the distribution and price of cell phones. "I hate my customers," Zander recently huffed in reference to the carriers, according to The Wall Street Journal.

Still, most handset makers are reluctant to publicly criticize the carriers, and, in fact, they fare well in the current system, particularly since most tech-support calls go to the carriers, not to them.

When it comes to excluding features, handset vendors describe it as more of a cooperative relationship: "If I'm trying to sell to the carriers, they are my customers. I have to offer a product they're willing to buy," says Muzibul Khan, VP of production management and engineering with Samsung.

Carriers are known to wield their clout. Verizon Wireless disabled the Wi-Fi voice function on the Samsung i730 phone when it launched in the United States, according to one source. A Verizon spokesman explains the carrier doesn't consider Wi-Fi reliable for voice communications.

Getting dropped from a carrier's product line can be death for new handset models, says Miro Kazakoff, an analyst with market research firm Compete. For handset makers, the risk of challenging the status quo "is so much greater than the reward," Kazakoff says.

Nokia, for one, is looking for a way out of this vise. The cell phone maker has begun opening "flagship stores," where it sells unlocked mobile devices ranging from full-featured business smartphones to consumer cell phones. The first two, in Chicago and New York, opened last year, and Nokia plans to open additional stores around the world.

The company wouldn't comment on what goes on behind closed doors in its discussions with carriers, but it provided the following statement: "By bringing global Nokia devices to our flagship stores, online channels, and to independent retail, Nokia strives to complement the volume strategy of the carriers, while at the same time satisfy a real and existing demand from the early adopters."

So customers willing to buck the system--and forgo carrier subsidies and support--can get an unlocked phone today. The carriers are still betting that most U.S. consumers, who couldn't tell GPRS from WCDMA if their lives depended on it, won't bother.

But business buyers are far more sophisticated, and cellular carriers won't be able to stand in the way of their progress. Carriers may be able to control the phones--but not their customers.

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