• Tech

The iPhone Dials Up the Competition

3 minute read
Jeremy Caplan

Poor Harry Potter. As he prepares for his swan song, it’s the iPhone’s wizardry–not his–that’s stirring up the fevered anticipation usually reserved for a summer blockbuster. Nineteen million Americans say they want the hyper-hip gizmo sight unseen, reports research firm M:Metrics. And that collective clamor is not just about branded bling. It’s about a widespread yearning for a better phone, a cooler calling tool that always works, that is easy to use, fun to play with and comes in a stylish, sexy shell.

In Apple’s shadow, a slew of mobile upstarts is quietly rethinking what phones can do, making them operate a little better for the millions of Americans who will still be non-iPhoners after Apple launches its latest gizmo on June 29. GrandCentral, for instance, consolidates all your phone numbers and personalizes the device you already have. EQO circumvents the carriers’ steep rates for international calls. Spinvox and SimulScribe turn your voice mail into text. And TellMe lets you operate your phone with your voice, promising an end run around those confusing option menus. “Features have never been the carriers’ strong suit,” says GrandCentral CEO Craig Walker. “They’re few, expensive and never work the same from one carrier to the next.”

Until recently, carriers have had little incentive to improve the software that runs on their phones. Like network TV in the 1980s, the U.S. mobile-phone system is dominated by a handful of established giants: Verizon, Sprint, AT&T and T-Mobile control nearly 90% of the market. They have used that power to maintain tight control over their networks. In this so-called walled garden, when you sign up to use a carrier, you can use only the services they want you to use. Imagine if Seinfeld were available only on RCA televisions. Or if your broadband service let you use Hotmail but not Gmail. That’s not far from the state of the mobile-phone system today. The carriers rule.

That was O.K. when most consumers just wanted to make a call. But today Americans are trying everything from video messaging and mobile blogging to photo sharing and customized ringtones. One ringtone alone, “Crazy Frog,” has earned more than $70 million. Data demand increased about 68% last year, and it now constitutes 16% of the carriers’ revenue. To guard that growing income stream, the carriers restrict the features available on your phone. They control the billing for add-ons, and most companies selling ringtones and games are so new that they need the carriers’ help to gain a foothold.

But this new wave of mobile start-ups is finding ways to release consumers from the carriers’ grip–by using the Web to get around carrier control and by training users to switch carriers for better add-ons. Other new services, though, still rely on the carriers because they are installed on phones or piggyback on the carriers’ networks.

The big mobile-phone companies insist they have been responsive to consumer demands. They have bolstered their networks for better coverage, improved call quality by searching for and fixing dead spots, and made it easier to download ringtones and other add-ons. “There has probably been more change in the way phones operate in the past three years than in the 10 years prior,” says Carlton Hill, a vice president at AT&T.

They may be forced to change even more. If the army of innovators, led by the iPhone, can build on their promise, the carriers will face stiffening competition and pressure to offer similar or better services. Lumbering giants, after all, have the furthest to fall. *

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