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Slow but steady: How the iPhone is changing the phone industry

Dan Moren | March 11, 2013
Every time Apple enters—or seems to even think about entering—another market, we’re barraged with noise about how the company should, or must, or can’t reinvent this industry. Why all the attention? Because Apple has a remarkable track record of having reinvented industries before, and the reward for a job well done is—surprise—another job.

Suddenly, there are dozens of popular messaging apps looking to supplant the text message. Even the platform makers themselves have waded in, with the likes of iMessage and Google Voice, which provide traditional text messaging features but use the pipes of the phones data network instead of the voice network.

And as entrenched as text messages might be, theres already been a dent: At the beginning of 2012, text messaging was down globally, but still growingalbeit at a slower ratein the U.S. Before the end of the same year, text messaging had started to decline in the U.S..

Its no wonder that the carriers moved to preempt this by streamlining the text messaging packages they offered, as AT&T did in 2011its about bringing in as much money as possible before that revenue stream dries up completely (or, as they say in business lingo, managing for profit). And while the text message remains the lowest common denominator of phone-to-phone communication, its long-term prospects position it somewhere north of the fax machine.

Switcheroo

Historically, the power has been firmly in the hands of the carriers: They dictated which phones a customer could buy, which ones would work on their network. As a result, the phones themselves had become largely commoditized, and with a captive customer-base the cell phone networks themselves had very little reason to improve what they were doing.

There was a decided lack of counterweight to the carriers influencephone manufacturers had a limited number of venues for their product, and, due to contracts and locked phones, it was an uphill slog for consumers to put ones money where ones mouth was by switching carriers.

So what happened?

Despite former Palm CEO Ed Colligans infamous insistence that the PC guys are not going to just figure this out, thats exactly what ended up happening. The smartphone revolution didnt come from Motorola, or Sony Ericsson, or Nokia, or even Palm itselfit came from Apple and Google. They made devices that attracted the consumer, and which werent simply interchangeable with the millions of other phones already out there.

And so the balance of power has begun to shift in favor of the companies making the actual phones. While some customers will undoubtedly continue to make their purchasing decisions based on the service available in their area and the quality thereof, many parts of the country are saturated in wireless offerings; in those places, which include many of the most profitable, concentrated markets, the game is now about which device the consumer wants.

Its possible that the carriers may try to curb the influence of the manufacturersthats ever the case with middlemen who have grown used to their comfortable position. But in doing so, the wireless providers now actually run signficant risks.

 

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