If you think everything that could have been written about the iPhone already has been written, prepare to be surprised. One vital aspect of Apple’s strategy has been overlooked – with multi-billion consequences for complacent network operators.

Over at Telco 2.0, the blog of analysts STL Partners, we learn that networks who partner with Apple must install Apple gear at the data centre to support its services – specifically, the Push Notification service that wakes up the Jesus Phone. Forget the revenues from sales of extra server gear – the key point is that Apple now sits in the middle of the data stream, capturing the customer’s data. The analyst outfit describes the iPhone as a potential “poison” for the networks.

STL wrote this week:

“Apple can data mine the application message stream — and it’s been a telco’s dream for years to mediate such flows.”

Nokia sell two out of every five mobile phones in the world, and they’ve ruled the roost for a decade now. But they’ve failed to convert that market clout into mobile data revenue – for themselves, or the operators. When you discount application-specific services such as RIM’s Blackberry Connect and new music services such as Omnifone’s MusicStation, mobile data use is negligible.

Because the iPhone makes mobile browsing more of a pleasure than a pain, for the first time, this is changing. And because de facto standards are defined where the people are, this means Apple, not one of the traditional incumbents, could call the shots. Or as the STL boys put it:

“… it doesn’t take massive market share (stimulated by the new low price point) for the iPhone to de facto become the mobile web.”

So, sorry, Nokia and Microsoft – you may have turned out to be the Osborne and the Altair of the 21st Century.

And bang go the commercial prospects of turning the bitstream into money:

“You don’t have to be too bright to realise that one of the most likely things to be pushed to a phone in future is an advert, mediated again by Apple,” they add.

STL tempers this possibility with the very sensible point that the iPhone has may have limited it appeal. Apple has yet to prove it can break out of the niche in which it reigns supreme. Indeed the biggest threat to mass market adoption of the iPhone may yet be Apple itself, by refusing to add a numeric keyboard or hard-QWERTY keyboard. But if there’s growth at the high-end, it will reaped by Apple, with its superior, easier to use technology which is now sensibly priced.

Yet the mere prospect of Apple sitting in the middle of their network, capturing customer data must make a mobile operator’s blood run cold. They’re unlike to accept a cuckoo in the nest – but who can help them?

Alas, the operators’ strongest potential ally has decided to have a mid-life crisis. That’s Nokia, of course, which is in a stronger position than ever after acquiring most of Siemens’ COM division in 2006. Nokia can help with both back-end and devices, but it’s decided that it, too, wants to shaft the operators. It’s splurging on services such as music and maps that cut revenue opportunities for the networks.

As STL wrote last year in an excellent summary:

“The way Ovi has been positioned at its announcement could prove to be a mistake. It will confound Nokia’s efforts to address and bring to market answers the most important unmet user needs. Ovi annoys Nokia’s most important go-to-market partners for any new and better personal communications services.”

Just when you need a friend…

Europe’s most powerful quango, the European Commission, says it wants to accelerate a “single market” for online music, film, and games – and is threatening legislation to bring it about. Although the EU’s Telecoms commissioner Viviane Reding sees the market for digital entertainment quadrupling (to €8.3bn by 2010), she feels the bureaucrats need to get involved anyway.

In a statement issued yesterday, the EC identified four areas for action – with the most ominous being a good behaviour pledge for online service providers.
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Politicians long ago gave up on politics. Instead of articulating great ideas, the choice that faces voters today is between identikit managerial bureaucrats who’ve never had a job outside politics. Most of their adult lives have been spent in the hermetic world of wonkdom. So it’s little wonder, then, that they have trouble distinguishing between fiction and reality.

And it’s no surprise at all to hear that a virtual Presidential candidate is throwing his electrons behind a virtual cause, to repeal a virtual law that never existed.

What else would a cypher do?

Asked whether he’d “re-instate Net Neutrality” as “the Law of the Land”, trailing Presidential Candidate Barack Obama told an audience in Cedar Rapids, Iowa pledged that yes, he would.

He also said he’d protect Ewok villages everywhere, and hoped that Tony Soprano had survived the non-existent bloodbath at the conclusion of The Sopranos.

(So we made the last two up – but they wouldn’t have been any more silly than what the Presidential Candidate really said.)

There are several problems with Obama’s pledge.
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Business-wise, Skype is a basketcase. But that’s just one of the things that makes it one of the most emblematic companies of our time – a real, Ur-Web 2.0 company.

Like so many internet companies, Skype has millions and millions of users. Like these internet companies, too, it can’t make very much money off all these users. Hello, Facebook! And like these internet pin-ups, it owes a great deal to utopian power fantasies.

But what makes Skype so very of its time is the peculiar relationship it has with incumbent telecomms companies.

Think of Skype as a kind of parasitic virus that threatens to bring the host to its knees – but which can’t survive without a living host. Bloggers and mainstream newspapers are another good example.

How so?

Well, Skype has no network of its own – it’s simply an open protocol (SIP is more than one protocol, but bear with me) wrapped up in some proprietary bits. Apart from a few authentication servers, its only real asset is its “brand” – which isn’t the most concrete or tangible line item to have on your balance sheet.

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More dismal news for the US consumer. After the simultaneous failure of Municipal Wi-Fi projects in three major US cities – something we predicted four years ago – faster, cheaper mobile data looks further away than ever.

So why are Google lobbyists advocating for the next wave of collapsing wireless initiatives – rather than helping things?
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At times you can feel sorry for Nokia. The company is damned when it dares to plan for the future, and it’s damned if it doesn’t.

But that illustrates the depth of its dilemma. Today, Nokia is phenomenally successful in one business – handsets – which generates £27bn ($54bn) a year, with a margin of between 15 to 20 per cent.

However, Nokia relies on a small number of powerful customers as its route to market. This isn’t a problem for every business. If you sell fighter aircraft, you know who your handful of customers are, and can schmooze them directly. If you sell bangles from a market stall, you can choose which market you sell from. Nokia doesn’t have the luxury of either: its channel is its market.

And “getting from here to there” is the problem.

At great expense last week, Nokia began to imagine itself as a very different kind of company: a vertically integrated services business. Mobile users would flock to the company’s new portal, Ovi, for games, music, information and “social” interaction. You might call this a “post-operator” world, but it’s also a “post-Nokia” world, as it presumes that both data and devices are commoditised. It’s a Plan B.

However, the strategy takes today’s complex mobile data eco-system and promises to torch it. Today, there’s room for a Real Networks selling games or ringtones, for example, or an AQA providing an answers service. Nokia’s Ovi portal effectively declares war on all these smaller service providers. That can be considered bad manners (or a business necessity) – but it isn’t fatal to Nokia’s plans. It’s the biggest, would-be service companies who are the most threatened.
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While the CTIA Wireless jamboree took place in Florida this week, European telcos were drawn in a huddle in London at one of the most intriguing events of the telecoms calendar.

The theme at STL’s twice-yearly Telco 2.0 Brainstorm is familiar: “How to making money in an IP-based world”. But it has an added piquancy now.

And there’s plenty at stake. The part of AT&T formerly known as Cingular, the cellular division, makes more revenue than Google and Intel combined each quarter. But as with all mobile network operators, it’s been made from a large, vertically integrated operation, and a fiercely-protected, closed network. The rise of the Internet Protocol stack (IP) changes all that.

IP evangelists can be pretty scathing: IP will destroy the Soviet model; their “Net heads” will triumph over “Bell heads”. At stake, they say, is a battle which pits innovation versus atrophy. Unlike the open internet, telecomms provide a barrier to fledgling service providers or application developers. There’s no common API, and the service companies need to beg permission.

But there are other ways of looking at it.

Mobile telephony – at least in Europe and Asia – is the most successful application of technology since the combustion engine. It’s affordable to the poorest, but it feeds the id of the wealthiest fashion victims. Take up is almost 100 per cent – while internet adoption is stubbornly stalled at around 60 to 70 per cent of the Western population, and is seen as little more than a platform for games in much of the world. While mobile operators take a tax from almost all of us, very few of us (outside the US, at least) seem to resent this. And it’s perceived as reliable. Rich or poor, drunk or sober – when you push a button, the call gets through. When you send a message, you know it gets delivered. Imagine if that simplicity and efficiency was applied to your local tax rebate bureaucracy – or the financial services industry. And mobile telephony gets cheaper and better every year.

Yet this success story is under direct attack from a very American model of how business should work. This is a model which values abstractions over outcome.

To give you an example of what I mean, this week, I heard more than one person seriously endorse the idea that mobile phones should have two ‘send buttons’ (that’s the green button ‘call’ on every handset) so we could engage in “dynamic differential pricing”. This would delight American economists, but I found myself thinking how I could explain this innovation to a new user down the pub.
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My presentation to the Westminster eForum on Net Neutrality. I’ll turn this into an embeddable slide show eventually, honest.

For now, see The Register for transcript and slides.

The first significant Net Neutrality debate to take place in the UK was held today at Westminster. Chaired by former trade minister Alun Michael and the Conservative shadow trade minister Charles Hendry, the event attracted the chief Telecoms regulator and ministry policy chief, a clutch of industry representatives, and a sprinkling of members of both houses.

What emerged from the sessions is that ‘Neutrality’ is one of those incomprehensible American phenomenons, from which we’ve mercifully escaped. Your reporter was one of those invited to give a briefing – having reported on the issue from both sides of the pond – and said as much. But in the expectation that this would be the heretic view, rather than the near unanimous consensus opinion.

Summing up, Michael described the clamour for pre-emptive technical legislation as “extreme… unattractive and impractical”.

It was, he said, “an answer to problems we don’t have, using a philosophy we don’t share”.

That wasn’t the only surprise.

Google strop

Interestingly, the event was snubbed by Google, which in the USA has done so much to stoke the “Neutrality” crusade. Google has thrown lobbying money and muscle at Congress, but at Westminster, declined an invitation to speak. It sent a representative who told a fellow attendee that the panel was “biased”.

Stranger still, and this should cause conspiracy theorists some confusion – the Forum was sponsored by AT&T. That’s the AT&T that Neutralists insist doesn’t want to talk about its nefarious plans to sabotage the internet. Well, here it was. Maybe AT&T never had any intention of doing what the Neutralists claimed it wanted to do – and it was all a huge misdirection. But Occam’s Razor is never sufficient for conspiracy theorists, who simply create a new, and more elaborate narrative.

Overall, the debate was on another plane of technical and economic literacy to the hysteria served before Congress.

That doesn’t mean the UK regulator is oblivious to sensitivities. OFCOM regards the markets as essentially different. There’s more access competition here, and the UK doesn’t have such as ancient cruft as the US distinction between an information provider and a telephony provider. Greater competition means a regulator can do what a regular should do, believes OFCOM, and let the market sort it out.

OFCOM’s Douglas Scott reiterated that policy today. He said, however, he believed Neutrality wasn’t a US-only debate. Neutrality issues were being pushed up the agenda by the emergence of time-critical applications (such as video), and the ability of equipment vendors to deliver a smarter network. He then demolished most of the reasons why OFCOM needed to get involved.

In the USA, “all bits is equal” is a mainstream view, in Europe, it isn’t. The European framework permits ISP to prioritize packets by application, which the UK regulator regards as fine. A grey area, he suggested, was when an ISP offered MySpace a preferential Quality of Service deal, for a fee. Should the regulator constrain the fee?

Hand-off hands off

concerns about T-Mobile’s contract blocking VoIP calls last year. OFCOM was aware that rival network operators were striking deals with VoIP operators (3 UK now offers a packaging including Skype for £5 a month) and declined to intervene. T-Mobile has now responded with a VoIP tariff.

(It’s largely irrelevant, but still worth noting, that T-Mobile has yet to block a VoIP call made by your reporter, which suggests that while it wants to discourage VoIP calls it can’t afford to prevent them).

In that example, said Scott, OFCOM would probably have stepped in if all the operators were blocking VoIP.

Scott concluded by saying neutrality wasn’t an issue, so long as customers could migrate to an alternative provider quickly and easily.

Speaker after speaker described the difficulty of painting the phantom called Neutrality. Most characterized it as a US-centric debate. Most were wary of prescriptive regulation, which had to be technical by nature, when no harm had been caused and the problem couldn’t be described.

The Head of UK Telecoms Policy at the Department of Trade and Industry, Claire Hobson, said Neutrality was in danger of being an issue that’s “flogged to death”. She described the position as “relaxed but not comatose”, and reiterated Douglas Scott’s view that so long as people knew what deal they were getting, and could switch easily, “Neutrality” wasn’t an issue.

And Americans characterize Europeans as regulation-happy?

Networks need to get smarter, says PacketExchange’s Kieron O’Brien, in a sharp counterpoint to the “Net Neutrality” hysteria.

PacketExchange bypasses the congestion of the internet by offering its customers a private end-to-end network. Some of its customers, such as Nokia, Microsoft, and cable ISP Telewest (now owned by Virgin) aren’t so surprising. But last week it added social networking site Bebo to its client list.

But look at what Bebo does, O’Brien told us. You’ll see why it wanted to bypass the net too.

For most internet users at home uploads are far from optimal – and Bebo users like to upload stuff, like photos and clips. They’re very model “Web 2.0 citizens”, if you like.

Which is where it runs into today’s network – and trouble.

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