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Friday, October 14, 2011

Escaping from the walled garden

A few years ago it appeared that AT&T and Verizon Wireless were creating a "walled garden" in which one carrier or the other -- nevermind Sprint -- would control your choice of smartphone, all the applications that run on your smartphones, and all the available content such as TV shows and movies that you could access through those smartphones. Welcome to a duopolistic Nineteen Eighty-Four.

Thankfully, Apple's rollout of the iPhone utterly destroyed the garden walls that AT&T and Verizon Wireless were trying to build. The power to structure the wireless ecosystem now lies in Apple, Amazon, Google, and other players on the edge of the wireless network. This is a good thing, just as Skype and Vonage largely destroyed the garden walls of the wireline network. The legacy of Steve Jobs notwithstanding, I'm not sure that I entirely trust Apple, but better Apple than AT&T. Of course, AT&T and Verizon Wireless aren't enthusiastic about being providers of only low-margin pipes. That's why they wanted a walled garden from the outset. They may try to rebuild the walls of the garden by bringing their own smartphones to market, perhaps through an acquisition of RIM. I doubt it will work.

Now we see cracks in the long-standing walled garden of the cable TV operators, too. Because so many people are watching Hulu and Netflix over the Internet -- what's called "over the top" video -- cable TV operators have seen their revenues from video-on-demand disappear almost entirely and their subscriptions to premium services like HBO enter a decline. This will eventually cause a re-think of what cable TV service is, or should be, and the technology to deliver it will change too. I expect that ten or fifteen years from now, possibly sooner, only the local broadcast stations plus a few public service feeds will remain available on analog cable channels. Everything else, including mainstays like ESPN and CNN, will migrate to digital cable exclusively. Pricing will get a complete redesign as well, possibly a full unbundling.