Chicago (IL) - I was astounded when the cellular carriers sent Dell's prototype "iPhone-killer" back to the drawing board. I do get it though ... carriers need differentiating products in a crowded market. Still, shouldn't the handset makers be designing the handsets and not the other way around? I mean, so long as the device works, what do the carriers care? Isn't there a chocolate and vanilla option for this very reason?


Instead of being an intelligent interplay of device makers and service providers, the cellphone market is constantly revolving around carriers. While Apple (and only Apple) has had some success re-writing these "rules of the business", even Apple's had to bend now and then to accept subsidies and obligatory service contracts in order to expand the iPhone 3G into 80 countries. Still, this leaves a big question: If Apple didn't succeed in changing how the cellphone market operates, can anyone put an end to carriers' stranglehold business practices?

Contrary to what the carriers would have you believe, it is they (not the cellphone makers) designing handset features. As a result, buying the smartphone you want often forces you to switch to a specific network and sign pricey service contracts. And only iPhone differentiated itself from day one in a big enough way to justify making the switch for many.

While Apple's early dealings with AT&T broke the industry's outdated business conceptions, a quick reality check paints not so rosy a picture. For example, carriers still have the power to reject Dell's phone, and non-AT&T users still can't get the iPhone 3G in a no-commit form. It's either their way or the highway, and given people's desire to have things ... they've got us.

Carriers control retail points and networks

It's hard to see the light at the end of a long tunnel when carriers control both retails points and networks, essentially reducing the handset makers to dumb contract manufacturers saying, "Yes, sir. Yes, sir." And you really can't blame the phone makers either for complying because otherwise their phones would never reach the market. While some phone makers have their own brick-and-mortar stores, the vast majority of cellphones in the U.S. are still sold by carriers, locked into each network.

Owning the networks and having the unique ability to recoup upfront subsidies through contractual monthly service fees have enabled carriers to control the entire market from top to bottom -- all the time. And it's because of subsidies that we can get a high-end smartphone (like RIM's Blackberry Storm, Apple's iPhone or Google's Android G1) for $199 with mid- and low-range handsets usually selling for $99 or less, or even being given away free of charge -- provided we agree to a pricey 2-year service contract.

I wouldn't complain on this subject had carriers provided both subsidized and no-commit options for all phones they're offering. That would seem to be a fair consumer proposal, but it seems the carriers aren't interested in being fair ... just in making money.

CARRIERS CONTROL RETAIL POINTS AND NETWORKS
It's hard for phone makers not to bend to carriers' whim because carriers own cellphone networks and brick-and-mortar stores where phones are sold.

Read on the next page:  Apple vs carriers, no-commit iPhone on March 26, Conclusion