Why does my mobile phone suck so much? (Part 1)

posted 25 February 2008, updated 03 March 2008

You never meet anybody who's happy with their mobile phone service, in the same way that you don't meet people who are ecstatic about their electricity company or their water company. But, unlike those other two utilities, you do meet people -- lots of people -- who are actively annoyed with their service. Why is that? Why do our phones have stupid things we don't want and lack the things that we do, like, say, fast and cheap data, and cheap calls? And why, oh why, is this particularly true in the USA, the country that invented the mobile phone*? By all rights the USA should be years ahead of the rest of the world. But instead the market is led by companies from Asia and Europe.

The answer lies in economics, and how it applies to recent technological history, with a nod to geography.

The USA is a gigantic, empty country, simultaneously much bigger and significantly less crowded -- 30 people per square kilometre versus Europe's 70 -- with half the population, mitigated but not completely eliminated by the concentration of population at the coasts. Lower population density is murder for the cellular phone, and the clue is in the name: each hexagonal "cell" requires physical transmitter/receiver stations, and placing, maintaining and upgrading cell towers is one of the primary source of overhead for mobile networks. The more people inside each cell, the more revenue they make per tower, so the better their profits. Thus the mobile phone business is -- and barring a drastic change in technology, always will be -- much more profitable in Europe than it is in the USA. It's even more profitable in Japan, with its whopping 337 people per square kilometre, which explain why that country has long been notorious for being five years ahead of the rest of the world in cellphones. These people make more money, so they have more money to invest in R&D and new network technology.

To that overarching economic problem, add a first-mover disadvantage. The USA was the first country to deploy cellular phone networks. Their solutions were first-pass solutions: functional, but no match for later advancements in technology. The problem is that once you've thrown up a cell tower -- and the US did so enthusiastically all through the 80s, going from 200k users to 1.6m from 1985-1988 -- replacing it is more expensive than building a new one. And the more towers you throw up that are built on analog mobile technology (known as AMPS), the more expensive it becomes to switch to anything else. We've come a long way, baby

The Europeans, meanwhile, threw up a total of nine different analog networks in the mid 80s, on a regional basis. This meant that unlike the US, where your phone worked (expensively) anywhere, your phone didn't work when you went abroad. This limited the popularity of these networks, and so necessity was the mother of GSM, the digital, pan-European standard for mobile phones that is now the de facto global standard, the result of all that extra money the Europeans had to throw into R&D. Being a European project, they started designing it in 1982 but didn't finish until 1991. However, once they finally got going, their networks were faster, more efficient, and had more features -- like SMS, a throwaway feature that was to become a game-changer in the industry. Meanwhile, American carriers were stuck with lower margins, and higher overheads, and they passed these costs on to consumers.**

By the middle of the 1990s, continued growth in the US mobile market meant that AMPS began to run out of capacity, so carriers finally had to bite the bullet and switch to digital. However, unlike the Europeans, who ditched their old networks without a thought, the Americans had to deal with millions of existing AMPS customers. So the standards they adopted were weird analog-digital hybrids, with names like IS-54, IS-95 and IS-136 (and still without text messages). These helped but did not solve their capacity problems, and as GSM technology got cheaper and better, they finally started switching to GSM.

Unfortunately, the GSM they brought over wasn't exactly European GSM, which operates in the 900Mhz band. Because that frequency was already too crowded, American GSM, sometimes known as PCS1900, operates at 1900Mhz. This higher frequency requires more power to reach the same area, which means (because there's a limit to how powerful you want the signal your telephone is emitting to be) that each tower covers a smaller area. In fact, American GSM requires twice as many base stations to cover the same area: twice as many stations to cover areas with half the population density is once again bad news for the economics of being an American mobile carrier. To try and escape these dreadful economics, US carriers skimp on tower placements: this leaves low-signal holes and gaps in coverage, unheard of in Europe, as a standard, intentional feature of American cellular phone technology.

Yuck! But the pain doesn't end there. Because GSM was adopted much later in the US than everywhere else, even when American phones had gone digital (the IS-* standards) for more capacity, they lacked what turned out to be the killer feature of GSM: text messaging.

In both Europe and America, once near-total coverage had been reached (with the Americans accepting a less-total definition of "total") the carriers began to compete on price. Specifically, they did it by keeping their prices per-customer the same, but upping the number of minutes you got for that price, and throwing in free phones. This produced on both continents an almighty price war, to the point that they had to lock you into 12-month contracts if they were to make any money off of you at all.

In Europe, however, the carriers had an unlikely savior: SMS. Originally intended as a means for carriers to send messages to users, Nokia developed the ability for users to send short messages to each other in 1993. From the perspective of a carrier, SMS messages are amazing. They are, data-wise, extremely small and efficient, utilizing almost no network resources, unlike voice calls, which are big and heavy. As such, and more importantly, they are hugely profitable, with something like 90% profit margins. Even more importantly, thanks to the law of small numbers and the inherent efficiency of text over voice, they appear to be cheaper. For the consumer, the equation goes: it cost 10p, but so what? A call to say the same thing would have cost 15p: SMS is more efficient for users. But for carriers, the call is 1p in profit -- but the SMS is 9p. By the late 90s, European carriers were deriving most of their profits from SMS (this is less far-fetched than you'd think: in 2006, the global industry of text messages -- just text messages -- was worth 80 billion dollars).

For the US carriers: sorry, no such luck. Only GSM could do text messages at first (although it was later retrofitted into the other standards), and since most people were still clinging to their AMPS phones (because the call quality was better, amongst other reasons), not very many Americans could send text messages until the early 21st century, and even once they could, it was slow to take off. It has been suggested, uncharitably, that this is because Americans are loud, rude bastards who love to hear the sound of their own voices and don't care if their conversations interrupt the lives of those around them or, indeed, the lives of those who they call. I couldn't possibly comment on that theory, but the end result was that US carriers had shot themselves in the foot, offering thousands of free minutes with no way to replace the revenue they lost, thus squeezing their margins even further and cutting back on network quality yet again.

Wow! So no wonder the US blows so much for cellphone coverage. But what about Europe, huh? Why isn't Europe the wonderland of phone technology and cheap calls? We'll get to that in part 2, possibly tomorrow.

* Cellular phone technology was developed by AT&T in the US, and there were car phones in New York in 1954. However, the first successful commercial networks were in Sweden and Finland. Also, Nokia is named after a small furry mammal that looks like a cross between a ferret and a fox. This isn't relevant, but it turned up when I was doing my research and I think it's hilarious, so here ya go.

** The Japanese didn't get around to deregulating their telephony market until 1994, so they had another 3 years' head-start on everybody else once they got going.

Update: Part 2 is now up.

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