by the people
may 28, 2008
By Tom Wheeler
History tells us that change seldom comes from the establishment; rather it is others who conceive and create what those in control cannot envision. In its early days the wireless business was a proof point in this history lesson. It was outsiders (including outsiders within LECs) that championed the new mobile networks. Today the most fascinating aspect of wireless is how outsiders are using the mobile network for purposes never envisioned by those who built the network.
The classic example of outsiders redefining wireless is text messaging. The GSM standard incorporated short message capability so that small pieces of information could be sent between network engineers. It was such an obtuse capability with such small anticipated throughput that it used the very constrained network control channel. Then in the late 1990s young Scandinavians discovered the capability. By 2000 nearly one billion annual text messages were being sent annually in Finland alone. Today it is carriers’ largest source of non-voice revenue.
I remember, shortly after a European trip that opened my eyes to this user-generated phenomenon, proposing to the major US wireless carriers an industry-run platform to facilitate intercarrier text traffic (unlike Europe’s single GSM standard the US market’s polyglot of standards, including one carrier’s WAP-based text service, required an intermediary for interconnection). The idea went over like a lead balloon. “When people discover they can only text their friends if they are on my network I’ll get new subscribers” was the refrain. The genie was out of the bottle, however. Users rather than carriers were driving the market. Soon there was interoperability.
This history came to mind as I attended the GSM Association’s Mobile Money Summit in Cairo recently. Once again change is coming from the outside in. This time the change has turned SMS into an ATM machine. Almost a quarter of a billion dollars is being transmitted via mobile devices annually. GSMA forecasts that this will top $1 trillion within five years. Who would have thought it; the wireless network being turned into a money transfer network? Mobile remittance is simply the marriage of SMS and prepaid top-ups. But the combination was discovered by mobile users, and carriers scrambled to catch up.
Since prepaid is the predominant form of mobile subscriptions elsewhere in the world, SMS-based top-up services are common. Such an ability to transfer minutes to a phone opened the door for a person in city A to top up and then forward those minutes to a friend in city B. What happened next, however, was so improbable it could only have come from outside: agents sprung up to turn those minutes into money. People without bank accounts simply invented their own ATMs using technology they already understood.
Now here’s what really gets interesting: when minutes are transferred and then exchanged for something of value, those minutes of airtime have become a fungible currency. It is not as strange as it seems, after all animal teeth and shells were once currency. Money is whatever we agree it is.
There are rumblings of other outside-driven innovations that will evolve from the “minute as money.” Far from being just the payment method for those with poor or bad credit, mobile pre-payment has opened a whole new market dynamic. Most services, from wired phones, to electricity, to water are post-paid. One of the reasons behind mobile’s growth, the new pay-as-you-go paradigm, can be applied in many areas. In the developing world, for instance, access to electricity and water is a major issue. Only a couple of years ago the US Treasury Secretary and rock star Bono toured Africa urging the drilling of wells to solve the water shortage. The issue, however, is not holes in the ground, one expert told me, but how to make water distribution economic in an environment where no one pays their water bills. Thus some are now asking why water or electricity couldn’t be a prepaid service where you can use it until your credit runs out and then it’s time to top-up again. Of course, that top-up would be done over the mobile network by transferring minutes.
The mobile network is the single largest and most ubiquitous distribution platform in the world. As such it has the potential to become a new financial engine when coupled with pay-as-you-go economics. It is not something anyone foresaw or planned, but, especially in developing countries, it holds the potential to be transformational precisely because it is a platform that allows innovators to build applications network operators never envisioned.
Tom Wheeler is a Managing Director at Core Capital Partners, a venture capital firm specializing in early stage technology-based companies. He has been CEO of both the Cellular Telecommunications & Internet Association (CTIA) and National Cable Television Association (NCTA).