* Cell providers' data services are inadequate.
The surprisingly quick rise of “netbooks“, laptop-style PCs (usually with relatively low processing power) that rely on the Internet to access SaaS-based personal productivity applications, has also created an interesting issues for users: Notably how inadequate most cellular providers’ data services are. It is not that they are too slow (although they frequently are marginal when you move away from urban centers or fail to appease the gods of connectivity before accessing the aether) but rather the connections are artificially limited by the terms of service imposed by the cell providers.
Existing cellular service providers put a cap on data service bandwidth use (typically set at 5GB per month) and exceeding that cap either disables all communications or, much more usually, triggers charging that could be described as akin to highway robbery (Adam Savage, one of the hosts of The Discovery Channel’s “Mythbusters” show, was recently charged $11,000 by AT&T for wirelessly surfing the Web in Canada for a few hours!).
When it comes to wireless data use the key problem for the incumbent cellular service providers is that they have to support their “legacy” infrastructure. This means that they are, not surprisingly, disinterested in cannibalizing their own revenue base by allowing unlimited data use as well as the use of VoIP telephony (note that the iPhone now supports Skype but only over Wi-Fi connections not over the AT&T cellular network).
But here’s the interesting thing: All of the cellular carriers (who are also generically called mobile network operators [MNO]) have deals with mobile virtual network operators (MVNO) that buy and resell the MNO’s capacity. The most successful of these has been the Virgin Mobile in the U.K. in contrast to most other MVNOs which have not fared so well, for example Disney Mobile and Helio in the U.S. (even Virgin Mobile has had problems establishing a market in other countries).
A new company has entered this marketplace but with a notably different strategy to other players. ZER01 Mobile is creating a purely data-based network such that all telephony from handsets is VoIP-based which requires that there are no bandwidth use caps. Add to that a flat, all-you-can-eat price of $80 per month and it’s a unique proposition (at least, for now).
The way that ZER01 makes it possible and acceptable to the carriers they work with (the carriers have not been disclosed) is by having all data traffic from their customers routed out of the MNO’s networks to their own data and call routing network and providing their own support and billing services.
The ZER01 network requires smartphones to operate as the handset has to support a VoIP client. Through its affiliates the company currently offers only two cell phones: the HTC TyTN II which wholesales for $399 (about $430 retail) and the Pharos Traveler 127 for $499 (oddly, I just found this device available discounted to $373!). ZER01 promises a new, lower cost choice, a $150 Sony Ericson phone, will be available in about 30 days). They will also support “softphone” access from PCs and other smartphones, most notably “jail broken” iPhones, unlocked BlackBerrys, and Android-based phones will be supported.
Originally ZER01 intended to operate as an MVNO but they recently changed their business model to become a Mobile Virtual Network Enabler selling to both other MVNEs in vertical markets and MVNOs in general markets.
The ZER01 business strategy now supports four channels: a multilevel marketing channel (for which a fixed-price model is a great fit), a “Big Box” retailer channel (due to go live in the third quarter this year), a business-to-business channel (the vertical market component), and independent authorized resellers.
It is still early days for ZER01 so its sales effort is still ramping up but it is ambitious: They expect to attract some 2.5 million customers in their first year of operation.
What intrigues me about the ZER01 model is its implications for the netbook market in particular and the mobile Internet market in general. Take a completely digital service with unlimited wireless bandwidth use combined with flat pricing and you have what could be the biggest game changer we’ve seen. Suddenly all sorts of Web application become possible and mobile entertainment will explode (ZER01 has just signed a deal with Netmovies.com to provide unlimited downloading for movies, music, TV and other multimedia applications). ZER01 is definitely a company to watch.
