RealMoney Silver - What's Wrong With AT&T's Latest Wireless Idea

What's Wrong With AT&T's Latest Wireless Idea
By Cody Willard
RealMoney.com Contributor
7/31/2007 4:04 PM EDT

"I heard what you said -- the leaders are dead
They're robbing the skies -- I can hear the followers cry:
Ah, ooh, starlings in the slipstream."
-- Pavement (one of my fave indie bands)

I really don't get it. I don't understand why AT&T (T) , Verizon (VZ) and the other wireless carriers are plowing billions of dollars in capital expenditures into closed, proprietary content systems for their wireless networks.

The latest joke of a content venture for AT&T Wireless, which is teaming with eMusic to sell independent-label music directly over the wireless network, is about the lamest idea since J. Mascis first tried to release an album without his Dinosaur Jr. mates.

Somehow AT&T and eMusic decided it was worth the time, energy and marketing embarrassments -- er, expenses -- to roll out a system for AT&T subscribers like me to be able to purchase five songs at a time and download them over the AT&T network. In order to entice the target market for this service (we AT&T users who actually use digital-music technologies) to switch from Apple's (AAPL) iTunes platform (which well over 90% of this target audience uses), AT&T would basically need to offer these songs at some throwaway price.

Music is now a mass-consumption business, full of highly elastic dynamics. We all now carry thousands of songs in our pockets rather than owning hundreds of CDs, tapes and albums at home. But since the cost of distributing that music to us is now, in absolute terms, at zero, courtesy of the billions of files traded on P2P networks every week, you could drop the prices of legitimate consumption of this music and, in a classic "flip it," see earnings skyrocket.

But no, AT&T is succumbing to more of the same label line of thinking that refuses to recognize that. Rather than even try to monetize free distribution, say by charging $5 a month for the right to know that any files on the P2P system are legit and high-quality, the labels have come up with another proprietary, higher-priced offering that will go absolutely nowhere.

Yup, AT&T and eMusic think that the "ease" (read: pain of learning a new system) of being able to buy a limited selection of songs that will take a long time to download (if you can even get a good enough signal to download them at all) is worth not 99 cents a song -- but $7.49 for five tracks! It's raising prices coming into a nearly monopolistic digital music market owned by Apple's iTunes? I believe AT&T will quietly write down this stupid venture with eMusic sometime within the next 10 quarters.

And sometime during those next 10 quarters, end users will have enough broadband on their wireless phones built on operating systems like Windows and the iPhone that they'll simply be trading songs off P2P networks or buying them for 99 cents a pop from iTunes, riding the wireless broadband over simple, open, ubiquitous Internet-protocol technologies.

Sprint (S) is the only carrier that seems to be willing to bet on the open disruptive IP technologies that make any application, from voice to video to email, simply another application, blind to the network. Verizon has by far the most advanced network and seems to remain the most aggressive about these new types of technologies, even as it continues foolishly to spend billions on its proprietary Vcast wireless video offering. I believe it will be writing that down sometime in the next three to five years.

There will always be a place for proprietary technologies in the enterprise and carrier worlds, where companies will pay up for reliability and assurance. But in the consumer entertainment world, you can't compete with open platforms.

For several years, I've been betting on both Google (GOOG) and Apple as the purest plays on this open IP world. I keep thinking some other companies are going to catch on and start pushing the boundaries on this stuff themselves.

Instead, you get this idea of going above market prices to sell a limited library on a closed system. So I'll stick with Google and Apple and wonder why these other companies refuse to join the slipstream behind those two leaders, which in this case, are alive and rocking.