Ev Ehrlich's Everyday Economics

Sports Talk

If you want to put your finger on the pulse of the world around you, there’s no better place to start than with one of my favorite publications, the SportsBusinessJournal.  And let me point out that’s not a typo --  the title is one word, like TheNewYorker of CahiersduCinema.  I think it has to do with a translation from the original German.

Regardless, this week’s issue is dominated by a special, In-Depth section on wireless telephony, entitled, “What’s the Right Call on Wireless?”   (The link might not work for you, as it’s a subscription thing, but here it is.)  And if you read it, you learn a few very interesting things, which I will now present as a series of random facts.

• Major League Baseball Advanced Media, the Internet and “other” media arm of MLB, has built apps for the iPhone, Android, and Blackberry.
• The NHL has an exclusive wireless arrangement with Verizon, NASCAR has one with Sprint (is that a pun?), the NFL got $200 million for a five-year audio exclusive with Sprint,  and the NBA tries to mix it up, but keep one hand on its sponsor, T-Mobile.
• MLB, the NBA, and the NFL all deliver out-of-market games on wireless platforms.

And here’s a quote from Bob Bowman, the mastermind of baseball’s league-leading strategy on  advanced media strategies (witness baseball’s ahead-of-the-pack website, or its cable station placed in the basic tier with 50+ million households), about these deals with Verizon, Sprint, and T-Mobile;

“I don’t get it.  To the extent you did a network deal with any of those three, you’re giving up a lot of folks.  And there is no evidence that anyone has switched to any of those carriers for content.  They’ve switched for a device, called iPhone, but not for content.”

Now some of you are at this very moment delighted that we’re talking about something fundamental in their lives – getting sports on their cell phones.  But the reason I’m mentioning all this stuff isn’t because sports on phones is that important; instead, the reason is this – the smart phone market is an incredible competitive success story.

Look, let’s go back to the top.  We’re talking about the different approaches sports leagues are taking to distributing their content on mobile phones.  Go back and read that sentence out loud – we’re talking about watching professional sports on your phone!  A few years ago, that idea was shared by people who were hallucinating and Dick Tracy.   Today, phone video is ubiquitous.  So there’s one point that the SBJ article makes without making it – the rate of innovation in mobile smart phones is breath-taking.

A second thing to notice is that baseball makes apps for three types of phones, and that the number of smart phone brands and models is proliferating.  And the race is to the swift – Google’s Android is about to overtake Palm only a few months after its introduction.  Blackberry, Windows, and Android phones have all innovated rapidly in response to the iPhone challenge.   And, as Bob Bowman’s remark implicitly noted, they have done so with the encouragement and support of the wireless carriers, because we now have learned that people will switch carriers to get the good devices.  Or, to put it another way, providing new and remarkable devices is part of the competition among carriers.

That’s an important point, even if it seems belaboringly obvious, because to some people, it hasn’t sunk in yet.  Consider the FCC, which, in a landmark policy statement that sought to extend the principles of “net neutrality” to the wireless market, advocates requiring that devices be interoperable – if ATT and Apple want to do a deal that ties the iPhone to ATT’s network, tough noogies for them -- they can’t, because it would be anti- competitive.

It would be what?  In fact, the ATT-Apple deal for iPhones spurred an incredible round of competition and innovation that made it possible to talk about getting ball games on your phone without seeming like a hallucinatory cartoon character.  Imagine, for a moment, what the world would look like if the theoreticians behind “wireless neutrality” had their way.  Leaving aside the technical difficulties of making an iPhone that worked with every wireless provider, Apple’s introduction could well have handed them a far larger share of the market, inhibiting competitors and, more importantly, giving them a formidable hold over application development, which is ultimately what competition and innovation in wireless telephony is all about.  Bob Bowman and his baseball app now have three systems – maybe more – hosting his content.  What if there was only one – Apple – and if you didn’t cut a deal with them on their terms, you were shut out of the market?  That’s where interoperability would lean, and what’s competitive about that?

In fact, as I’ve argued in a paper with two colleagues you can find here, using devices to differentiate themselves is an important part of competition among wireless providers.  I don’t know the terms, so I don’t know if their deal with Apple was “worth it,” but there’s no question that the introduction of the iPhone brought subscribers to ATT.  And by integrating devices to the technical specifics of their networks so they work better, wireless systems have found a new and important way to create customer value.  Consider the “connect to any provider” iPhone that the neutrality types wish they had.  Who would be responsible for its functioning – Apple or your carrier?  After all, there are technical differences among these systems.  Imagine the runaround you’d get when something didn’t work correctly.  And that’s the FCC’s apparent plan!

Here’s a third point that flows directly out of the article.  Baseball doesn’t have an exclusive arrangement with a carrier.  Other sports do.  Other sports have something in-between.  Maybe some of these guys are clever and maybe some are stupid – it’s really a fine line between the two --  but ultimately I don’t know which.    But the fact that the people making these decisions disagree is a good thing, because it means that we can have an experiment to find out what consumers want.  When the FCC’s neutrality principles talk about how “consumers are entitled to access the lawful Internet content of their choice” – a blanket statement they would extend to wireless – do they imagine prohibiting those deals?  Does the FCC intend to put out a regulation saying that if the NHL signs a deal with one mobile carrier it has to sign with all of them?  After all, it wants all iPhones to be interoperable, why not all hockey games?

And that’s just what’s so God-awful stupid about this idea.  I don’t know if everyone wants a hockey game, and I don’t think anybody else does.  I think that consumers want “tied” devices like the iPhone, but I didn’t know that before it was introduced.  The point is that the market, as it evolves, in answering these questions through competition, but the FCC and the neutrality types want to pick an answer they like and skip the competition that will get the answer right.  Why the devil are we going to regulate what’s working out pretty well?  Why assume the answers that competition is working out even as we speak?  Where’s the harm – are cell phones causing banks to fail or Toyotas to accelerate or the climate to change rapidly?   Those are all good reasons to regulate something – show me the equivalent problem in mobile telephony!

And there’s a last point worth mentioning in the SBJ article.  It says; “a report from Morgan Stanley predicts that within five years, more consumers will connect to the Internet via mobile than do on desktop computers.”  In fact, as Long Term Evolution – the “4G” successor to “3G” access – sweeps through the mobile phone world in the next several years, through telephony and Clear’s WiMax, a richly competitive mobile market is going to challenge anything with a wire in.  And yet we’re talking about “net neutrality” (or worse! we haven’t talked about “unbundling” yet – the idea that anyone who builds a broadband network has to share it with their competitors!) as a solution to the problem of not enough competition.

Baseball enthusiasts are well known for losing their minds and saying things like “baseball teaches us a lot about life.”  That’s why people shy away from us, particularly during the season.  I’m not sure sports teaches us much about life, but it does teach us a good deal about what’s happening in the mobile phone market, and what it teaches us is that it’s competitive, innovative, and that it’s working.