Reality Check: Three holiday tests

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
We are nearing the home stretch of 2010, and while it’s been an eventful year for our industry, we still have a month to go. December is a critical month for wireless – it places a punctuation on the “smart year” and provides some insights into 2011 and beyond.
Before we dig into three industry “tests,” I’d like to put the industry into perspective. Two years ago, we entered 2009 with recovery hopes. For most technology companies, the collapse of mortgage lending, consumer leverage, and confidence in capitalism seemed too much to handle. High hopes greeted 2009 – this was to be the beginning of the recovery. Using that as a backdrop, let’s see how an investment in selected telecom/cable/software/hardware companies has performed since Jan. 1, 2009. (Important note – this is stock price only and excludes any dividends. This also excludes the stock stub for Verizon Communications Inc. which would represent a fractional share of Frontier communications today):
If you bought Apple Inc., Amazon.com Inc., Sprint Nextel Corp., Google Inc., or Qwest Communications International Inc. you nearly doubled your money over the past two years. In fact, three of these companies represent the highlighted “four horsemen” who have the cash and the on-line clout to enact sweeping change on the telecom industry. If you bought Comcast Corp., you received some price appreciation (~ 9.8% annual return). But AT&T Inc. and Verizon, even with approximately $1,400 in additional dividends over the past two years, has barely earned the $10,000 initial investment for their shareholders. We’ll answer “why” in the upcoming weeks, but it’s clear from this chart that “bigness” is not always “better.”
Now for three holiday tests. “Tis the selling season,” and that means in-store traffic – lots of it. There are at least three tests that the industry faces in the next month:
1. The RIM survival test. Research In Motion Ltd. – remember them? The Torch, the Playbook (Blackberry’s upcoming tablet), and the new and improved Curve. RIM moved from business essential to free teen phone to the flagship brand of pre-paid devices. As we chronicled a few weeks ago, no carrier has BlackBerry featured (AT&T Mobility is the only one trying, but Microsoft Corp.’s Windows Phone 7 is crowding them out), and this is very bad news for the Canadian smart phone provider. The Black Friday/weekend features were:
Sprint Nextel: Free LG Electronics Co. Ltd. Optimus (Android)
Verizon Wireless (through Best Buy): Free Samsung Electronics Co. Ltd. Fascinate (Android).
Verizon Wireless (on-line): Choose from the BlackBerry 3G or the Motorola Inc. Citrus (Android) for $30.
T-Mobile USA Inc.: Free Android phones, also HTC Corp.’s HD7 (Windows Phone 7). No free BlackBerries (at least on their website).
AT&T Mobility: Free low-end phones (AT&T Mobility, at least until yesterday, was choosing to promote their feature and keyboard phones). Also, buy one, get one free on Windows Phone 7 devices.
RIM has no advocates in any carrier store, and, with 15% to 20% of U.S. industry contract upgrades occurring in the next month, that’s not a good place to be. They are no longer the “free and smart” phone for the kids. And, while they have made strides in improving their applications selection and developer relations, they are about to be passed by Microsoft in programmer attractiveness (which puts them in fourth). There aren’t many good programmers left for fourth place. It’s too soon to write the obituary for BlackBerry, but, if you see a lot of salespeople pushing free Torch, Bold, and 3G Curve devices, you will know why.
2. The carrier tablet sales test. December is a hard time to introduce a new product in a store, let alone a $600 product (making it three-times more expensive than anything else in the store). Yet we find the Samsung Galaxy tablet (Android 2.2) in most Verizon Wireless stores this December – sitting alongside the Apple iPad with Verizon Wireless MiFi hot spot for $629 – sitting alongside yesterday’s darling, the netbook (at free to $130 with a two-year contract depending on the processor speed). AT&T Mobility also has the iPad and netbooks in their stores. Sprint Nextel has the Galaxy for $400 with a contract and netbooks. Walmart Stores Inc. has iPads and netbooks. Best Buy has iPads and netbooks.
I think you get the point. There are a lot of places to buy tablets. But should the wireless retail store focus more on selling tablets or plan upgrades? They want credit-quality contract customers who leave happy. A Samsung Galaxy tablet is not “just like an iPad” any more than a BlackBerry Torch is “just like an iPhone.” Can I get Best Buy points with a Verizon Wireless iPad purchase? Can I get better service if I buy the iPad at the local Apple store? Can I get a Verizon Wireless Mi-Fi that turns up the speed when LTE launches in my area? These are some of the questions swirling through the minds of high-income consumers.
Those middle and high-income consumers are in Best Buy and Walmart stores across the country shopping for higher definition televisions (which were the universal door buster on Friday). They are shopping for XBox consoles and games. And they are looking at the iPad and answering the “is it worth it?” question with a resounding “yes!” “saving” money by buying the Wi-Fi version over the “with 3G” iPad.
The good news is the carriers didn’t stock a lot of inventory, and there are plenty of corporate IT departments willing to give tablets a try. But in a “sea of free” with plans top of mind, the tablet will disappoint all but the most telecom-brand loyal customers. They will buy the iPad at the Apple store, predominately with Wi-Fi, and buy the Galaxy next year when they have more knowledge about the product and more confidence in the economy (or when it’s bundled with a new FiOS addition to regain share from cable).
3. The Speed Racer test. As discussed above, Verizon Wireless is going to educate all of us on LTE in the most expensive selling month of the year (there must be internal budgets/bonuses tied to launch markets because for any other reason this looks like a ridiculous idea). National advertising has already begun, and AT&T Mobility (and to a lesser extent, Clearwire/Sprint Nextel) is in the crosshairs. Verizon Wireless will launch more bandwidth to more places than any other carrier. Will anyone care?
The answer is yes – everyone will care. No one likes to wait. But at what cost? Will LTE stand for “Looks Too Expensive?” at $240 more per year than 3G, especially after I just bought the Galaxy tablet with 3G built in (retail sales objectives meets network deployment objectives – gotta love it)? Will cable customers drop their Comcast high-speed Internet/Wi-Fi bundle for the power of LTE? Not likely. Will it be used as an access substitute by businesses (can Verizon Wireless get the internal incentives in place to make this happen)? Not likely, but it will be a bad day for the wireline divisions of the telcos when that happens.
Can LTE be wedded to an applications strategy that creates “home field advantage” for Verizon Wireless? Yes. Video Skype or Face Time over a LTE-enabled iPad/Galaxy tablet that also plugs into my TV so the whole family can see each other. Will that cost me 3G talk time? Yes. Bridging this transition will be hard but possible. And LTE will become a national launching pad for tablet-based video. Look for a partnership with someone other than Google TV in the next 90 days. It’s hard to make the case today that there are a lot
of applications that grow the total revenue pie and also require faster speeds. Multi-player gaming, Netflix and video chat are three that make a lot of sense, but there’s not a lot of applications behind these waiting for 4G. Hence the criticality of the pricing decision. Answer “why?” as eloquently as Apple and Verizon Wireless wins. Answer with melting snowmen zapped by the power of LTE and Verizon Wireless loses, at least in 2011.
These are three tests to watch in December as you are on-line and in stores. The good news is that we will spend more in 2010 than we did in 2008 and 2009. But “where” and “for what?”