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.
While there has been a lot of hype about this year’s Consumer Electronics Show and how it will launch the rebirth of telecom, I’m not buying it. In fact, outside the industry group hub, which was Verizon Communications Inc.’s keynote, the content of most of the announcements leads me to believe that it’s going to be a very difficult road for the carriers in 2011. There are three crossroads (used in this sense to indicate a critical decision) that the carriers face, and, if answered correctly, their 2011 objectives can be fulfilled.
Crossroad No. 1: Selling tablets embedded with carrier capabilities. Tablets were hot at the show, and with electronics as its middle name, they should be. Did a carrier, wireless or wireline, step up, however, to announce a new business model for tablet consumption? Where is the vaunted “family plan” that allows all tablets, phones, and cards to consume 5/10/15 gigabytes of information? Maybe that comes at CTIA. That plan, however, could be the catalyst to the wireless data industry that “Friends and Family” was for a struggling MCI twenty years ago.
When we wrote about tablet sales in retail stores in November, several of you who know this area much better than I wrote back to confirm my hypothesis: Tablets and carrier retail stores do not mix. In fact, absent aggressive discounting and subsidization, they are a distant fourth place location for destination purchases (behind Apple Inc.’s stores, Amazon.com, and then Best Buy/Wal-Mart).
Each of the channels mentioned above has little interest in promoting a specific or any carrier model above Wi-Fi. In fact, though not mentioned in any announcement, the general consensus is that 70% to 80% of iPad tablets and next generation Kindles sold in the fourth quarter were Wi-Fi only, even with a contract-free plan from AT&T Mobility for the iPad and no commitment for the Kindle whatsoever. The extra $130 of incremental consumer costs matters (it would certainly equip the iPad with many meaningful applications, and add a dozen or so books to the reading list).
Tablets without carriers is a nightmare no telecom executive wants to experience. In-store subsidies and increased “here’s why you buy the carrier equipped model” marketing must increase to prevent this outcome. There is no play in the book to re-run (look at the embedded laptop experiment with wireless modems) – a new one must be invented, and it needs to be organized around pooled/family data plans. Pricing plans, especially around multiple products, are the first crossroad.
Crossroad No. 2: Participation in the applications layer. Verizon did a great job of highlighting the efforts of dozens of entrepreneurs at their booth (the media coverage of this aspect of their booth was minimal, which, given the electronics focus of the show, is understandable). Rather than re-cover Verizon COO Lowell McAdam’s comments from his keynote, I’ll attach the full transcript here. We have written about 4G as an opportunity to reposition carrier networks as the “exchange” for applications services, and Verizon’s approach clearly fits into this strategy.
What will Verizon do with voice apps? Will the dual core 1 GHz processors be available for a small wireless VoIP program that invokes a strong Wi-Fi signal to bypass the LTE network? What about a name or Gmail-based texting app (call it Twitter challenger) that eliminates the traditional short messaging services format? Neither of these consume a lot of bandwidth, but could change the revenue stream for Verizon’s base considerably.
“How open should we be?” seems to have been answered by all of the carriers, and they are all open to some extent. Google Inc. and Apple have been pioneers, but can they maintain carrier openness as the market matures, or will they cut a deal with the carriers to, for example, exclude video calling from networks?
Carrier product managers are generally not former applications developers. Evan Williams and Biz Stone are not going to be heading up T-Mobile USA Inc.’s or Sprint Nextel Corp.’s application development efforts in 2011 (although the applications community would cheer if they did). Developers and carriers need each other, however, and the seriousness of the carrier community towards applications developers needs to be matched with budget dollars. (Hint – start with carrier-funded remote testing facilities for all devices implemented in the past three years – a carrier-specific Device Anywhere service with corresponding support levels).
Verizon seems to be off to a good start in this area – others need to follow.
Crossroad No. 3: The transition to faster speeds and new business models. Coupled with questions about affordability and functionality comes the question of speed. Carriers are not known for swiftness, and for good reason – there’s a large embedded base to migrate, service ramifications should the transition go poorly and confused customers who thought they were getting the latest and greatest. (Many of us remember the transition from analog to digital networks, and how haste can produce a lot of waste.) However, no one wants to be perceived as a follower, so the wireless community is in a state of network transition.
The transition to 4G-only may be the most important decision any wireless challenger to AT&T Mobility and Verizon Wireless faces. Multi-radio devices are expensive, consume a lot of power, and require a higher level of service and support than single-radio devices. Applications designed to 4G-only bandwidth will behave differently than ones that need to support 2G, 3G and 4G (satisfying the lowest common denominator is a painful reality for network connected applications today).
Said differently, a 4G only or 4G+Wi-Fi device would represent a radical departure from today’s carrier model. It would bring more headaches, but would refocus cash on the network (where carriers excel) and away from service and device management (where carriers understandably struggle). It represents the boldest move for a challenger to make – a head-turner for an industry steeped in orderly network transition.
Three crossroads face the wireless industry: a) Tablets and data pricing models; b) Aggressively accelerating 4G applications that could potentially cannibalize the current revenue stream; and c) Breakaway strategies such as a 4G-only phone that bring faster speeds without network transition costs. It should be an exciting year.
Jim Patterson is CEO and co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. Patterson was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. Patterson welcomes your commentsatjim@mobilesymmetry.com.
