Wireless broadband

Fixed mobile convergence makes global progress

T-Mobile is launching its broadband voice @Home service throughout the US, which prepares them for an agressive FMC position. French telecom carriers are also expected to push harder on FMC and wireline broadband expansion as the consolidation in the market finally draws to a close, but that we believe is mirroring a worldwide trend.

Consolidation hasn’t been holding other projects back, it’s simply been a safer early response to declining revenue per bit. We believe that operators worldwide are preparing for a “transformation test” around FMC, broadband services, partnerships with Internet companies and developers, and other new areas. They’ll fund what works and cease funding what does not, and this could result in some pockets of spending and reductions as everyone takes the measure of their market. We think the situation will be more predictable in 2009 than in 2010 through 2012, when only some successful revenue initiatives will drive spending growth in service provider infrastructure.

Telecom consolidation continues in U.S. and Europe

Verizon is in advanced talks with Alltel, aimed at acquiring the mobile player. The move would make Verizon the largest mobile operator in the U.S. and a more effective competitor to AT&T. It also signals yet again the shift in the mobile market.  Consolidation is not a move that is undertaken in a dynamic and growing market, but rather in one that is already facing commoditization. France Telecom has also announced negotiations to acquire Swedish phone company TeliaSonera, a move that would create the EU’s largest operator. All consolidation moves are aimed at creating economies of scale, and in FT’s case, these are targeted initially at operations costs and core network costs, since access networks are not generally overlapping and don’t generate any real consolidation economies. In the case of Alltel, we believe there will be a net reduction in mobile spending.

New mobile data pricing targets travelers

The mainstream tech publications are picking up the theme of “mobile voice is a commodity” and citing the new data plans such as Verizon’s plan for 5GB per month for $60 as proof. We think the conclusion on voice is correct (we’ve stated it ourselves, so that’s no surprise) but we believe the new data plans are independently targeting a market sector the mobile carriers believe to be a key one—the “hotspot user”. A business traveler might well stay four or five nights in hotels and also visit airport lounges three to four times in a month, according to research, and if the traveler used hotel and hotspot Internet access would likely pay around $70 per month in service costs. The new plans are attempting to pirate these travelers through slightly lower pricing.

T-Mobile takes VoIP/wireless integration step

T-Mobile has announced it will be offering a limited trial of an unlimited VoIP calling service to broadband customers of any sort for $10 per month plus the cost of the equipment ($50). The new service may be a step toward integration of home voice services and wireless voice using dual-mode handsets, something T-Mobile has also pioneered. This is likely to create a price war in VoIP and may also hasten the FMC evolution of US providers, which will bring the femtocell/WiFi debate to a head.

Google’s withdrawal from spectrum auction: What it means

Google’s wireless position is half-correctly characterized by Business Week.  Yes, it withdrew from the auction for the C block open spectrum (by all the rumors—it’s not official yet, but NO, it didn’t achieve its strategic objectives either. Google underlined a major vulnerability, which is that it depends utterly on others for access to the customer.

Not only does Google need the Internet, it needs a largely open Internet where it can dodge costs of access and transport and can exploit customer relationships. The problem is that open wireless is very likely not to be a viable business model no matter who has the spectrum. The fact that Google didn’t try to win is almost a complete proof of that.

In wireless, where all capacity is shared in a service area, user behavior interacts to create congestion and poor experiences unless it’s somehow regulated, which is difficult if any device and application can use the spectrum. Google has set up an experiment that it may now hope will never be conducted, because if it is, the results are not likely to be in Google’s favor.

CES show to prompt wireless hub upgrades?

The CES show next week will likely introduce many to the new and almost-emerged 802.11n standard for wireless LANs. Capable of supporting data and video concurrently, this is the wireless standard that many hope will cause consumers to upgrade their wireless hubs. To date, wireless hubs are one of the least likely to be replaced home technologies, with many users having theirs in place unchanged for five years or more. Another such technology set are home switches and routers, which have installed lives as much as a quarter longer than the wireless devices. WirelessHD, which is faster but shorter in range, is also expected to be demonstrated at the show.

RIM Profits Show High-End Handsets Gaining Strength

RIM reported doubling of profit and revenue as its Blackberry sales exploded, magnifying the gulf between the handset vendors and the network equipment vendors in the mobile space. The challenge of course is that handsets are a consumer fad and mobile networks are long-lived infrastructure that can’t churn very often. The performance of RIM also suggests, when compared with that of Motorola, that higher-end handsets will likely be gaining strength. That again argues for a disconnect of handsets from mobile service provider offers, something we’ve predicted for some time. The pressure from the handset vendors will increase with the advent of OHA, and it may be that the network operators will yield and open the handset market to avoid having a truly “open” handset based on open-source take over. OHA’s fate may depend on the early discussions on a more open relationship between traditional handsets and the mobile operators.

AT&T feels open wireless pressure

AT&T has semi-affirmed an open wireless strategy, not going as far as Verizon but clearly going far enough to show that it feels the pressure. The company notes that GSM phones are compatible across networks through a SIM card, which offers some handset portability, but falls short of the complete open-if-certified model Verizon plans. We believe the AT&T comments reflect the reality that the mobile walled garden was breaking down under pressure from regulators, Google saw that and launched Android and OHA, and the operators are now responding, but more to the regulators than to Google. This is important because it likely means the regulatory pace of opening wireless will accelerate in 2008 given relative lack of operator pressure. The comments came as AT&T issued an upbeat forecast for the coming year.

Google cellphone software announcement disappoints

Google made its expected mobile announcement, but in an unexpected way. The company announced it was developing a free cellphone software package designed to move cellphones from voice instruments to portable terminals on the web, through what Google calls the “Open Handset Alliance.”  The Google move won guarded support from the FCC’s Martin, but otherwise disappointed many analysts and Google watchers. While the move does not preclude the announcement of a gPhone, we think it may indicate that Google cannot come to terms with incumbent mobile operators under the current conditions, and is seeking to build its market share in the mobile platform space to make itself a more attractive partner. Our sources say that Google wanted a better deal than Apple, and that mobile opeators felt Google had nothing on the table to justify such a concession.

Bad Sprint Nextel Earnings Raise Acquisition Questions

Sprint Nextel has turned in another bad quarter with net dropping by 77%. The problem appears to be the loss of high-spend customers who prefer the coverage of rivals AT&T and Verizon. Sprint was perhaps the largest of the wireless carriers to rely on low-quality, bad-credit customers for growth, and the strategy has now backfired as these customers fail to show ARPU growth, or even outright default on payments. Another issue of course is the lack of branded multi-play options; Sprint has no TV and no wireline strategy. We do not think there is any chance that Sprint can stand alone for long; the question is who might acquire them. National footprint is less valuable to cable companies who don’t have that footprint for wireline, but Sprint is the only provider who could cover a major MSO’s territory, and FMC could provide symbiosis for a player like Comcast. The problem with the MSO buyer is the low ROI of Sprint. The other option is T-Mobile, a unit of DT, or one of the major wireless carriers. A T-Mobile deal would likely gain approval; we doubt the FCC or FTC would approve a buy by Verizon or AT&T. Sprint may be driven by its problems to become the most aggressive WiMAX player; only something like a major WiMAX success could save it as an independent. There are also more rumors on Sprint and Google’s “gPhone”, but we don’t think that would be enough to turn Sprint around.