Disruptive Tendencies

Microsoft: SteveB or Not SteveB

That is the question.

As I saw Apple reporting record numbers yesterday, I was reminded that nearly thirteen years ago, Microsoft invested $150m in Apple to help keep it afloat because it needed to maintain the semblance that it had “competitors”? Be careful what you wish for!

In July 1997, prior to the Microsoft investment, AAPL was trading at $4.375 (split-adjusted). Overnight, it was up to $258.00, a 58X gain in twelve and a half years. Had Microsoft held onto its shares, they would be worth $8.8b in the open market today, or 26% of the cash on its Balance Sheet as at Q3/2010.

When Microsoft made its investment, its shares were trading at $17.50, and today? They closed up overnight to $31.50, up almost 1.8X over the same period as Apple’s 58X gain. Apple’s market cap today is $234b to Microsoft’s $275b. How times have changed!

It’s interesting to look at other things that were going on around the same time as Microsoft was investing in Apple.

1997 was also the year that Microsoft entered the mobile device market, with the release of Windows CE. This gave them a ten-year head start on the iPhone and a twelve-year head-start on Android! It predated RIM’s IPO. And today? Windows Mobile market share is Palm-esque, and Microsoft is betting on Windows Phone Series 7 to rejuvenate its mobile business. But if branding and momentum are any indication, it seems like a real longshot.

I’ve sat through many Microsoft Executive Briefings, dating back to 1997. Over this period, I have heard it said that Microsoft spends “$1m/hour on research”. I have seen presentations from Microsoft Research staff describing and demonstrating technologies like ClearType (also announced in 1997), a sub-pixel rendering technology designed to improve readability of rendered type on screen.  The obvious application (and one described in the early presentations) was eReaders. In 2007, ten years later, Amazon released the Kindle, ostensibly revolutionizing the delivery of content and forever changing the economics of publishing. Where’s Microsoft at this inflection point? Nowhere to be found.

What other market disruptions has Microsoft missed? (In no particular order)

Search is an obvious one. While Microsoft (and others), was focused on search technology, Google was figuring out that “Search” was all about advertising and catalysed a massive disruption in the media space, billions of dollars in revenue for Google, and hundreds of billions of dollars in shareholder value.

Maps and location services is another one. While Microsoft was focused on producing and selling CDs of MapPoint (a model it still clings to today which it “offers” at $245 on-line), Google was out producing high-resolution street-level images and has catalysed another disruption in location-based services. Today, mobile location is front and center on the Droid platform (and on Droid devices), on iPhones, and incorporated into applications across both ecosystems.

Set-Top Boxes and “owning the living room” Also in 1997, Microsoft acquired WebTV for $503m, predating the launch of Tivo. But while Microsoft apparently struggled with the thought of an appliance that wasn’t Windows-based PC (and encumbered by its emphasis on 3^rd-party OEMs to build on its platform), WebTV evolved to MSN TV (anyone remember this?!?) and has completely disappeared today.

SaaS is one to which Microsoft paid lip service throughout the late ‘90’s with its .NET push. But while it was evangelizing .NET (and SOAP, XML, web services), it was acquiring companies like Navision and Axapta (in 2002 for $1.4b) to expand its CRM and ERP offerings. But was it web-based like Saleforce.com which was founded in 1999 and which didn’t go public until mid-2004? Once again, Microsoft didn’t want to jeopardise Windows Server licenses, so it failed to embrace a market disruption despite having ample warning that it was coming.

Media Players created a seismic event and a brand new market that Microsoft completely missed. While it was focused on defending the tight integration of Windows Media Player in anti-trust lawsuits (in a vain attempt to preserve its “Windows” franchise), Apple came out with iTunes on Windows. More importantly, however, was that Apple also created the iPod, the Trojan Horse that enabled the iPhone.

Developers and App Stores: Microsoft has known since the early battles for OS supremacy (against MAC and OS2), that the selection of a platform is driven by application support. Even with a 30-year history of supporting software developers with incredibly rich tools to build 3^rd-party apps, Microsoft never provided a route to market for developers as Apple has done with the App Store. Apple also figured out how to monetise content and through the creation of a distribution system (iTunes Store), got people comfortable with micro-payments. What’s the difference between .99 for a song or an app? Ultimately, not a thing.

Obviously, there are other examples too. Microsoft completely underestimated the impact of open-source software, missing Linux, Apache, MySQL, etc. It evangelised tablets, but from a Windows bias. It would seem that Apple (and soon others) will trump Microsoft here as well.

It is fair to say, that Microsoft is losing on all fronts.

While it was focused on fighting the DOJ battle, it may ultimately have lost the war. Some, including “the late Nobel economist Milton Friedman believed that the antitrust case against Microsoft set a dangerous precedent that foreshadowed increasing government regulation of what was formerly an industry that was relatively free of government intrusion and that future technological progress in the industry will be impeded as a result.”

I have to agree. The government’s action against Microsoft was ill-advised, in that it is irrelevant that Microsoft may have had a monopoly on the desktop OS. The market isn’t stagnant. Some, like Apple with iTunes and Google with a toolbar, found ways to work within the constraints of a “Windows monopoly”, and still thrive. Others, like Salesforce.com just changed the rules.

Microsoft once had mojo but, for the past decade, has behaved like a neutered puppy. Where it was once aggressive and nimble, today it is passive and slow.

When Bill Gates relinquished the CEO reins to Steve Ballmer in January 2000, Microsoft’s stock was at around $56. With Steve B at the helm, the company has delivered a -44% return, despite being a cash flow machine and having a Balance Sheet that is (was) second to none.

 

If a patient’s ECG flatlined like Microsoft’s stock price, someone would call for the crash cart, get out the defibrillator and try to shock the patient back to normal rhythm. Where’s the crash cart in Redmond?

With a record of having missed so many opportunities to create new markets, where does the buck stop?

SteveB or not SteveB? That is the question.

That’s my .02!

Martin Suter

Mobile Cellular Penetration

I came across a rich set of data visualisation tools earlier today on Google Labs that allow one to run queries against publicly available data sets. Some of these will look familiar to fans of Dr. Hans Rosling, whose TED appearances are the stuff of legend. One of the data sets available is Mobile cellular subscriptions.

Last year, at CTIA, Ivan Seidenberg, CEO of Verizon Communications, talked about 500% penetration as being possible. He meant this largely in the context of an emerging M2M market, but even absent that, it's interesting to look at some representative countries.

I've gone ahead and plotted several below, but you can click through and select your own. (Feel free to share any insights from mining the data in the Comments section below).

I

Average penetration worldwide was 60% in 2008. Interestingly, Iran was bang on the average. It will be interesting to track the slope of its curve recently, especially as the phone has been a device being widely used by reformers in the country.

Korea and Japan are an interesting lines. They were both faster out of the gate, but the US has caught up, at least in terms of penetration (my friend and Koreaphile, Allen Kupetz will remind me that their data rates and breadth of uses, including mobile payments/e-wallets far exceed the US).

Norwegians were early adopters too. I remember being blown away in 1992, when my cab driver in Oslo had a cell phone. Today, can you imagine a cabbie not talking on their cell phone constantly in any big city?

The last two that I plotted were the UAE and Saudi Arabia, both of which have achieved far greater than 100% penetration. I had an inkling of this in 2001 when I was living in Dubai. Several Emiratis in our office were already carrying two phones, but again, it wasn't something that I could imagine doing. Clearly it's become the norm.

It is interesting to think about the implications of the mobile Internet in regions of the world, like the Middle East and Africa, where landline penetration lagged developed countries and until recently, Internet cafes were the primary place to access the Internet. Clearly, the game is changing. And while the Internet can be used for evil, I prefer to think of it as having removed all impedance to knowledge acquisition. Is another period of Enlightenment too much to hope for?

That's my .02! What's yours?

Martin Suter
 (martin.suter at iplicensing.net)

Of Churn, ARPU and the value of a Net Add

Yesterday, Colin Gibbs, at GigaOM, wrote a great blog: Q4 Wireless Scorecard: It's Good to be King, in which he provides a breakdown of key figures from the major US wireless operators. Extracting and consolidating this information is incredibly useful, and props to GigaOM for so doing, but a deeper dive seemed to be in order.

There's a lot of confusion around concepts like "churn", "ARPU", and "Net Adds", and more importantly, how do these translate into the value of a subscriber? Churn is simply the rate of turnover within a subscriber base. An easy calculation to perform is to derive the average number of months a subscriber will remain with an operator. Simply divide 100% by the churn percentage, to arrive at this number. The lower the churn rate, the longer each subscriber will generate revenue and cash flow for the operator.

 

 

Of note, is the huge variation in Average Subscriber months that churn percentage makes. Why is this important? Well, the average customer term dictates the expected revenue that will be derived by each subscriber over their lifetime. Of course, the greater this number is, the more profitable a customer will likely be, as customer acquisition costs (marketing, handset subsidies, etc,) are able to be amortized over longer periods of cash flow.

It's also interesting to look at ARPU, a number that is often pointed to as being indicative of profitability. But this is a simplistic view of the subscriber, in that the value of a customer is much more a function of churn than it is ARPU. GigaOm provides the ARPU per user broken out by carrier:

 

There is some variation across wireless operators, but still within a fairly tight range. However, when you take ARPU and multiply it by Average Subscriber months, the picture starts to change dramatically.

 

While this doesn't show profitability per subscriber, it is easy to eyeball this and determine that customer acquisition and support costs erode profitability significantly for several of the operators, even without taking into account the fixed costs associated with spectrum and CAPEX to build out their networks or migrate to new technologies.

Lastly, Net Adds is an important metric to help determine the long-term viability of a company. Think of each Net Add as "X months of Future Revenue" (or cash flow), where X is calculated from the churn %. The numbers shown are the absolute numbers. A percentage view is quite different, with Leap Wireless Net Adds equal to 6% of its Total Subscribers, while Verizon and AT&T Net Adds equal 2.41% and 1.07% of their Total Subscribers respectively.

 

So what happens when you add it all up? Well, in absolute terms, the Lifetime Expected Revenue of the Net Adds in Q4/2009 looks like this, which may support the ROI that Verizon is seeing from its huge marketing and advertising push in late-2009.

Growth is a result of a virtuous cycle. Low churn rates drive lifetime subscriber revenue, much more so than does ARPU. Higher revenue per subscriber means more to invest in sales, marketing and new technologies like 4G. Once an operator starts churning its install base, profitability takes a huge hit, as does its ability to invest in customer acquisition and new technologies. It's a downward spiral that is very difficult/expensive to reverse. Clearly, this illustrates why the big keep getting bigger and why the AT&T and Verizon marketing battle is with us to stay.

That's my .02!

Martin Suter

Spectrum is Like Beachfront

(Originally posted at http://www.von.com/blogs/guest/2009/12/spectrum-is-like-beachfront.aspx)

Plato is credited with having noted that, “Beauty is in the eye of the beholder.” This is certainly true in any discussion about spectrum. As with beachfront property, the thing about spectrum is that they’re not making any more of it. Recently, Blair Levin, who heads the FCC’s broadband program, acknowledged, “There’s not enough of it,” referring to spectrum. It was also noted that “several Tier I carriers are arguing for more licensed spectrum to keep pace with customers’ bandwidth demands, especially for mobile broadband.”

The FCC’s 700MHz auction raised $19.6 billion, with $16 billion coming from just 2 operators: Verizon and AT&T (National coverage maps). While I’m sure the FCC would love to run more multibillion-dollar spectrum auctions, is it really necessary to do so?

There are lots of moving parts in delivering a mobile broadband service, but it’s interesting to look at them holistically.

Different frequencies have very different propagation characteristics. It has been said that the best thing about 700MHz spectrum is its propagation characteristics. It has also been said that the worst thing about 700MHz spectrum is its propagation characteristics. It goes forever, has good in-building penetration, but these attributes present challenges from a frequency re-use perspective. Great for coverage. Not so great for capacity.

Conversely, the propagation characteristics in the 2GHz and 5GHz ranges are very different. These have limited range and poor in-building penetration, but these attributes are advantageous from a frequency re-use perspective. Poor for wide-area coverage. Great for capacity.

With the explosion in mobile broadband, the question today is whether the delivery of wireless broadband is a coverage play or a capacity play? And if capacity, what does the network look like?

Cell size and capacity have an inverse relationship. Macrocells, by design, are built to cover wide areas. However, the radios, spectrum and backhaul are all shared elements. The more users you have within a cell competing for these resources, the lower the throughput to each user. To increase capacity over an area, mobile operators pack in more, smaller cells (micro and picocells, and at the extreme low end of the spectrum, femtocells are being contemplated).

Andy Germano, vice chairman of the Femto Forum, said it very well recently when referring to the deployment of 4G networks: “Rather than go from big to small, they can go from small to big,” referring to cellular topology.

We know that, even today, it is challenging to keep up with the data capacity demands being driven by smart phones and other mobile devices. This is due to three factors: user demand for bandwidth, spectrum availability and cellular topology.

AT&T has been at the forefront of addressing the issue of adding data capacity to deliver a superior user experience for its iPhone subscribers by embracing Wi-Fi and unlicensed spectrum. Recently, at SUPERCOMM, John Stankey, president and CEO of AT&T Operations, stated:

“I don’t think a single macro wireless network is sustainable over time, given the pace of spectrum availability and what’s actually out there in terms of fixed spectrum. I think the reality is that there will be macro and micro networks. We’re starting down that path at AT&T, focusing on how we make Wi-Fi and licensed spectrum a more seamless experience for customers.”

So back to the beach.

There’s 80MHz of free, unlicensed spectrum, at 2.4GHz, being used today to augment data capacity by a leading licensed spectrum owner. Very interesting, but it’s still a small and pretty crowded stretch of beach. However, there’s 450MHz of spectrum, in the 5GHz bands, that is a beautiful stretch of beach – much less crowded, and ideal for small cells and frequency re-use, i.e. high-capacity locations.

Great stretch of beach, but how do I get there from here? Wi-Fi (802.11b/g) supports 2.4GHz and there are no 802.11a devices. The answer is 802.11n. Devices, such as the new Apple iPod Touch, are shipping with chipsets that support .11n and both frequency bands. Although the 5GHz radios are currently disabled, it is not unreasonable to expect that any upcoming versions of the iPhone, and other Wi-Fi enabled devices, will offer dual-band capabilities.

So, we will see 4G services rolled out at 700MHz, which will bring LTE to a big chunk of the country. But instead of waiting years (and paying billions) for more licensed spectrum to add capacity, I would say to Mr. Levin, “There’s a beautiful stretch of public beach up at this end, just waiting to be used.”

That’s my .02!

Martin Suter

Martin Suter is vice president of business development at BelAir Networks, the global market share leader in service provider Wi-Fi, enabling 3G data offload for wireless carriers, quad-play for cable operators, and managed WLAN business services. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

Wi-Fi: Moving the Dial

(Originally posted at http://www.von.com/blogs/guest/2009/11/wi-fi-moving-the-dial.aspx

One of the most common questions I get when talking with wireless and wireline operators around the world, is how to monetize Wi-Fi services. Indeed, as subscribers are coming to expect Wi-Fi services for free, whether at Starbucks or with their iPhones, it is a complicated question.

In fact, many were skeptical when Cablevision, a BelAir Networks customer, announced its plans to launch “Optimum Wi-Fi” and to give away the service to its residential broadband subscribers as subscriber-retention play.

A key difference, over previous models, is that Cablevision focused its Optimum Wi-Fi deployments in “shopping centers, on main streets and train platforms, in parks, marinas, and at sports fields - the places you go everyday.” They’re delivering the service where their customers eat, shop and congregate – not striving for ubiquitous coverage.

And has this strategy been successful?

When Cablevision reported its numbers earlier this month, Q3 profit tripled, revenues grew 5 percent, ARPU is up 6 percent, net new adds were up 4 percent for broadband, and the stock jumped 3.2 percent on the results.

Craig Moffett, senior analyst at Sanford Bernstein, said free Wi-Fi is one reason why Cablevision customers haven't switched to Verizon. "Perhaps it's time to start giving Cablevision's free Wi-Fi network some of the credit," Moffett said in a research note. "For all of its vaunted capabilities in wireless, free wireless broadband is something that Verizon Wireless simply can't match."

Can you build a business case on free Wi-Fi? I’d say let the numbers speak for themselves.

That’s my .02!

Martin Suter is vice president of business development at BelAir Networks, a provider of broadband mesh solutions for Wi-Fi, WiMAX, 4.9 GHz Public Safety and 5.9 GHz ITS networks. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

Nortel’s Devolution to Non-Practicing Entity?

As someone who once wore a Nortel employee badge, and who counts many ex-Nortel employees among friends and family, watching Nortel’s descent from the peak has been hard to watch. Those, with better visibility into the decision-making than I, will ultimately dissect all of the wrong turns. 

Financial mismanagement, ill-conceived M&A deals, and strategic missteps have, unfortunately, landed Nortel where it is today – in bankruptcy protection and actively divesting entire businesses; its enterprise business possibly to Avaya, its wireless business to Ericsson. But like the Black Knight in Monty Python’s “The Holy Grail”, they’re “not dead yet”, despite hacking off multiple limbs.

When Nokia Siemens Networks’ bid was announced for Nortel’s remaining wireless business (CDMA and LTE roadmap), the decision to exclude wireless-related patents was a very strong indicator of intent. Under the terms of the announced transaction, NSN received a license to Nortel wireless IP, while Nortel retained ownership of said IP. According to reports, the Ericsson deal construct is very similar, with ownership of Nortel patents remaining with Nortel.

Once NSN’s stalking horse bid was announced, others emerged as suitors for the wireless business, including most notably RIM and the eventual winner of the auction, Ericsson.

Why would RIM pursue Nortel’s wireless business at the 11^th hour? Is it because it aspires to get into the CDMA/LTE base station business? I’m guessing not. Could it be that RIM saw Nortel’s moves signaling a fundamental shift in its future business model? Rather than remaining in the messy business of actually producing and selling product, why not sell off the operating businesses for a bunch of cash, throw in non-exclusive licenses to Nortel’s IP, and re-emerge as Nortel, the Non-Practicing Entity (aka Patent Troll)?

Few companies have been as badly burned recently, by NPEs, as has RIM. With its $612.5m settlement with NTP, for what ultimately amounted to the assertion of just a couple of claims (the validity of which was being seriously challenged), and more recently, its settlement with Visto for $267.5m, I’m sure RIM can see a day when Nortel, the NPE, asserts claims against RIM’s LTE products, at a cost to RIM that makes its $1b pseudo-offer seem reasonable. No doubt this is why RIM is rumoured, already, to be pursuing licensing discussions with Nortel for LTE patents.

A key here is that Nortel, as an NPE, would no longer be constrained by the usual rules of engagement that make the assertion of claims, by practicing entities (PEs), so rare. As a going concern, and even with an impressive patent portfolio (reportedly 5,500 patents), it would be highly unlikely for Nortel to assert its patent position against its main competitors. A kind of détente exists with patent holders, who understand that an assertion here will bring a counter-assertion there. The worst fear of PEs, however, is the NPE (or Troll), for which this détente is irrelevant, and where the business model is uniquely about asserting and monetising IP rights.

So Ericsson gets a pass on LTE patent assertion by Nortel, a key US customer committed to LTE, and a team capable of enhancing the CDMA to LTE migration story. Not a bad deal for $1.13b. And while one is tempted to feel sorry for NSN, its original bid of $650m turned out to be woefully miscalculated. One can only guess at what losing the deal with Nortel will end up costing NSN; in legal costs, eventual royalties and market share. Conversely, Ericsson will have gained in all of these areas. Kudos to its management team for realising this.

So what of Nortel? Can it make the transition from multi-billion dollar equipment vendor to NPE/licensing company? There certainly are precedents, even in Nortel’s backyard. Wi-LAN and Mosaid are two companies that have gone done this path, each of which has developed IP licensing as a core competency. Keep an eye on key Wi-LAN or Mosaid employees. If they start to leave, perhaps it’ll be to take on the challenge of monetizing Nortel’s patent portfolio. And if I’m Jim Balsillie, I’d be super pissed.

That’s my .02!

Martin Suter

(martin.suter at iplicensing.net)

Mobile Internet: Fundy-esque!

(Original published at http://www.von.com/blogs/guest/2009/06/mobile-internet-fundy-esque.aspx )

In 1963, JFK is credited with having observed that, “A rising tide raises all ships.” The evidence is overwhelming that the mobile Internet tide is unprecedented in scale and that it’s coming in fast. Anyone, or any company trying to resist, inevitably will be washed away.

The launch of the Palm Pre this past week has given the industry an opportunity to debate whether the Pre is an iPhone killer. David Pogue, of the New York Times, has described the Sprint-Nextel/Palm pairing as “a pair of sad sack losers team up to defeat the smug athletic golden boy,” going on the suggest that it’s the “Palm Pre vs. iPhone.”

To its credit, Time presents a much more balanced view, pointing out that “Palm doesn't need to steal any of its competitors' customers to thrive.” This seems to be the view being (wisely) espoused by Jon Rubinstein, executive chairman of Palm Inc. as well, who rightly notes, in the same article, that the smartphone market is “large and expanding.”

Rubinstein is right in suggesting that the smartphone market is not zero-sum. Yes, there is a heightened need for device manufacturers to deliver a compelling user experience. Apple has set the bar extremely high, but the fact remains that there are “4 billion mobile phones in the world today, after all, and Palm says only about 10% of them are smart phones. During the next few years, that number may reach 50%. Morgan Stanley Research even described the migration to Internet-connected mobile devices as ‘one of the biggest opportunities in the history of the technology industry.’"

I would argue that Apple will continue to maintain its market share on the platform and device sides even as this market grows for one simple reason: iTunes. None of the other vendors has delivered a seamless content and application management platform from the desktop to the device, coupled with an accepted micro-transaction platform. Microsoft had an opportunity to do so with Windows Media Player, but was so tied up in antitrust litigation, it missed the window of opportunity and was left in the dust.

Apple’s the poster child; the launch of iPhone 3G S makes it even more so. Palm’s the underdog. But what of the other 800 pound gorillas?

“Google: Expect 18 Android Phones by Year’s End,” “BlackBerry Storm 2 could hit as early as June,” “HTC: Touch Pro 2 coming to North America,” “Samsung Unveils World's First 12 Megapixel Camera Phone,” etc.

Throw in Netbooks, gaming devices, cameras and you’ve got a rising tide of mobile data that is unprecedented. Dare I say, it is even Fundy-esque*!

That’s my .02!

Martin Suter

(*Canada’s Bay of Fundy purportedly has the highest tides in the world.)

Martin Suter is vice president of business development at BelAir Networks, the global market share leader in service provider Wi-Fi, enabling 3G data offload for wireless carriers, quad-play for cable operators, and managed WLAN business services. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

Femtos: Consumer-Subsidized Network Buildout?

(Original posted at http://www.von.com/blogs/guest/2009/05/femtos-consumer-subsidized-network-buildout.aspx )

Recently, it was reported that the 3GPP, the Femto Forum and the Broadband Forum have reached agreement on standardization issues.

So what is a femto?

Wikipedia defines a femto as: “a small cellular base station, typically designed for use in residential or small business environments. It connects to the service provider’s network via broadband (such as DSL or cable).”

Femtocells are the carriers’ implicit admission that they can’t deliver either the coverage or capacity required for an optimal experience to consumers or enterprises. So, the “answer,” is to shift the network build-out and backhaul costs to consumer.

But aren’t femtos already ubiquitous today? What is an 802.11 AP, if not a femto? T-Mobile “gets it” today, with its UMA service T-Mobile@Home, which allows customers to use Wi-Fi instead of cellular, for calls made from home. It shifts capacity from T-Mobile cell towers to indoor Wi-Fi APs, and the benefit to the consumer is that that they’re not paying for cellular minutes.

Wi-Fi APs deliver wireless capacity throughout homes, enterprises, hotels, venues, retailers, restaurants, airports and Main Streets around the world. Devices of all kind are able to connect seamlessly, and they leverage the existence of wired broadband backhaul.

So another way of looking at it may be that a “femto” is a cellular AP. But if I’ve got a Wi-Fi AP, why would I want or need a femto, especially if it’s something for which I have to pay?

Do you think wireless operators will subsidize femtos? Not a chance. Look at the PVR or modem/gateway model for your answer. Even if you don’t have to fork out the upfront capex, consumers will pay a monthly rental fee to cover the cost of the cellular base station. Once again, the cost burden is shifted to the consumer, but in this case it’s the costs of a network buildout and backhaul.

As a mentor of mine once said, “I can see how that’s good for you, but how’s that good for me?”

That’s my .02!

Martin Suter

Martin Suter is vice president of business development at BelAir Networks, the global market share leader in service provider Wi-Fi, enabling 3G data offload for wireless carriers, quad-play for cable operators, and managed WLAN business services. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

500 Percent

(Originally posted at http://www.von.com/blogs/guest/2009/04/500-percent.aspx )

During his CTIA keynote, Ivan Seidenberg, CEO of Verizon Communications, expressed his excitement “about the next generation of wireless – the one that will usher in growth that could see penetration rates of more than 500 percent for the mobile industry.” Other Verizon execs were equally giddy at the various breakout sessions that I attended.

Toasters, fridges – LTE is going to solve world hunger. Imagine the stickiness! How likely is subscriber defection if consumers need to replace their home appliances?

Thirteen years ago, at the inaugural JavaOne Conference in 1996, Scott McNeely launched Sun’s vision for Java, a lightweight programming language that would allow developers to write once and run everywhere, including microwaves, toasters, fridges, etc.

Ten years ago, in 1999, the Internet Home Alliance was formed, but in the early days it was more sizzle than steak, as it required extensive home wiring. Nonetheless, the M2M vision was being articulated:

“With the coming PC-plus era, Kenney and others expect a proliferation of connected devices. But Kenney says that gadgets aren't the solution. "It's not about more gadgets," he said. "I don't want a smart thermometer; I want simplicity. How about a clock radio that sets the thermometer for you when you turn it off at night? When you wake up, it could turn on the coffee or whatever."

Seven years ago, in 2002, Toshiba announced its Internet fridge, as did LG Electronics. Of course, the $360 billion by 2005 market sizing estimate appears to have been a little off, but the point is that other than trying to control the customer, there’s nothing new in Verizon’s “vision.”

As I listened to the presentations, I found myself wondering why the examples being cited required a WAN technology or licensed spectrum? Isn’t a WLAN technology, like Wi-Fi, a better fit for networking devices of all kinds in the home? Does Verizon think that LTE is going to replace Wi-Fi in the home?

One of the key talking points laid out by Verizon’s marketing department was about having a centralized support number. “Who do you call for support when all these devices are connected?” was one of the week’s mantras, and apparently Verizon’s value proposition.

Why would I pay a wireless carrier to add devices on my home network?

“Five hundred percent” is a great sound bite, but is it in our future?

This morning, I began to catalog the number of wireless Internet devices I have in my home: three laptops, one Netbook, one iPhone, three iPod Touches, one XBOX 360, two Sony PSPs, two EyeFi-enabled cameras, one printer, one backup hard drive, one Wi-Fi radio. Even without the wireless fridge, toaster, microwave, meter reader or washing machine, I’m at 16 Wi-Fi devices. How much does it cost me to connect each of these to the network using Wi-Fi? Nada. Have I ever felt a need to have a single number to call for support? Nope.

Five hundred percent isn’t the future. It’s the present. And I don’t have to have a wireless carrier provision every device. I don’t have to pay a service charge for every device. And I don’t have to worry about buying a new fridge every time I change service providers.

That’s my .02!

Martin Suter is vice president of business development at BelAir Networks, a provider of broadband mesh solutions for Wi-Fi, WiMAX, 4.9 GHz Public Safety and 5.9 GHz ITS networks. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

Mobile Internet Genie is Out of the Bottle

(Originally posted at http://www.von.com/blogs/guest/2009/04/mobile-internet-genie-is-out-of-bottle.aspx)

And it’s not going back...

What a week it’s been!

After blogging last month about the market disruption being caused by the combination of Wi-Fi and unlicensed spectrum, the industry reeled as it grappled with the implications of the release of Skype on the iPhone and iPod.

The buzz at CTIA was polarized around two ends of the spectrum — the incumbent wireless carriers, especially Verizon and its LTE plans, and the disruptors, led by Skype.

One of the characteristics of the climb to the “Peak of Inflated Expectations,” as articulated by Gartner, is that the only enterprises making money are conference organizers and magazine publishers. The ascent of LTE and the noise floor created by the buzz at CTIA certainly bears this out!

But LTE is just another technology. It has the potential to expand the adoption of the mobile Internet, but unlike Wi-Fi, spectrum owners that have a history of tightly controlled walled gardens will roll it out. The question is whether companies will continue to propagate a closed, walled garden approach or recognize this as the mobile Internet. There are interesting analogs in the fixed Internet that bear considering. AOL tried, for far too long, to contain its subscribers within the AOL controlled portion of the Web, and look at what’s happened to them. Does anybody remember CompuServe? Could the same thing happen to Verizon or Deutsche Telekom? Only time will tell.

The Internet has proven itself to be fertile ground for disruption. Look at how it has changed the music industry, newspapers, advertising, retailing, travel, residential voice and long distance service, and even the OS and office suite. ... Companies that “got it” on the fixed side have thrived, while those that resisted it have withered and died. Why should we expect the mobile Internet to be any different?

The availability of Skype on iPhones and iPods has, once again, brought the opposing forces into sharp contrast. Now faced with the potential loss of voice minutes, the wireless carriers are reacting in the only way they know how, by locking it out. AT&T is at least to be commended for allowing Skype traffic on its Wi-Fi network, while Deutsche Telekom companies are saying they will even restrict its use across the company’s Wi-Fi hot spots.

The battle is moving to the FCC in the U.S. where lobby groups are saying that blocking applications such as Skype is in violation of net neutrality regulations. While this argument may take years to resolve in this forum, I would bet that the consumer will decide which approach they favor, long before the courts do, and thus which companies they will continue to support as subscribers.

The Internet is kryptonite to a walled garden. Those incumbent carriers that don’t understand this and continue to try and force a controlled, mobile walled garden experience on their subscribers will ultimately lose.

That’s my .02!

Martin Suter is vice president of business development at BelAir Networks, a provider of broadband mesh solutions for Wi-Fi, WiMAX, 4.9 GHz Public Safety and 5.9 GHz ITS networks. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.