I spent a good 4 hours yesterday watching my favorite football team, the Minnesota Vikings, self destruct as only they can. During the frequent commercial breaks, I noticed the over abundance of ads for mobile carriers. There were the usual pudgy Owen Wilson AT&T ads dueling with the Verizon map commercials, along with a few Sprint and Metro PCS spots mixed in. This flurry of activity sparked me to wonder aloud, “How competitive is this market?”

The perception given by all the commercials is that the market is very competitive. Each firm is making its case for why it is the best choice- largest 3G network, fastest downloads, widest selection of phones, least restrictive calling plans, etc- and furiously trying to attract as many customers away from the other providers. Yet, I couldn’t help but think that, while they have offered more services, each successive cell phone plan I have purchased over the last 8 years has only been more expensive than the previous. If this market is that competitive, shouldn’t prices be falling?

If you believe the commercials, it appears as if they are. Verizon and AT&T announced reduced rates for their voice plans. Interestingly enough, they both settled at $69.99 a month, behavior which seems remarkably coordinated. However, as Marguerite Reardon pointed out for CNET, these new plans may actually be more expensive for many users, as they impose higher fees for web and data usage for owners of mid-range phones. 

This is an incredibly complex topic, which we have touched on in the past, but it seems like, at least until now, most carriers have tried to use subsidized phones as their main differentiator. By signing exclusive deals with manufacturers, and then offering phones for reduced upfront fees, operators are able to lure customers based on those phones’ features.  What many consumers may not realize, however, is that they are probably paying more in the long run than users of the same phones in other countries. Telecommunications tends to be a naturally oligopolistic market, and the U.S. mobile market is no exception. The high barrier to entry associated with owning large networks leads to only a small number of firms owning virtually the whole market. But what is most important (and what the FCC will probably be looking into) is if this arrangement is beneficial to consumers. I don’t have an answer to this question, but I do have a nagging feeling that I should be getting more for less.

2010 hadn’t even arrived before two carriers announced plans that made the last decade seem like it happened 20 years ago. AT&T asked the FCC to drop the requirement that the provider maintain a legacy landline infrastructure, signaling a move to an all VoIP system. A day later, France Telecom’s mobile unit, Orange, launched its HD voice service for UK subscribers. All you have to do to realize how quickly technology is changing is imagine reading that sentence in the year 2000 (or even 2008).

The AT&T request has all kinds of interesting angles that I am sure we will touch on as the week progresses (is AT&T trying to skirt FCC regulation? what happens to the 20% of consumers who rely exclusively on the PSTN? what does this mean for other service providers?) but what I am most interested in is the supposed death of the landline. I am not sure how others define the term, but a VoIP line is still a “landline” in my book. AT&T is still interested in providing home phone service; it will just be over IP instead of PSTN. I have written before that I think home phone service is going to eventually fall by the wayside unless service providers can actually offer innovative features or services (e.g. video calling) instead of treating it like an ugly stepchild and bundling it with Internet and TV. Don’t get me wrong, I am not complaining about an all IP infrastructure. I think there are definite benefits (HD voice) to home VoIP service. It is just up to the provider to offer these benefits to justify the home phone’s existence.

Speaking of HD voice, Orange’s service should be a huge step forward for voice quality and consumer satisfaction. I read one blog post that claimed, “For most of the European languages, current scenario call quality is good enough”. I have to disagree. Maybe it’s because I have been to too many loud concerts, but most of the time I find cell phone conversations unbearable and have a difficult time understanding the other party. In ideal situations, cell phone technology typically yields a Mean Opinion Score (MOS) of about 3.8, with most users hanging up when the quality drops below 3.5. When you factor in the background noise and echo that come with mobile conversations, I can’t be alone in my disdain for mobile quality. By expanding the audio frequency to 7 kHz, mobile users in the UK should be able to hear each other a lot more clearly.

So, it turns out the heavily rumored Google phone  exists, but there is much we still don’t know. I read a good piece this morning that covers the topic quite nicely, but here are what I consider the biggest unanswered questions:

1)      Can the Google phone be successful without carrier assistance? The current phone handed out to Google employees is unlocked. Most of the rumors around the phone seem to indicate that will continue to be the case. If this is true, it begs the question of how successful a phone can be that, according to Om Malik, will most likely cost $400-$600. American consumers are accustomed to buying subsidized phones bundled with service through a major carrier. While the overall cost of the Google phone might be comparable to or even cheaper than other smartphones when one considers the 2 year service contracts they usually come with, the large upfront cost will still require a major paradigm shift for people used to a $100-$200 price tag.

 2)      How will Motorola and other manufacturers of Android phones react to what appears to be a competitive offering from a current partner, and how will the move impact Android’s market share? I have said that I think the open approach Google had been following until now would prove more successful than Apple’s closed model of bundling hardware and software. Malik disagrees, comparing the Google phone launch with Microsoft’s unsuccessful strategy of competing with the iPod. He claims Microsoft rested on their laurels and launched the Zune too late in the game, and that Google needs to aggressively go after the iPhone before it gobbles up too much market share. However, I think the market for mobile devices is more closely related to the PC market than the MP3 player market. As great as the iPod is, it is an incredibly simple device. At its core, it is just a hard drive with a media player. The growth of the smartphone market can largely be attributed to the kind of functionality (web browsing, email, social networking, applications) that is typically reserved for more advanced devices like PCs. While Apple has been successful in that market, they are dwarfed by Microsoft in terms of the number of end users, largely due to Microsoft’s strategy of sticking to what they do best (software) and offering it on a variety of hardware platforms. In one sense the Google phone may be even more open if it remains unlocked because users can take it to any provider they like. In addition, this design should make it easier for developers to create apps, encouraging the growth of the Android Marketplace. However, I was hoping to see a variety of Android devices continue to proliferate. Google may still choose to offer their OS on multiple phones, but their latest move seems to be a step away from that strategy.

Speaking of carriers, there was an interesting article in the New York Times today about the impact of the iPhone on AT&T’s network.  You can read it for yourself, but the gist is that the iPhone’s poor reception may actually have more to do with the device than network capacity.

Yesterday AT&T announced it would open its 3G wireless network to Internet voice applications on the iPhone. Does this mean we are finally seeing an end on operators blocking certain 3G data traffic? I sure hope so. 

My belief is that if you pay for an unlimited data subscription, and hundreds of dollars for a smartphone, you should be allowed to use whatever application you want. 

Until now, operators have hypocritically argued that VoIP eats up too much bandwidth, possibly overloading data networks, while at the same time allowing bandwidth intensive web browsing, file downloads and  video streaming. It is obvious that operators’ resistance is more about lost revenue for voice traffic. But I find it amazing that mobile bit-pipe providers (read service providers) think they are special. I am paying them for their service and the traffic I generate, so why can’t I decide what to use it for? Would our ADSL providers dare to do the same? 

The success of the iPhone in the US market has been tremendous, and if users finally have the freedom to use any application they want, it could only mean the phone’s popularity will continue to grow. Specifically, if the iPhone retains special VoIP privileges, it could mean they keep other platforms, like Android at bay. For instance, today I read about a new Gartner report which projected Android’s market share to overtake the iPhone OS in 2012. The report states that,  ”while the Google-backed Android mobile operating system currently runs on less than 2% of all smartphones, Gartner Inc. predicts it will surge to 14% of the global smartphone market in 2012 — ahead of the iPhone, as well as Windows Mobile and BlackBerry smartphones”. The report also claims that the market share of the once-dominant Symbian OS will fall to 39%. 

So now we will wait with baited breath see if AT&T and Apple will allow subscribers to use GIPS enabled mobile applications to operate over 3G, and if other operators and devices will follow suit.

It has been a while since I posted anything. Since I am located in Sweden, not much happens during the summer except vacations. But as summer winds down, I am back in the saddle. While I was out, a number of interesting news stories broke. The rest of the world moves along. 

Perhaps the biggest news involves the first major customer GIPS ever signed.  In the midst of Chapter 11 bankruptcy, Nortel has been selling off its major business units, and today, their CEO, Mike Zafirovski left his post. Given that heavyweights like Ericsson, Nokia, and Avaya have been the buyers so far, it looks like Nortel had some pretty solid stuff. It will be interesting to see how the new carrier-centric Nortel will perform, but I think they will be just fine.

The continuing saga involving Google Voice, Apple, and AT&T is also intriguing. In one sense, I think the developments are a positive sign because they signal a new approach to voice communication. Any resistance to these kinds of applications is just a sign of growing pains from old institutions trying to adjust to a new paradigm. From GIPS’ perspective, the continued innovation in the mobile VoIP market can only be a good thing, and should lead to some technological progress in the long term.

These are just a couple examples of interesting stuff that has been happening in the last month or so. I guess it just goes to show you how quickly things move in the modern world.

I was intrigued to read the front page banner headline of the July 7th issue of The Wall Street Journal. “Telecoms Face Antitrust Threat“. 

Apparently the Obama administration has taken an aggressive position on antitrust enforcement in a variety of industries, but the focus of this article is the telecom industry. 

The two dominant carriers in the US are AT&T and Verizon. As such, they are the primary subject of scrutiny by the Department of Justice.  That’s not surprising. Taken together, they hold about 60% of the US wireless market with 164.8M subscribers.  They also control large portions of the Internet backbone and have about 90 Million land-line subscribers. 

The DoJ is exploring whether these companies are abusing their market power in the wireless handset market. The issue at question is the practice of locking up popular smartphones through exclusivity agreements with the handset manufacturers; a practice that was wildly successful with the iPhone. You’ve got to admit, AT&T and Apple really hit one out of the park with that deal. 

The big carriers say their industry is extremely competitive and that regulating these exclusive handset deals would “harm innovation”. They go on to say that these exclusive deals enable them to take risks on these new phones and bring them to market at discounted prices.  Meanwhile, smaller carriers are complaining that they are being shut-out of the market for these hot new phones. 

Jon Muleta, a former FCC bureau chief, said that the government will have a hard time pursuing antitrust charges on these exclusive deals unless the handset manufacturers say they’re being forced into these deals.  “The equipment providers enter into these deals willingly.” Mr. Muleta said. 

Wireless industry analysts say that the handset manufacturers benefit from these exclusive agreements. Partnering with a Tier 1 carrier gives the manufacturers high visibility and a first-class marketing campaign. 

It was interesting to note that the WSJ article didn’t interview any of the handset manufacturers. I guess nobody from Apple, RIM, LG, Samsung, or Palm was near a phone on July 7^th, 2009.

According to TWICE.com, In-Stat has published a report predicting North American shipments of home “media phones” to surpass 14 million by 2013.  These multimedia devices, such as the Hub from Verizon and HomeManager from AT&T, include Internet access and unified messaging, in addition to basic phone service.

The report claims that media phones will be “complimentary” devices, and will not replace any other consumer electronics.   This seems in line with my colleague Larry’s blog about the Hub back in January, in which he discussed how, by offering advanced services, telcos can maintain home phone subscription revenue. However, it remains to be seen if people actually want another device in their home that essentially offers the same features as equipment they already have (TV, computer, phone). It seems to me that the main advantage of unifying communications and entertainment features is to reduce clutter and end up with a device that offers more than any of the originals. I think it is more likely that people would want to get rid of their home phones, for instance, if their other household appliances (TV or computer) offered calling and messaging capabilities. I know that once the iPhone exceeds 30 GB storage capacity it will become a lot more appealing to me because I can then use it as my portable music player, thereby replacing not only my current cell phone, but also my iPod.

But hold on! There is another reason to be skeptical of the prospect of media phone success. The opening sentence of the article sheds some light on how difficult it is to predict market trends, and the reliability of market research.  It reads, “North American shipments of broadband-connected residential media phones could hit almost 14.3 million units in 2013, up from zero in 2008 and up from a forecast 700,000 to 1.4 million in 2009″. Did you catch that? In-Stat doesn’t even have one year of reliable data upon which to base a prediction! These products didn’t even exist a year ago, and we only have a vague notion of how many will ship this year, yet we are going to go ahead and try to predict how many will ship 4 years from now. I am sure Verizon and AT&T have some complicated models for these things, but I find it hard to believe that a 3^rd party firm like In-Stat could make this kind of forecast with any degree of confidence. Isn’t that like trying to predict how tall your 4 month old child will be when he or she gets to be an adult? Sure, there are methods out there, but I don’t think they are terribly accurate.