May I Digress

Keep your seat belts fastened! There are more twists and turns, ups and downs ahead, but even those with the very best crystal balls cannot foresee them.

Verizon is buying Vodafone’s 45% share in Verizon Wireless, Microsoft is buying Nokia’s handset businessSprint is now 70% owned by SoftBank, Metro PCS has become part of T-Mobile, which is owned by Deutsch Telecom, and AT&T is looking for European investments, perhaps even buying Vodafone. Meanwhile, LTE is hot and being built out around the world and Voice over LTE (VoLTE) is beginning to be deployed. Network operators can begin shutting down their 2G and 3G networks and replacing them with LTE in order to meet the growing demand for broadband services, and Public Safety has 20 MHz of prime 700-MHz spectrum for a first nationwide fully interoperable network that will require sharing some of its spectrum with secondary users (through public/private partnerships).

Verizon has also indicated it might be interested in becoming a Canadian network player either by buying several smaller networks or bidding in the upcoming Canadian spectrum auctions, and BlackBerry, struggling for survival, is looking at various solutions or another company that wants to pick up the pieces or all of RIM. Google owns Motorola Mobility and there is still speculation that once Google has a firm grip on the Motorola intellectual property it will sell off the device side of the business, although I am not sure what it would be worth to anyone.

The wireless industry is seeing more and more changes as companies seek to glean larger profits, find it more and more difficult to add new subscribers, and constantly struggle with how to meet the increased demand for broadband services. Customer penetration is already well above 100% in many countries (meaning many people are carrying more than one wireless device), and fewer new customers are available for networks to chase after. Rolling out LTE takes a lot of money and resources and stockholders are a “what have you done for me lately” type of people for the most part.

Network operators’ stock rises and falls on the number of net new adds each month, their churn rate (how many people leave the network), and a few other less important metrics. Operators have to constantly worry about these numbers to keep investors happy, and at the same time they have to continue to invest in their networks, buy down devices to make them attractive, and figure out how to meet the demand for broadband services.

The Verizon buy-out of Vodafone’s 45% share of Verizon Wireless comes at an opportune time for Vodafone which is, itself, struggling to keep moving forward and is facing increased competition everywhere it owns or partially owns a network. Some analysts have already questioned whether Verizon was wise to make this deal now, basically going it alone in the United States while Sprint and T-Mobile are mostly owned by foreign interests. I think Verizon’s move makes sense. It is now free to blend Verizon and Verizon Wireless into a single company if it so chooses, and it should be no surprise that as the wireline business continues to fade, wireless is the future for all of these companies. I think Verizon will do well. It has already cross-pollinated its management team, moving many of the successful wireless side folks to corporate, and moving up some equally talented people within the wireless group. Just as I was writing this, Lowell McAdam, the CEO of Verizon, stated that Verizon will not pursue any networks in Canada since reaching a deal with Vodafone. This makes sense because Verizon will need access to a billion more in cash for the next wave of spectrum auctions, some of which are scheduled to be held as early as next year.

The Microsoft/Nokia deal is more difficult to fathom. Does it mean Microsoft has given up in its attempt to become a meaningful mobile operating system company? Does it really think Samsung, HTC, ZTE, and others will continue to develop devices using the Microsoft mobile O/S in light of this purchase, or is it simply grasping at straws in an effort to stay relevant? Or as some analyst are predicting, was this a way to entice Stephen Elop, an ex-Nokia executive, to take over the reins of Microsoft once Steve Ballmer retires? All of this is speculation at this point, but if I were Microsoft I would now turn around and make a deal to acquire BlackBerry and combine Nokia’s phones with BlackBerry devices, and combine the best features and functions of the Microsoft and BlackBerry operating systems.

One analyst summed up the results of the Microsoft deal this way:

  • BlackBerry and Google lose
  • Microsoft wins if it goes dirt-cheap on devices but establishes an ecosystem
  • Nokia wins
  • Apple TBD
  • His final question: Is Microsoft too big to fail?

These are interesting conclusions and there are any number of other analysts’ reports out in the press today, everyone weighing in on what they think this means for all of the players. My own impression is that companies such as Microsoft, Intel, Motorola, HP, and others have a tendency to buy and acquire companies hoping the sum of these deals amount to one plus one equals five; many times it turns out that one plus one is still only one at the end of the day. But let’s see what happens here. Microsoft has been a trendsetter in the PC world for years but has not been able to get its mobile strategy right. Over the years, it has made many bold statements about its mobile strategy and not delivered much. One thing it did get right after years of trying was the sync-software now used in Ford’s fleet of cars. I remember back many years when Microsoft was touting this technology and equipped a hummer with it. I was given a drive around the campus and it sort of worked but not enough to make me think it would become what is currently in the Ford cars. It took Microsoft many years to get it right, but it did it. However, in the fast-evolving wireless space, it doesn’t have years to work things out.

The wireless industry is moving forward at the fastest pace I have observed over the years. When you consider that the first wireless email system was set up by RadioMail in 1991 using the RAM Mobile Data network at the blinding speed of 8 Kbps, and the first BlackBerry, which also used the RAM Mobile Data network, hit the market in the later 1990s. Even through the 1990s, data speeds played second fiddle to wired connections. Finally, in 2000 and beyond we began to see some true movement in wireless data speeds and capacities, but during the past two to three years, wireless speeds and capacity have made quantum leaps—so much so that now many use wireless access as their only connection because it is faster than they can acquire using DSL or even cable in some areas. Today’s LTE is fast and has a lot of capacity (but still not enough), and it will become faster and better in many regards as the standards bodies continue to add features and functions. The term “LTE” or Long Term Evolution is appropriate indeed because that is what we are seeing.

Yet some are already touting 5G advances and helping to push expectations beyond what is available today. Because LTE is moving so quickly on so many fronts and is fast becoming the first true world standard for wireless broadband, there is still a learning curve, still a lot of opportunity to improve the user experience, types of devices we use, and what we can do with them. If you remember back to the 1990s, the rage in the United States was small and light flip-phones, led by Motorola’s StarTAC. Nokia was still pushing its “candy bar”-style phones and lost out to the flip phones until data became more important than voice services.

Smartphones take us back to the days of the candy bar phones and now they are getting larger and larger. The first cellular mobile phones fit into the trunk of a car and had a large remote head with the handset in the front of the car. Then came Marty Cooper’s breakthrough at Motorola with the first handheld. Now we are back to big and bulky smartphones, mini tablets, and tablets. It is clear that form, fit, and function are driven more by the capabilities available over the network than the customers’ desire for smaller and lighter. Another difference is that flip phones and BlackBerry-type devices of old were able to be used one-handed but today’s smartphones need both hands to operate them as intended. However, users don’t always have two hands available to take full advantage of them. I continue to use my BlackBerry for this very reason. I can walk between gates at the airport, pulling my suitcase and briefcase, and still check on and even answer email that had been piling up while I was on the plane. Some people tell me they can do almost the same thing with the iPhone and others, but I can do more one-handed with my BlackBerry than anyone I have met with a smartphone.

However, smartphones are here to stay, but I’m not so sure about the BlackBerry product line. I feel a special fondness for the BlackBerry since it was an article I wrote in the mid 1990s that sparked the development of the first BlackBerry. At that point, those of us experimenting with wireless email were using RadioMail and we had our desktop email address and a separate RadioMail address. We could forward our desktop email to the RadioMail account, which we did, but when we answered an email, the address the recipient saw was our RadioMail address. If they replied, the response went to the RadioMail account, not to our desktop. This was confusing, and in those days the only way to have wireless email delivered was to turn on the device and sign on. If we did not sign on for a few days, we could miss some important and time-critical email.

Out of that experience was an article I wrote that cited the “two mailbox” problem and explained the issues in some detail. A few months later I was called to Waterloo, Canada to meet with the two RIM founders and talk to them about their ideas for solving this problem, which they did with the very first BlackBerry on the RAM Mobile Data network and a server to interface with Microsoft’s Outlook email server and client. The BlackBerry was now sending and receiving email as though it was through the desktop email client!

This digression was, I hope, informative, and perhaps provided some newcomers to the industry insight into how things developed over time. We take for granted that a wireless device works across many networks and continents, but today that is still not the case. However, chip vendors and device vendors have become good at building in multiple-network support and building in many different types of antennas, packaging them into the smallest of spaces. Yet it appears from looking at sales figures that bigger is better, at least when it comes to broadband devices. I keep seeing people pull out larger and larger-screen smartphones and many carry a tablet around as we used to carry a notebook filled with paper for note taking.

The teens who use these devices have never seen a flip phone or a small device that is voice-centric. To them, wireless is and always has been about text, messaging, Internet access, and oh, by the way, voice calls. They probably don’t remember that only a few short years ago wireless devices required a stylus for screen input since touchscreens had not yet come of age. But this is the generation that will be making upcoming decisions about device types, service offerings, how much data we get for how much money, and all of the other things network operators have to worry about every day. Many of us have been around for many changes of the guard in the wireless world and over the years, many of us have used about every type of wireless device that has become available.

Wireless is having a huge impact on everything and everyone. Recently I read that the sale of digital handheld (non-professional) cameras was down more than 25% year over year because most people now take pictures with their smartphones. Wired telephones are becoming a thing of the past, and a large percentage of high-school and college-age students will only know one-number-one-person instead of one-number-one-household. Machine to machine wireless communications has finally become a hot topic, yet for years, it was the purview of a very few companies that could not persuade network operators to pay any attention to them. Today, all of the network operators are courting M2M customers. Near Field Communications built into our phones will help us pay for things at retailers, Bluetooth enables us to remain hands-free while on a voice call, and Wi-Fi appears to be everywhere and, for the most part, free.

Things are moving so rapidly that there will be more mergers, acquisitions, and foreign investments made in the United States and elsewhere. The Chinese and Indian markets offer the largest growth opportunities, and many markets are already at 200% device penetration and growing. However, with each passing quarter, with each new device or new network upgrade, network operators still face the same three issues: How many new subscribers they can acquire this month, how many they can keep this month, and how they can provide enough broadband wireless to meet their customers’ demand. The management of each network has different answers as can be seen by recent activity. Every device vendor is working on what it hopes will be the next big success, and every company that deals in content is refreshing, restructuring, or revising what they offer and how they offer it.

Keep your seat belts fastened! There are more twists and turns, ups and downs ahead, but even those with the very best crystal balls cannot foresee them.

Andrew Seybold

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