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Panelists: The Endgame for AT&T and T-Mobile

December 9th, 2011 12:00 admin View Comments

111209 Panel of Esteemed Grown-ups.jpg

“The landscape has clearly changed,” U.S. District Court Judge Ellen Huvelle told a hearing into AT&T’s proposed acquisition of T-Mobile from Deutsche Telekom, according to this morning’s Wall Street Journal. When the deal was proposed in March, it appeared to be rolling like a juggernaut, and the Justice Dept. sought expedited proceedings to address the urgency. Today, federal attorneys are seeking to slow down the case, after AT&T withdrew its petition for approval of the deal from the Federal Communications Commission, while immediately afterward AT&T said it would continue to pursue the merger.

As of Friday evening, the deal was, as one veteran telecom industry attorney told Reuters, “pretty close to dead.” If that’s the case, does T-Mobile soldier on? Or is it, to coin a phrase, pretty close to dead? ReadWriteWeb has convened the Panel of Esteemed Grown-ups to discuss no less than the fate of the U.S. wireless industry (left to right):

Ross Rubin, Executive Director and Principal Analyst, NPD Connected Intelligence

Mark Beccue, Senior Analyst for Consumer Mobility, ABI Research

Jan Dawson, Chief Telecoms Analyst, Ovum

Carmi Levy, contributing analyst, CTV News Channel

Just what did they expect?

“My feeling from the beginning has been, this felt like it was using a sledgehammer to crack a nut,” says Ovum’s Jan Dawson. He’s talking about the part of the proposed deal that AT&T has said from the beginning was its key objective: the integration of the two companies’ 4G LTE wireless networks.

“If the objective really was just to get spectrum, access to cell towers, then spending the $39 billion to acquire the entire company just felt like overkill. If you look at T-Mobile on paper, those are the main assets they have,” Dawson goes on. “They have a customer base that they’ve struggled to grow; the brand is pretty good, but it does look like AT&T was planning on eliminating that. So you’re kinda wondering, do you really need to acquire the whole company to get this? You wonder if somewhere, in all of this, part of the motivation was that AT&T had lost the #1 spot in terms of number of subscribers to Verizon awhile back, and they felt the best way to get it back on a pretty permanent basis was to cement its position as the largest wireline carrier, the largest DSL carrier, and the largest wireless carrier in the U.S.”

“ There’s no reason why competitors can’t partner up on initiatives. Bell and Telus built a consolidated 3G network, recognizing that the size of the market and the geographic coverage to reach that market did not justify a single-company investment.”

Carmi Levy
Contributing analyst, CTV News Channel

After AT&T announced its intentions last March, telecoms analyst firm ABI Research went on the record as believing “at the end of the day, the deal will go through in one form or another.” Granted, the day has not ended, but this deal may already be history.
In fact, ABI’s Mark Beccue isn’t prepared to stick a fork in it even now. As he explains to us, “AT&T’s very clear about what they want [T-Mobile] for. They want the spectrum, because they’re succeeding and they need it.”

But T-Mobile’s cell towers make for a nice little prize on the side, Beccue goes on. When you consider the licensing and construction costs for building cell towers on a local level, he says, it’s too great an expenditure of both money and time now for a company of any size to undertake on its own. AT&T would gain increased capacity and better service, and one might be surprised to learn that even at a $39 billion price tag, that’s a bargain.

Beccue disagrees entirely with Dawson’s assessment of AT&T’s motives. “At the highest level – AT&T, Sprint, and Verizon – what do they need? They don’t need subscribers. They’ll go get them on their own. What they need is assets.”

What did the government think it could accomplish?

While the FCC claims it’s upholding a principle of preserving free and fair competition in presenting its objections to the merger deal thus far, Beccue believes that the current free and fair market does not necessarily want competitors to be artificially preserved like jellies and jams. “It’s puzzling to me why the government would be opposed to this merger. They’re not thinking about what would happen if they don’t allow it to happen. And I think that’s pretty dangerous.”

The ABI analyst points out that T-Mobile has been trying to sell its U.S. property to someone for years. Its parent company, Deutsche Telekom (T), never put its heart into T-Mobile, he says. And in a way, the act of not wanting to put the effort into T-Mobile to make it competitive, to make it leapfrog over #3 Sprint, creates a kind of Darwinian competition, the result of which being that only AT&T would want to buy it.

“The government’s saying, ‘You can’t sell it to somebody who wants it.’ And nobody else wants it,” Beccue remarks. Although government regulators make the argument that preserving T-Mobile makes Sprint stronger, he believes, Sprint itself demonstrated the opposite by not wanting to buy T-Mobile when it had the opportunity.

NPD’s Ross Rubin disagrees with several more of Beccue’s points, including that no one else but AT&T would want T-Mobile’s assets. “If the merger falls through, then a number of things could happen, but clearly Deutsche Telekom has indicated that they want to divest themselves of this operation. And there’s been some discussion over whether it could be acquired, perhaps, by a satellite provider such as Dish.”

Now that Sprint will be moving to LTE along with its competitors, Rubin says, it could conceivably add T-Mobile’s spectrum holdings in the 1.7 GHz band to its own. LTE is not only a more expensive infrastructure to build and maintain, he points out, it requires sophisticated smartphones that will remain on the high end of the value scale for some time to come. What every competitor needs in this market needs to compete is a type of scale that Beccue didn’t mention.

“It is difficult or impossible to compete if you’re not offering subsidies on smartphones,” states Rubin. “You can’t just be a post-paid wireless carrier in the U.S. without doing that. So to the extent that T-Mobile – as an independent entity or part of another organization – would continue to be in the consumer cellular business, it would need to continue to offer subsidies to be viable.”

“If the objective really was just to get spectrum, access to cell towers, then spending the $39 billion to acquire the entire company just felt like overkill.”

Jan Dawson
Chief Telecoms Analyst, Ovum

Doesn’t that mean, we asked Rubin, that any prospective post-AT&T purchaser of T’s U.S. assets would have to be at least no smaller than Dish Network, in order to continue to have enough cash on hand to subsidize at least a few brand-name 4G phones? Not if multiple companies are willing to pool their resources, Rubin responds, pointing out last week’s deal by Verizon to purchase spectrum held by cable companies, including Comcast, in exchange for scaling out their triple-play service offerings.

The word that’s used to describe a deal that may enlarge a company’s reach in a (presumably) good way, without entering it into too many monopolies in a bad way, is “horizontal.” Verizon’s deal with the SpectrumCo alliance could be described that way; it was used by the FCC in 2004 to describe what it then perceived as the positive benefits of a merger between the old AT&T Wireless and Cingular; and it’s also been used by AT&T and others to characterize the potentially positive buildout of its 4G holdings while maintaining competitive par with Verizon and Sprint.

“It’s difficult to escape the irony. A horizontal combination of service is a euphemism if ever there was one,” states Carmi Levy. “It’s essentially another word for less competition.

“In 2004, when you had more players on the playground, the FCC might have found it acceptable to have relatively fewer, more bulked up players providing those horizontally combined services. But in 2011, where you’ve already gone through an additional seven years of industry consolidation, and now the giants loom that much larger, the FCC is probably looking at the end of the era of consolidation, and asking itself, ‘When do we begin to say no? When is horizontal combination too much for consumers to bear? When does it begin to erode competition to the point that we essentially have a monopolistic landscape?’”

Next: Why not a joint venture instead?

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Source: Panelists: The Endgame for AT&T and T-Mobile

NPD’s Ross Rubin: Is There No ‘Joy’ in Android?

November 23rd, 2011 11:30 admin View Comments

Last month, Android’s user experience lead, Matias Duarte, spoke to The Verge’s Joshua Topolsky about the emerging design ethic for the mobile operating system, which Google hired him to help create. At that time, Duarte told Topolsky that there’s a special difficulty in maintaining a single design ethic that must be applied to multiple variations of an operating system simultaneously. “You want to be sure that your design ideas will survive, and also allow for customization,” he said.

Topolsky’s story inspired Slate’s Farhad Manjoo on Monday to write that even Android 4.0, whose design was influenced by Duarte’s contributions, does not have a consistency of overall experience that evokes an experience, as Duarte described it, of “love.” “Of the three major smartphone operating systems,” Manjoo wrote, “Android is still by far the most confusing. It’s also the least likely to inspire joy.” (For those of you keeping score at home, the #3 system on Manjoo’s list is Windows Phone, not BB OS.)

“There’s a dichotomy. Specific implementations of products that consumers ultimately use are generally the product of many cooks being in the kitchen: the carrier and the handset maker being the two most prominent,” explains the Executive Director of Industry Analysis for NPD Connected Intelligence, Ross Rubin, in a discussion with RWW this afternoon. “But Android as an offering from Google is really beholden to nobody. And as a result, it’s been able to be adapted to a wide range of experiences, and that’s ultimately what consumers fall in love with. It’s the experience, not any particular element of it such as the consistency of the user interface – that’s a component. Consumers may have a strong emotional reaction to having a first-class Gmail client, if that’s where they’re living their lives.”

Divvying up the joy

Variation of implementation is no stranger to the iPhone, added Rubin, especially with respect to all the games that don’t have to follow a standard usage model. In fact, if they did, they wouldn’t be unique and valuable. Individual PC games over the last three decades have had highly stylized usage models; when they look and feel like Windows, frankly, they’re no fun.

Ross Rubin (300 px).jpg“Certainly what Microsoft has tried to do is simplify the experience, and one way they’ve done that is maintaining more consistency among the various handset brands, setting a higher bar for minimum specifications in terms of screen resolution, camera resolution, etc. But what Microsoft is doing now is expanding the degree of supported hardware to appeal to a wide audience.”

Perhaps the increased degree of consistency and attention to specifications that Microsoft has shown with respect to Windows Phone 7 should mean it loves its phones even more than Apple. But maybe it’s easier to talk about love as a component in the context of Apple.

Rubin concedes that UX consistency implies a certain degree of forethought, which some may rightly conclude comes from care. But Google, he adds, may be a world leader in forethought. “They’re putting more forethought into supporting a wider range of devices and scenarios. You could argue that what they should be thinking about is the end user experience, not what’s important to their licensees. Historically, that’s where Apple has focused; and increasingly, it’s where Microsoft is focusing.”

Android remains in a transition period (“maybe one that it will never exit,” quips Rubin). Currently, it’s adapting lessons learned from the Android 3.2 “Honeycomb” tablet platform to the forthcoming 4.0 “Ice Cream Sandwich” platform, which will tie together both form factors. That’s an added element of consistency that Slate’s Manjoo may have neglected, says Rubin. “Now that everything is unified on the same software release, [Google] can bring together all of the mobile devices instead of just some of them reaping the benefits of that greater consistency.”

Would consistency mandates constitute affection or punishment?

I suggested to Rubin that, if four years ago, Google had published a massive set of software and hardware specifications for how Android phones and apps must look and feel – how buttons must appear, how sliders must work – the degree of consistency the company would have been perceived to enforce would not have evoked feelings of “love,” but rather quite the opposite. “Fragmentation is a high-class problem,” NPD’s Rubin responded. “You need to have a large number of devices out there in order for the issue of them having such significant variation to register with developers. If some of those form factors are shipping in such low volume, then it’s not a priority for developers.”

Amazon’s Kindle Fire and Barnes & Noble’s Nook, both of which are Android-based, don’t rely on Google’s services or Android Market, he reminds us. But both manufacturers allow Google’s developers to leverage their knowledge in developing for their tablets. This kind of “sub-ecosystem” established by B&N and Amazon speaks to the wide range of Android flexibility, says Google – something never before seen within any Linux-based platform heretofore.

In the end, I asked Ross Rubin, is “joy” – the missing element in Manjoo’s story – only a prerequisite for an Apple phone, as opposed to a phone that a guy like me would use. (I can be happy enough using a phone without feeling I haven’t received my daily dose of joy.)

“What Apple has been very good at is reinforcing each element of the experience with the other elements,” he responds. “The design of the device reinforces the design of the software, which reinforces the design of the retail experience. And it’s all a virtuous circle, so that if you’re looking for a well-curated experience, something that is torn down to its essentials but executes those essentials with very high quality, then you’re going to get a heavy reinforcement of those attributes through the entire Apple product experience. But there’s a wide array of experiences. You have to believe that a phone that can execute well on providing video chat between a grandparent and grandchild is going to provide a lot of joy to that grandparent. You can’t underestimate the value that compelling content and services have to play.”

Source: NPD’s Ross Rubin: Is There No ‘Joy’ in Android?

Nobody Predicted The iPad’s Growth. Nobody.

January 19th, 2011 01:53 admin View Comments

Apple sold almost 15 million iPads last year.  It is outselling Macs in units, and closing in on revenues.  The 7.3 million iPads sold just in the December quarter represented a 75 percent increase from the September quarter, and the $4.6 billion in revenue represented a 65 percent sequential jump. (The iPad launched in April).  By any measure, this is an incredible ramp for an entirely new computing product.  It is so startling that nobody predicted it—not bullish Wall Street analysts, or even wild-eyed bloggers.

A post on Asymco tallies all the early predictions of iPad unit sales from both Wall Street analysts and tech bloggers. The iPAd ended up selling 14.8 million units in 2010.  The highest Wall Street estimate from April was 7 million (Brian Marshall of Broadpoint AmTech).  David Bailey at Goldman Sachs predicted 6.2 million.  Even Apple table-pounder Gene Munster initially thought they would sell only 3.5 million iPads. The average prediction among the 14 analysts listed was 3.3 million.

Tech bloggers did a little better.  Fox anchor Clayton Morris (is he a blogger?) predicted 9 million, followed by John Gruber who predicted 8 million.  The average among the 8 bloggers listed was 5.5 million.

In other words, the iPad sold three times as much as the average tech blogger predictions, and five times as much as the average Wall Street analyst prediction. Think about that the next time you see a prediction for anything in tech. The newer it is, the less anybody knows.

Here is the breakdown from Asymco:

Professional analysts’ first year iPad unit forecasts (sourced from TMO Finance Board)

  • Brian Marshall, Broadpoint AmTech   7.0
  • David Bailey, Goldman Sachs           6.2
  • Kathryn Huberty, Morgan Stanley     6.0
  • Shaw Wu, Kauffman Bros.              5.0
  • Mike Abramsky, RBC Capital Markets   5.0
  • Gene Munster, Piper Jaffray           3.5
  • Ben Reitzes, Barclays Capital           2.9
  • Keith Bachman, BMO Capital         2.5
  • Jeff Fidacaro, Susquehanna           2.1
  • Chris Whitmore, Deutsche Bank       2.0
  • Scott Craig, Merrill Lynch               1.2
  • Peter Misek, Canaccord Adams       1.2
  • Doug Reid, Thomas Weisel             1.1
  • Yair Reiner, Oppenheimer             1.1

Here are the predictions from Tech Bloggers:

  • Clayton Morris: 9
  • John Gruber: 8
  • Horace Dediu: 6
  • Natali Del Conte: 5
  • Ross Rubin: 5
  • Mike Rose: 4.5-5
  • Jason Snell: 3
  • Andy Ihnatko: 3

 

Source: Nobody Predicted The iPad’s Growth. Nobody.

Six Reasons Why Flash Isn’t Going Away

August 17th, 2010 08:03 admin View Comments

CWmike writes “While Steve Jobs is betting his mobile platform on it, predicting Flash’s demise is short-sighted, say industry analysts. ‘There are many people who despise Flash, but I’m not sure they’d love the alternative right out of the gate. The open-source world has not blown everyone out of the water with their video work thus far,’ Michael Cote, an analyst at RedMon, told Howard Wen. ‘Adobe has spent a lot of time optimizing Flash, and I’d wager it’d take some time to get HTML 5 video as awesome.’ Here are six factors that give Flash a strong position over HTML 5 and other alternative Web media technologies in the foreseeable future. For starters, While Android has made Flash a wedge issue, Flash is just beginning to show up on multiple mobile device platforms, Wen writes. Ross Rubin, an analyst at NPD Group, reminds us how Flash ushered in video on Web pages, but Craig Barberich, vice president of marketing and business development at Coincident TV, highlights the pervasiveness of Flash on the Web as we know it: ‘Everybody is talking about video, but what doesn’t necessarily get talked about is a lot of the interactive elements.’”

Source: Six Reasons Why Flash Isn’t Going Away

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