Bob Galvin turning in his grave

Wednesday Google announced it is dumping Motorola by selling it to Lenovo, the same company that bought IBM’s PC business when it decided to exit.

CEO-founder Larry Page wrote:

We acquired Motorola in 2012 to help supercharge the Android ecosystem by creating a stronger patent portfolio for Google and great smartphones for users. … But the smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo—which has a rapidly growing smartphone business and is the largest (and fastest-growing) PC manufacturer in the world. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere.

Just to be clear, Google is abandoning commodity markets, not hardware:

As a side note, this does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry. We’re excited by the opportunities to build amazing new products for users within these emerging ecosystems.

This is obviously a big deal for Google, for the smartphone industry — and readers of this blog. There are so many angles that went through my head — but then I went off to spend 36 hours seriously focused on teaching (plus meetings). Fortunately, I can summarize most of the angles from the reporting that’s happened since then.

Google's Losses

Google spent over $12 billion to buy Motorola in mid-2012, and is selling it for $2.9b. Only $0.66b is cash and the rest is stock and IOUs. In an article entitled “Buy High, Sell Low,” John Paczkowski (formerly of the Merc and AllthingsD) wrote “the whole affair is arguably one of the worst investments in Google’s history.”

However, the net is a little better than a $9b loss. Minutes after the announcement, Tom Gara of the WSJ calculated

Google paid about $12.5 billion for Motorola Mobility when it acquired the company in 2012, and that came with about $3 billion of cash. It later sold off the company’s unit that makes cable TV set-top boxes for $2.35 billion. Now it’s selling off much of what’s left for $2.9 billion, but keeping all those patents.

The WSJ reminded us Thursday that “Google had absorbed roughly $2 billion of operating losses through the third quarter of last year,” bringing the net cost to $6b.

Friday, the WSJ had a second-day story “How Google's Costly Motorola Maneuver May Pay Off”. This is a fairly transparent effort by the company (or key executives or allies) to try to put a positive face on their huge loss. While the Google goals (promoting Android, fighting Apple) made sense, the purchase had only a small impact on the industry and was a terribly inefficient way to accomplish these minimal results.

The bottom line is that Google ended up spending more than $6b, and all they have to show for it is the 17,000 patents of MMI. Not only did they overpay, but with the losses this is even worse than what they booked on their balance sheet. As Bloomberg reported last April:

Google…estimated in regulatory filings that $5.5 billion of the purchase price for Motorola was for patents and developed technology. Chief Executive Officer Larry Page in August 2011 said Motorola’s patent portfolio would “help protect Android from anticompetitive threats from Microsoft, Apple and other companies.”

Of course, Google has had difficulty monetizing these patents — either offensively or defensively — in support of Android. (The one exception was this week’s cross-license deal with its major Android customer, Samsung, on undisclosed financial terms).

Google’s Mobile Patent Strategy

So how’s that investment working out? As with any mobile patent issue, the definitive source is the FOSS Patents blog. Florian Mueller didn’t pull any punches Thursday:

Things haven't been going too well for Google in the patent litigation arena recently.
…
At the moment Google appears to be on a losing streak in U.S. patent courts, and as I said further above, more bad news is probably coming in the near term. Google's patent infringement issues are definitely a key reason for its push for patent reform legislation, and I doubt that Congress will solve Google's problems anytime soon. There will either be a quick agreement between both chambers of Congress on a targeted and limited reform bill or things will take much longer.

He lists Google patent lawsuit losses to SimpleAir and Vringo, and Samsung’s loss on Apple’s auto-correct patent (presumably signaling future losses by the remaining Android handset makers). In addition, major licensee Huawei settled with the Rockstar Consortium — which suggests to me that Android licensees except Samsung will probably do likewise. (Wikipedia helpfully explains that this patent troll paid $4.5b for the Nortel patents — the largest patent portfolio ever sold — and that Apple, Microsoft and Sony are part-owners.

If that’s not bad enough, Mueller predicts that Motorola is also likely to lose its case to Intellectual Ventures (the Nathan Myhrvold patent troll).

In defense of Google execs, this mobile phone patent litigation among handset makers is relatively new, and it was not obvious how it would turn out. Still, it’s clear Google knew little about this business model, didn’t have a lot of their own patents, and took the shareholder’s cash to buy the biggest stash of patents they could find (valuation be damned).

Greater Fool Theory

Of course, for every seller there is a buyer. Lenovo seems to think that what’s left of the Moto mobile franchise is worth $2.1b in cash and IOUs (plus 5% of their company).

A friend of mine noted that parallels the habit of Asian companies over the past two decades to buy money-losing US PC companies:

• AST Research: bought by Samsung (1996)
• Packard Bell: bought by NEC (1996)
• Gateway: bought by Acer (2007)
• IBN’s hard disk division: bought by Hitachi (2002)
• IBM's PC division: bought by Lenovo (2005)
• IBM’s PC server division: being bought by Lenovo (2014)

So far, it appears that the first two (market-leading IBM businesses) were worth buying. The others (top 10 but not top 3) only transferred value from Asian CEO egos to struggling American shareholders.

Death of an Icon

All this aside, what occurred to me when I heard the news was that the late great Bob Galvin (1922-2011) must be turning in his grave. Here is the an excerpt from the obit I wrote:

Robert Galvin died last week at aged 89. The second of three generations of Galvin CEOs at Motorola, he was clearly the best, guiding the company to its period of greatest success (1959-1997).

In addition to serving as Motorola president, CEO and chairman, Galvin was chairman of Sematech and helped create the Six Sigma movement in the United States. For more than 20 years, Galvin was a Notre Dame trustee and later fellow.

There is a great video on Galvin’s seminal contributions to the wireless industry, prepared by the Marconi Society when they gave him a lifetime achievement award. In that video, I argued that Galvin’s two great contribution was to create the system of competing US licensees in cellphones (something that no other market had yet considered) and to push portability, miniaturization and mobility in cellphones — i.e., to create our modern industry. Yes, without Motorola we would have eventually had such a mobile industry, but the company shape how we got here and got us here sooner.

Bob Galvin spent his last years at Motorola doing two things: fighting against trade barriers for Motorola products overseas (notably in Japan), and promoting a resurgence in manufacturing quality for American electronics to be able to compete with foreign (i.e. Asian) producers. In 1988, Motorola won the Malcom Baldrige National Quality Award for manufacturing in its inaugural year.

His company is no longer the market leader it once was, having come late to the digital era and wasted $7b on Iridium (back when that was real money). Before he died, the company’s decline was palpable and surely known to him. Still, I have to imagine he is turning in his grave.

Handset sideshow doesn't solve Microsoft's core problems

Facing the expiration of the distribution agreement with its main mobile phone licensee, Microsoft bought Nokia. The deal fulfills Steve Ballmer’s ambition to recast Microsoft as the next Apple by allowing it to vertically integrate downstream into hardware.

Here’s the key passage from Ballmer’s press conference Tuesday:

The company I joined 33 years ago was a company focused on software for personal computers. And software is a great skill and will always be a core strength of Microsoft. The PC is an important device, the most productive device on the planet, and will continue to be so. And yet for us not only to grow but for us to really fulfill the vision of what we can do for our customers, we've evolved our thinking.

We need to be a company that provides a family of devices in some cases we'll build the devices, in many cases third parties, our OEMs, can build the devices but a family of devices with integrated services that best empower people and businesses for the activities that they value the most.

Like the dog who caught the car, now what? Microsoft under its next CEO will be a hardware company, but is there any evidence it will be a successful hardware company?

One of the problems is that Microsoft had more than a decade to offer a compelling mobile platform. Its smartphone market share has been falling since before the iPhone and Android.

Now with Windows Phone 8, it has a good product, but so what? Four years ago, another dying mobile company — Palm — brought out an innovative device to great reviews, but it didn’t matter. Less than a year later, the company — the US smartphone pioneer and onetime market leader — was gone, like Nokia bought up at a firesale price.

Microsoft has already had a chance to try its fully integrated mobile strategy with its Surface tablet, which enjoyed great reviews and a huge marketing push. In one year, Microsoft spend $900m to advertise the Surface and WP8, but generated only $850m in sales and took a $900m write-off on inventory.

Fortunately for MSFT shareholders, Nokia’s handset division is available at a firesale price, less than 10% of the company’s cash on hand. Unfortunately, the man who ran the division into the ground will be heading it for Microsoft and is now a favorite to become Ballmer’s replacement

The deal would also reward Nokia’s CEO Stephen Elop, the ex-Microsoft executive who torched Nokia’s Symbian platform in favor of Windows, and led the failed effort to regain share using Windows. (In mid-2012, Nokia’s Symbian platform had a higher market share than Windows had then or now). Elop has shrunk the company , cutting the company’s market cap in half from $40b to $20b.

Perhaps Elop won’t rewarded for his Nokia failures, but the early betting is that Microsoft’s board (a captive of Ballmer and founder Bill Gates) will pick a conventional leader who, as the WSJ put it, “won’t rock the boat.” Because of this influence, the article predicts the board will go for more of the same, someone who can run a large bureaucratic Fortune 500 company, rather than a visionary leader who will break free from the lost decade of stagnation under Ballmer. The company needs a Lou Gerstner but (at best) will end up with another Lew Platt.

The problem is, Ballmer has historically confused monopoly profits with premium pricing. People pay more for Apple products because they want to; people pay more for Microsoft products when they have to, and they don’t if there’s a good alternative.

While Nokia didn’t get software, they historically were a hardware innovator with screen, cameras, sensors and other features. Now Samsung has assumed that mantle — along with overall market share leadership — while Apple remains the software and integration leader.

The Nokia deal will reduce near-term EPS and long-term profitability ratios. The company hopes to save $600m annually, presumably by laying off 3,000-5,000 workers. I would expect most of those would be in Finland, where Nokia has for the past few year playing a shrinking role in the local economy.

Even if Nokia is a modest success, it will at best replace Microsoft’s declines in its slowly dying PC business. Buying the former market leader — which now longer even ranks in the top 10 in global market share — won’t transform it into a major player in the industry. Given its huge cash hoard, Microsoft’s phone business will last longer than Blackberry’s, but that’s not saying much.

As with all such mergers, the odds of actual success are large. Two quotes from this morning’s WSJ illustrate the problem:

When executives "can't figure out what to do, they go buy something, particularly when they have a lot of cash," says Jeffrey Pfeffer, a professor at Stanford University's Graduate School of Business. "It seldom works."
…
Juan Alcacer, a Harvard Business School associate professor who has studied Nokia, says companies with small market shares typically "are in a bad position for a good reason." Combining two of them, rarely works, he says: "Two bad companies don't make a good company."

The stock has given back the gains that it had with Ballmer’s retirement announcement. Hopes that Microsoft would fix its broken corporate culture, becoming faster and more responsive are now dashed. We long-suffering Microsoft shareholders own a utility, that pays out a fraction of its declining monopoly profits with no replacement in sight.

Collision of mobile business models

It’s no secret that automakers are building fancy navigation and entertainment systems into their cars. The LA Times this morning has a great article about how they’re not doing so well in competition with cell phone makers, who have products that are better, faster and cheaper.

At least in the US, the automakers want to control the customer, selling them expensive add-on systems; the most successful recently has been the Ford Sync, and before that the GM OnStar. But today the consumers who might buy such systems all have smartphones that do most of the same features (and more). They also run headlong into some of the freemium Internet business models (Exhibit A: Google Inc.) that give away stuff that automakers want to sell.

Here are a couple of great passages from the article by Jerry Hirsch:

[C]ar companies are spending millions of dollars developing interfaces, voice recognition software and navigation systems. Many of these functions either already come loaded on phones or can be downloaded at the swipe of a finger. Honda Motor Co., for instance, charges $2,000 for a satellite-linked navigation and traffic system on the premium version of its popular Accord sedan. But Waze, a division of Google Inc., provides the same functionality in a free app.
…
"People today bond more with their smartphones than their car," said Tom Mutchler, the senior engineer at the Consumer Reports Auto Test Center. "Car companies are going to have to live up to the expectations that come with that."

The whole article is recommended and doesn’t seem to be behind a paywall.

The article points out two problems the automakers face. First, in a race of innovative software between Ford and Apple, or Honda and Google, who do you think is going to win?

Second, you keep a car for 10 years and a phone for 2. So for the average consumer, which one is going to provide the better experience?

But the third problem Hirsch misses is that (as any strategy professor will tell you) Apple and Google and Samsung have economies of scale, and the car makers don’t. 700 million smartphones were sold globally in 2012, most using one of two platforms. In the US, 16 million cars were sold, with in-dash entertainment systems fragmented among a dozen makers.

As I teach my students, R&D is a fixed cost amortized as (total R&D) ÷ (number of units). Apple sold 137 million iPhones in 2012 (not counting iPads and iPod Touch using the iOS). Assuming GM or Ford gets 17% share and half buy the fancy infotainment system, that means about 1.4 million Americans are buying each car-based platform. (Toyota, Fiat/Chrysler and Honda sell even less). Given that’s two orders of magnitude less than the #2 smartphone platform, no wonder carmakers have to charge $2,000 for their systems.

It’s clear carmakers are going to lose this fight. Obviously, if you can’t beat ’em, join ’em — which is what Honda, Toyota and Hyundai appear to be doing. The article refers to the Car Connectivity Consortium producing the MirrorLink standard, which includes these three carmakers, as well as Samsung and HTC. In addition to these car companies, the CCC website also lists Daimler, GM and VW as charter members, with Ford and Subaru (“Fuji Heavy”) as a non-voting “adopter” member (BMW, Fiat and Mazda have limited voting rights). Nissan and Kia are nowhere to be found.

Volkswagen was early in partnering with Apple, so they may continue to lead on iPhone connectivity. Android compatibility could be a good foot in the door for the 3 Asian carmakers. But from the article and their market actions, it seems like some automakers (led by Ford) Ford are stuck in the slow lane trying to sell overpriced, soon-to-be-obsolete dashboard systems as though they can dictate what options American auto buyers will use on the road.

Apple's loss is a loss for consumer and the industry

In a shocking decision, the International Trade Commission voted to ban import of old iPhones and iPads for infringing five claims of a Samsung W-CDMA patent. The band would impact the AT&T models of the iPhone 4, 3GS, 3 and iPad 3G and iPad 2 3G.

That Samsung sued (in retaliation for Apple’s earlier win) or won an infringement judgement is not what’s surprising. The surprise is that the ITC granted what amounts to injunctive relief for infringement of a standards-essential patent.

In telecom, standards-essential patents are different from any other type of patent. These are patents where a company (usually a handset or chip vendor) tells the standards setting organization (SSO) that they believe their patent is essential for implementing the patent.

Companies try to accumulate lots of these patents to force companies into cross-licensing (or royalty-bearing) agreements. Sometimes these patents are of dubious quality, as Rudi Bekkers & I showed in our 2009 study of W-CDMA patents.

However, in exchange for saying a patent is “essential,” the patent-holder promises to license their patents to all comers. As the main GSM (3GSM/W-CDMA) standardization notes the two declarations are inseparable:

declare your essential IPRs and to tell ETSI about your preparedness to grant irrevocable licenses on fair, reasonable and non-discriminatory [FRAND] terms and conditions pursuant to Clause 6 of the ETSI IPR Policy

That policy reads:

6.1 When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory terms and conditions under such IPR to at least the following extent:

• MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;
• sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;
• repair, use, or operate EQUIPMENT; and
• use METHODS.

The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate.

So for these patents, the only questions are a) whether or not a royalty is due and b) how much the price is. Once patent infringement is determined by a court, it’s a question of damages and not an injunction.

For this very reason, Samsung faces sanctions in Europe for similar efforts. The definitive site for telecom patent war news, FOSS Patents, reported in December 2012:

European Commission Vice President Joaquín Almunia already indicated that the adoption of a Statement of Objections (SO) against Samsung over its pursuit of injunctions against Apple based on standard-essential patents (SEPs) was imminent.
…
At close of business today [21 Dec] the Commission issued a press release announcing that Samsung has been served an SO, which is a preliminary ruling. This means we're past the stage of Samsung merely being suspected of abuse of a dominant market position (this theory is not based on Samsung's smartphone market share but on the leverage that SEPs give their owners), but that the Commission has preliminarily determined, after almost a year of formal investigations (which followed several months of preliminary ones), that Samsung has indeed committed abuse and should be sanctioned.

As blog author Florian Mueller has noted, Google has faced similar criticism for asserting the Motorola SEP that it bought.

The industry has noticed this case and the damaging impact of Samsung’s (apparently successful) legal arguments. Various industry groups filed briefs against an exclusion order. As Matt Rizzolo blogged on April 9:

We noted that several other parties also submitted responses, offering their views on how an exclusion order in this case might affect the public interest. These parties include:

• Cisco, Hewlett-Packard, and Micron Technology
• The Retail Industry Leaders’ Association
• The Business Software Alliance
• The Association for Competitive Technology

Each of these parties warns the ITC that allowing exclusion orders for FRAND-pledged standard-essential patents may have adverse effects on U.S. consumers and the U.S. economy, particularly future standards-setting activity.

This morning, Mueller noted that price is at the heart of the dispute:

Some will say Apple should have taken a license, but Samsung's initial 2.4% demand was far outside the FRAND ballpark (as a Dutch court said in a ruling), and it's not known what Samsung has demanded more recently (other than that Apple still considers it excessive).

And, as Rizzolo noted, the Cisco/HP/Micro filing proposed a mechanism for independently establishing a “reasonable” royalty.

The largest cellphone patent holder, Qualcomm, had earlier filed an opposition at ITC to Apple’s proposed interpretation of FRAND, but hastily withdrew the criticism of its major customer.

It’s not clear what the next step is. The ITC will seize the older (lower priced) models in 60 days, unless the president or a Federal court blocks that decision. Congress might reform the law, but given they can’t even resolve simple budgetary issues, they’re not going to pass a major piece of patent reform in two months.

Regulated duopoly vs. real competition

Last week, a Senate subcommittee held a hearing entitled “The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?” The CEOs of three of the four major cellular companies got a chance to present their positions in between political grandstanding.

I was fortunate to catch the replay Sunday on C-SPAN (one of the few channels my monopolist cable company still provides on basic cable.) A low resolution version of the 2½ hour hearing is also available on the Senate website.

The expert (if self-interested) testimony confirmed what I already knew. As with any consolidation of four major firms down to three, the merger is about reducing rivalry, supplier power and buyer power — good for the surviving companies, bad for suppliers, customers and the smaller rivals.

The Case Against the Merger

The most enlightening testimony came from Victor Meena, CEO of small rural carrier (Cellular South) that (according to Wikipedia) is the 8th largest in the US (after Verizon, AT&T, Sprint, T-Mobile, MetroPCS, US Cellular and Cricket/Leap).

As someone who has spent 15 years studying the history of the US cellular industry — from the prehistory of the 60s and 70s to the boom era of the 90s — I believe Meena has it exactly right. Reducing competition back to a duopoly will bring us back to duopoly-style pricing and duoopoly-style non-competition.

Meena described the merger as a major step backwards for the industry and its customers:

When I began in this business in the late-1980s, there was a local duopoly in every market.… Carriers had virtually no market incentive to innovate or improve service offerings.… In a duopoly, the market can quickly reach equilibrium and, if both providers are reasonably happy with their position, innovation stagnates and prices rise.

The industry changed for the better in the late 1990s, when the FCC, pursuant to Congressional mandate, auctioned off PCS licenses and a substantial number of competitive carriers entered markets—launching a new, healthy competitive era of wireless in the U.S.
…
But this all began to change in the middle of the last decade. Through unfettered mergers and acquisitions, it has become clear that our industry is on a glide path toward Ma Bell reconstituting herself into the 2 Bell Sisters of the wireless industry: AT&T Wireless and Verizon Wireless.
…
Not surprisingly, this concentration of market power has led to less choice for consumers and the routine abuse of market power in an effort to prevent competition at every turn. Specifically, AT&T has used its enormous acquired scale to

1. restrict competitive carrier and consumer access to devices,
2. withhold roaming agreements, and
3. leverage its control over device and infrastructure vendors to Balkanize new spectrum and slow the deployment of 4G LTE technology in the U.S.

Meena and Sprint CEO Dan Hesse identified two other negative impacts of increased market power. As chairman of the CTIA, Hesse has been attempting to negotiate lower rates for wireline backhaul for cellular base stations — rates that AT&T and Verizon want to be high but the rest of the industry want to be low. And by consolidating carriers, Meena notes there will be fewer options for smaller carriers to find roaming agreements for 3G and 4G data, as mandated by the FCC last month.

Supporting Cast

As expected, AT&T CEO Randall Stephenson said little to convince me that the merger is good for anyone other than AT&T, while T-Mobile USA CEO Philipp Humm seemed intent on deferring to his new boss. Verizon’s CEO was strangely absent, either to avoid making arguments that would haunt him when he wants to buy Sprint, or to avoid reminding people that two companies will control 80% of the market if the merger goes through.

Among the leftist activists, the self-appointed “consumer” representative was far more persuasive and honest than the union president. At least she knows what a Herfindahl-Hirschman Index is. Tellingly, she also asked: “have you ever seen AT&T advertise against Metro PCS or Cricket?”

The quality of dialog from the top of the dais was also mixed. The two ranking members of the subcommittee — Sen. Kohl and Sen. Lee — asked intelligent questions that attempted to draw out the witnesses. Two other senators (Franken and Grassley) were dim bulbs acting like a prosecutor and defense attorney for the accused. (Sens. Klobuchar and Cornyn were only slightly better — but at least viewers were spared Chuckie Shumer).

If Not Competition, then What?

Meena offered a stark (and I believe accurate) contrast between the two paths forward:

The prospect of this transaction brings us to a critical decision point for policy-makers: are we are going to continue down the path toward an era of nationwide duopoly, or are we going to lay the foundation for a second competitive era in wireless. There is no third option – either AT&T will be allowed to acquire T-Mobile (paving the way for Verizon to acquire Sprint and cementing a national wireless duopoly); or it will not.

If AT&T’s takeover of T-Mobile is approved, all that will remain is the endgame, where the remaining non-Bell carriers wait their turn to be acquired or bled dry by the biggest two carriers.

And, Meena notes, the likely consequence of returning to duopoly is returning to FCC micromanagement:

[I]f the takeover goes forward, policymakers must begin preparations to regulate every aspect of the day-to-day business of the duopolists. Without effective competition as a check on market abuses, the government will have to interject itself to ensure that consumers – the true owners of wireless spectrum – are protected. This means subjecting a future wireless communications duopoly to the same type of regulatory oversight that wireline telephone and electrical power utilities have operated under for decades.

This idea was echoed by Sen. Klobuchar, who suggested that a more concentrated US market — like the rest of the world — would be a more tightly regulated market.

Of course we know that government (or any central command-and-control bureaucracy) usually does a bad job of assuring either innovation or efficiency. So if the choice for consumers — and app developers and handset makers and website owners — is real competition or regulated duopolists, the best option is obvious.

Saving T-Mobile

If the merger is killed, it still leaves the question of maintaining T-Mobile as an effective competitor. It will take more than just a cute spokesmodel and dishonest branding to have it maintain its market share.

In particular, both Stephenson and Humm pointed to T-Mobile’s looming quandary in the 4G era, given that it hasn’t bought new spectrum in the recent auctions. Actually, the solution for the #4 carrier is relatively simple: do what the #3 and #7 carriers are doing for a 4G network: rent one.

Clearly T-Mobile is not going to join Sprint using Clearwire’s WiMax network, but if Clearwire switches to LTE, it would be an attractive option.

If not, it can follow the lead of Leap Wireless (dba Cricket) in renting the LightSquared network. It’s LTE, it promises to be nationwide, and the T-Mobile/Cricket customer base would be enough to make an attractive business (at least until MetroPCS buys Leap).

Commodity voice, commoditizing data

Monday is when the new mobile phone pricing by Verizon Wireless and AT&T take effect. As has been remarked, the net effect is cut to prices on unlimited voice plans to $70/month while forcing more customers to buy data plans.

While Americans (unlike say Japanese) have been used to “all you can eat” wireline service for generations, it is instructive as to how long it has taken for the commoditization of voice to finally impact the major players.

Voice: From Premium to Commodity

When I started researching the cellphone industry in 1996, there were no national carriers and two operators in each city. The CDMA carriers were still fragmented into regional carriers: AirTouch (an independent company), GTE Mobilnet, Bell Atlantic Nynex Mobile — and what became Cingular was equally fragmented between AT&T (the former McCaw Cellular), Bell South and Southwestern Bell. Sprint was just starting its efforts to build a national network, and VoiceStream was 4 years away from becoming the US subsidiary of T-Mobile.

I was shocked when in 1997 a wireless entrepreneur told me how cheap minutes were the wave of the future, thanks to new cellular licenses and the increased spectral efficiency of CDMA carriers.

His plan was to buy minutes in bulk from a hungry new entrant — originally NextWave but then later Sprint — and resell them in bulk to companies. Instead of the standard $1/minute fee, corporations would buy bundles of minutes at the dirt cheap price of 20¢/minute if would only subscribe to 1,000 phones.

Founded by Qualcomm alumni, NextWave lurched slowly and painfully towards its 1998 bankruptcy when it couldn’t raise money to launch a network and the FCC sought to bypass bankruptcy law and seize unpaid spectrum.

In 1998, Qualcomm spun off its cellular licenses into Leap Wireless, which by 2001 had 1 million customers for its all-you-can-eat plan under the Cricket Wireless brand. Beginning in 2002, its eventual frenemy Metro PCS copied its business model, raised more money, and made several unsuccessful offers to buy its rival. By gradually building out individual markets, the two carriers have won 11 million flat rate subscribers (about 4% of the US market).

For a while, the Big Six (later Big Four) carriers were able to increase revenues by increasing market penetration, as the number of US cellular subscribers tripled over the past decade. However, growth has slowed recently with penetration up only about 15% in the past three years. Thus, with their networks built out, in Feb. 2008 the Big Four all decided to offer their own flat rate plans at $100/month.

Coercing Premium Data Adoption

The next great hope for ARPU growth was and is data. Whether lousy devices, content or pricing, the adoption was very slow — until the iPhone was released in mid-2007. (I was reminded of this when reviewing the page proofs of my iPhone paper.)

The iPhone and its imitators have been fueling data adoption for the past three years. An estimated 25 million iPhone users added to ATT’s network in 2009 — about half of AT&T’s net new subscribers — have given AT&T both additional revenues and pushed its network to the breaking point.

Still, since the iPhone introduction AT&T, Verizon and others seem to be adding handsets by requiring $30+ monthly data plans with fancy handsets rather than waiting for people to request them. But expecting $100 for voice and data out of every man woman and child is not a mass market strategy — it’s a niche, cream-skimming strategy.

However, to make data a mass-market item will require that operators solve the problem that they don’t have enough spectrum to deliver the “all you can eat” they’ve been selling. Finite bundles of data megabytes are going to last longer than bundles of voice minutes.

Over the next two or three years, the Big Two will use data as premium-priced ARPU booster, while Sprint and T-Mobile will be torn between maintaining margins and undercutting their rivals to gain share. T-Mobile is lagging on network development, while Sprint hopes that its early risky bet on WiMax will give it data capacity before its rivals deploy LTE networks.

I think the idea of linking smartphones to data will go first, perhaps as soon as next year (at least by Sprint or T-Mobile). The Google Nexus One is the first step in this direction, but the flood of Android devices (plus Palm’s death throes with WebOS) will mean that if Apple and Motorola are not interested in commoditizing devices, other firms will. More in my next post.

NYT stalking horse for trial lawyers

The cell phone industry made the front page of the New York Times Monday, and it’s definitely not a good thing. Here’s the web headline:

Driven to Distraction
Promoting the Car Phone, Despite Risks
By Matt RIchtel
…
Long before cellphones became common, industry pioneers were aware of the risks of multitasking behind the wheel. Their hunches have been validated by many scientific studies showing the dangers of talking while driving and, more recently, of texting.

Despite the mounting evidence, the industry built itself into a $150 billion business in the United States largely by winning over a crucial customer: the driver.

For years, it has marketed the virtues of cellphones to drivers. Indeed, the industry originally called them car phones and extolled them as useful status symbols in ads, like one from 1984 showing an executive behind the wheel that asked: “Can your secretary take dictation at 55 MPH?”

The way the story was framed, it read like a PR campaign for a class action suit against deep pocket cellphone makers and service providers. (When I read it, I wondered whether John Edwards was coming out of retirement to pay his child support.)

Sure enough, a few paragraphs later, after quoting the US industry’s spokesman (a former GOP congressman), the story legitimates its harshest critics:

Critics of the industry argue that its education efforts over the years provided a weak counterbalance to its encouragement of cellphone use by drivers and to its efforts to fight regulations banning the use of cellphones while driving, or at least requiring drivers to use hands-free devices.

The critics — including safety advocates, researchers and families of crash victims — say the industry should do more, by placing overt warnings on the packaging and screens of cellphones.

And, in fact, the lead article promotes a sidebar (also in Monday’s paper) entitled “A Victim’s Daughter Takes the Cellphone Industry to Court.” And the web version helpfully provides a copy of the complaint filed against Sprint Nextel and Samsung. WIth newspaper reporters, nine times out of ten this means that the main story was written to legitimate the sidebar, rather than seeking out the sidebar to illustrate the main story.

For now, I want to leave aside the bias of the “muckraking” newspapers that always side with litigants against big bad corporations. The article endorses a parallel to the great muckraking talisman of the 20th century, i.e. Watergate:

Clarence M. Ditlow, executive director at the Center for Auto Safety, a nonprofit advocacy group, was invited last month to speak about distracted driving by the Federal Communications Commission. He told the audience that the cellphone industry was selling a product consumers can use dangerously — without properly warning them or providing safeguards.

He added: “The only questions are: what did they know, and when did they know it?”

On a related problem, I’ll set aside the chronic error by reporters (as well-chronicled by John Stossel) of worrying about the wrong risks as members of the “Fear Industrial Complex.” I’m also not offering judgement on specific advertisements, or the (seemingly implausible) claim that drivers wouldn’t know that this is distracting unless the industry warned them.

Instead, I want to confront the ahistoric ignorance of the premise of the story. The reason that mobile phones were promoted as car phones in 1983 is because that’s what they’d been for the previous three decades.

One snippet (and photo) from the story examines the October 13, 1953 press conference marking the first “official” US cellphone call, made on the Chicago Bell-operated network by a Bell Labs engineer.

Beginning in 1996, I studied the history and pre-history of the cellphone industry — in US, Japan, Germany, Sweden, Finland, and published papers in 2000 and

The reason that 1st generation cellphones were marked as carphones because they were designed as carphones — the successor to 30 years of carphones since the first one in St. Louis in 1946. To relieve chronic capacity problems, AT&T tried for 20 years to get FCC permission to launch a cellular system, and ran a test system in Chicago for six years before the “official” launch. (NTT’s 1979 official launch looked a lot like the AT&T field test.)

The Times reporter dismisses this as not relevant — that the niche phones of the 1960s (aka IMTS) had nothing to do with the mass market phones of the 1980s.

In 1983, everyone (except for a few crazy guys at Motorola) were assuming they were carphones. If you read the Bell Labs design explanation for AMPS — as reported in the January 1979 issue of the Bell Labs Technical Journal — it describes a system with a small control unit on the transmission hump and a big, power-hungry radio in the trunk. In my research, I spoke to an early entrepreneur who made money installing these $2000+ systems in rich folks’ cars.

In fact, as I showed in a 2002 article, AT&T thought so little of the cellphone business opportunity that it gave away the business to the local Baby Bells. Talk about mistakes. Remember that PacBell was bought by Southwestern Bell because — after spinning out AirTouch — it was sickly and dying. Similar, AT&T was bought by Southwestern Bell after long distance went away as a viable business.

Of course, AT&T thought so little of cellphones because it had a McKinsey consulting report predict that the US would have a total of 1 million cellphones by 2000. (The actual number was 97 million).

So again, this says nothing about what was or was not appropriate advertising in 1990 or 1995. But cellphones were initially marketed by the Baby Bells as carphones because that was all that was technically feasible, that was what they’d been selling for decades, and (at least initially) that’s all they thought it would be.

Is mobile innovation slowing down?

A provocative posting Wednesday to Infoworld:

Has mobile innovation come to an end?
Eerie parallels to the desktop PC's history suggest that smartphones have reached boring sameness -- or completeness of capability -- even faster

By Galen Gruman

In June 2007, the iPhone instantly obsoleted all previous smartphones (the BlackBerry and Palm families), finally approaching the promise that carriers and device makers had been making about the mobile future for a decade: Real Web access. A touch UI -- that rotates. Accelerometer and location detection. E-mail and instant messaging. Photos and music. A year later came the App Store and the tens of thousands of apps -- from games to time-wasters to serious business tools -- that also made the iPhone into a computing device.

Since then, there's been an ever-increasing number of competitors, but nothing fundamentally game-changing. Apple continues to refine the iPhone and iPod Touch, adding capabilities such as a compass, Exchange e-mail support, and video capture -- but the last round of devices didn't pioneer anything significant. Both Palm and Google delivered their own iPhone-inspired OSes (WebOS and Android, respectively), but did nothing significant beyond adding (very welcome) support for multiple simultaneous apps to what the iPhone had already brought to the table.
…
Is there no more innovation to be had in mobile? Has mobile matched the PC in becoming a stable platform where innovation happens slowly and mainly around the edges? After all, what does a PC in 2009 do that a PC in 2000 couldn't do -- even if not as fast -- beyond using different ports?

In other word, changes are incremental of of degree rather than disruptive and transformational.

What I find intriguing is that both as an observer and a participant, I think tech industries consistently underestimates the maturation/commodization of their respective segments.

I think there are a few more revolutions left so that smartphones will supplant laptops (or desktops) for more applications:

• large screen (HDTV 1080p) display, e.g. via goggles
• portable keyboard, whether via fold-out, virtual laser, chording or some other.
• voice input with reliable dictation with arbitrary speakers

Of course, the most interesting radical innovations are unanticipated. It may be software and platform innovation is slowing down, but there are still some hardware improvements possible.

Dick Tracy phone in London before NYC

Some 60 years after it was imagined by Chester Gould, and more than six months after the product was pre-announced at CES, LG recently released its “GD910” watch phone. Dick Tracy never heard of 3G networks or touch-screen LCDs, but he did sport the world’s first (albeit fictional) wrist-mounted videophone.

Priced at £500, the first 50 phones that went on sale in London sold out in 10 minutes, although more are coming. The phone is also available in Dubai but not the US.

The FT reviewer raved about the phone in this morning’s “How to Spend It” conspicuous consumption supplement. However CNET UK was more restrained.

However, FT reviewer Jonathan Margolis notes the main value delivered by the phone is status:

Will you find it useful? Absolutely not — unless it’s to impress people in offices, bars, airport lounges and everywhere else on the planet. … It’s the Bugatti Veyron of gadgetry: pointless, impractical, sublimely silly but impossibly desirable. Could it be a rebirth for the most unwanted technology in gadget history, the video phone call? Of course not, don’t be silly.

If it’s available for sale without a required data plan, then at $834 actually quite a bit cheaper than the iPhone. Also more exclusive — a few hundred vs. 30 million — even if it’s not nearly as useful.

Welcome back, RCR

I got started on cellphone research back in 1996, when my advisor said that if I wanted to study standards, I should study cellphones. Since then I’ve done a fair amount of research indirectly or directly related to the wireless industry, mostly around mobile handset platforms and of course the CDMA wars.

I quickly discovered three invaluable publications for follow the industry: RCR News and Wireless Week in the US, and Mobile Communications International for Europe and the GSM world more broadly. I subscribed to all three, and I still have paper copies of these precious trade journals in my files from my research a decade ago.

Alas, publishing a magazine (like newspapers) is not as financially viable as it once was. The paper and online version of RCR (now RCR Wireless News) died on March 3. It had almost 100,000 readers a month.

Fortunately, RCR has been sold and the new owners have brought back two RCR veterans to act as editors. They plan to relaunch it as an online-only publication starting today.

I look forward to reading the new RCR as an invaluable resource for mobile phone research.

Apples vs. kumquats

Earlier this week, Bernstein Research analyst Toni Sacconagi estimated that Apple earned 32% of the mobile phone industry’s operating profit in the first half of 2009, or 25% if you throw out the companies that lost money. AllThingsD has a table from his report.

According to the table, Apple’s revenue is 1/3 that of Nokia but its total operating profit is more than that of the world’s largest mobile phone maker, and its operating margin is 40% vs. 11.3% for Nokia. (Presumably operating profit is business unit EBITDA).

I don’t have the report and thus am not sure what the numbers mean. (It’s interesting that the Apple operating margin is “40%” while all the others are calculated to 3 significant figures, suggesting this is an estimate).

Is it handset sales only? RIMM (with a 20.7% margin) might sell handsets cheap and make it up on services sales.

Does it include some iTunes sales? All iTunes sales or only those imputed to phone owners? Does it include the app store — where Apple’s rivals are still trying to get theirs off the ground?

In short, from what little has been reported, it’s hard to tell whether this is Apples vs. apples or Apples vs. kumquats, let alone what this says about Apple’s future profitability.

Sprint to the bottom

The news for Sprint is mixed this week. Analyst Walter Piecyk estimates Palm is selling 25,000 Pre phones a week, but argues it could sell more if only it would advertise more. The company is also preparing to offer an Android phone later this year “now [that] it’s ready for prime time.”

This week Sprint announced it is buying out Virgin Mobile — according to Wikipedia (if you believe that) the 2nd largest MVNO in the US after TracFone. The acquisition gives means that it will be be able to consolidate its revenues to the bottom line and gain full control of about 11% of the subscribers on its network.

One problem for Sprint is that Virgin is selling because the prepaid market is only going to get more brutal. (The Virgin Group owns 28.3% of Virgin Mobile and SK Telecom owns 15%). On Thursday, MetroPCS cut its unlimited price plan by $5/month, putting additional pressure on Virgin and Boost (Sprint’s existing prepaid brand).

Even if prepaid is the highest growth part of the market, it’s also the lowest margin. As the FT noted:

Average revenue per [prepaid] user is just $34 monthly versus $56 for post-paid customers and all-important "churn" or turnover was 6.4 per cent versus 2.1 per cent for those locked into contracts.

Of course, the worst news of all is that Sprint continues to lose money and customers. Its quarterly loss widened to $384 million, and it lost 991,000 prepaid customers during the quarter. With new prepaid customers, it only lost 257,000 customers overall — but AT&T Wireless added 1.4 million and Verizon Wireless 1.1 million.

Unstrung columnist Dan Jones is calling for CEO Dan Hesse’s head (attributing the idea to “restless” investors). As he notes, the company has yet to fix the problems that got Hesse’s successor fired, and the stock is down almost 80% in two years.

So in the end, despite the Pre exclusive and its aggressive pricing, Sprint has been unable to stop the loss on the income statement, subscribers or market cap. The company is trying all the customary approaches to saving money and they aren’t enough. Unless it can do something to get more high margin customers — of the sort keeping AT&T and Verizon alive — I don’t see what will end the hemorrhaging.

Openness in the news

A few tidbits highlighted in the inner pages of a friend’s WSJ this morning. All are about (to some degree) IT openness.

Comcast is partnering with Clearwire (and thus Sprint) to resell its WiMax service to its existing cable modem subscribers. In integrating its offerings, Comcast is seeking to increase switching costs. More fundamentally, either this suggests that Comcast realizes that revenue growth in its core business is over, or it decided it needs to bundle in-home and coffee shop Internet access for residential users to compete with AT&T (DSL + Wi-Fi hotspots) and other integrated telecom companies.

Meanwhile, Clearwire is eager to generate revenue and win WiMax adoption before the more widely endorsed LTE tsunami comes flooding in.

The EU has forced major mobile phone makers to adopt a standard recharger plug by 2010. Nominally to reduce the number of chargers in landfills, of course it’s really about forcing an open standard to reduce switching costs. While I think this is exactly the sort of trivial economic micromanagement that governments should avoid, fortunately the government didn’t have to push too hard as European and US telecom trade associations had previously brokered the plan.

Alas, the format is the relatively new (and incompatible) micro-USB instead of the ubiquitous mini-USB that I already have on all my hard disks and some of my existing cameras and cellphones.

Dell is rumored (by the WSJ and earlier reports) to be planning an Android device aimed squarely at the iPod Touch. This makes a lot of sense, since for many users, the value of the iPT comes from its WebKit web browser, a mail client, Google maps and an RSS reader. Assuming Android has gotten around to fixing their awful email client, the open source (and thus inherently commoditized) platform makes perfect sense for the company that seeks to copy Apple’s new technology innovations (and old production innovations) as its core commodity business declines.

As with other Dell technology efforts, it would enable the low R&D company to build upon the R&D efforts of others, a classic (if decades old) example of open innovation.

USC on wireless industry growth

There’s a free Webinar tomorrow (10am PDT, 1700 GMT) on the growth of the wireless industry.

2008 was a good year--3.5 billion people paid over $700 billion for wireless services. In 2012, five billion people will shell out $850 billion.

Not bad scratch!

So let's dig a little deeper--what's behind those numbers? What can we expect from Femtocell technology, LTE, WiMAX, Smartphones (let's be more specific, iPhones), mobile social networking, etc.?

And how have these technologies enabled social protests in Iran?

The Webinar is by being presented by Steven Shepard and Morley Winograd of the USC Institute for Communication Technology Management.

I’d like to attend, but alas I’m in meetings at work all day Wednesday. Given the previous USC CTM workshops and seminars, the odds are good that it’s a worthwhile way to spend an hour.

Best things in life aren't free

Passing through the airport en route home, I saw a brief report on CNN about the latest Pew Research Center survey on how Americans are re-evaluating what material things are luxuries and what are necessities.

Falling dramatically are a microwave (a necessity to 47% today vs 68% in 2006), clothes dryer (down 17%), A/C (down 16%), dishwasher (down 14%), TV (down 12%), cable or satellite (down 10%). For the first time, they asked about a “landline phone,” a necessity to only 68%. The study continues a baseline study begun by Roper in 1973.

The CNN staff flashed graphics for the microwave and dishwasher, but not for TV or cable — although they nervously joked about it. I couldn’t hear if they mentioned that only 38% of Americans age 18-29 see a TV as a necessity. If young people are future growth, the politics of the young favor CNN over Fox but their Internet habits hurt both.

The only things that are flat or up are

• cellphone: 49% (unchanged)
• high-speed Internet; 31% (+2%)
• flat-screen TV: 8% (+3%)
• iPod: 4% (+1%)

Home computer is down 1%, but at 50% is still narrowly ahead of PC. Do the math and 62% of those who find a PC essential find broadband essential.

USA Today reported that in response to the recession, respondents did more discount shopping (57%), cut/reduced their cable/DBS subscriptions (24%), cut/reduced their cellphone plan (22).

What was a little surreal was the chitchat between the CNN correspondent at the NYSE and anchor Kyra Phillips. (I didn’t know she was the anchor, but Google cleverly knew when I asked “CNN anchor” between 1-3pm EDT that I want the CNN anchor who is on duty from 1-3pm). The two women were trying to show empathy for the common man and woman, but their clothing and hairdos (particularly for Phillips) implied a six figure salary that the common person will never see. I’m no fan of class warfare, but have little sympathy for phony class sympathy (by journalists, politicians, demagogues or anyone else).

Skype is the new Carterfone

I’ve been wanting to write all week about Skype’s new iPhone client, which has been long desired, recently rumored, and finally released Tuesday at CTIA to considerable accolade.

Given a chance to mull it over, I believe this will prove to be the watershed in the end of operator control of mobile wireless networks.

A key issue when the iPhone was announced two years ago was AT&T’s ban on VOIP and other IP-based technologies that would use its data network while rendering its voice network obsolete. Apple was put in the odd position of promoting iChat as its ubiquitous peer to peer messenger and videoconference system, but blocked from offering it from day one (and even with the iPhone 3G) by operator restrictions.

Since 2007, Skype has been trying to win a Carterfone-type ruling from the FCC to require open device interconnection over mobile networks. The US operators — particularly Verizon and SBCAT&T — have been fighting it bitterly. There’s no resolution yet, although the carriers seem likely to lose with Democrats in the White House for the next 4+ years.

It’s not just a US issue. Major European cellphone operators like T-Mobile, Orange (France Telecom) and Vodafone kept searching for that river in Egypt in hopes that mobile VoIP will just go away.

However, with the new iPhone app Skype has brilliantly finessed the issue by making it (perhaps temporarily) Wi-Fi only. There’s no legal way for AT&T or Apple to block it — with serious antitrust implications if they try — and the full Skype functionality is available at home, at work and at many public hotspots (including a lot of medium-sized airports).

So if I can’t Skype over AT&T, I’ll Skype over Wi-Fi. Skype (and competing VoIP) clients will be Wi-Fi enabled on all the major smartphone platforms. Skype is already on Windows Mobile, and Skype for BlackBerry is due in May, and presumably Symbian and Android are not far behind. (I'm not sure how they plan to make money beyond fairly weak freemium offerings, but that’s another story).

If the 3G network doesn’t actually provide Skype service, the cost sensitive and technologically savvy (like college students) will just use a phone (or PDA like an iPod Touch) without a data plan and do most of their calling at their local Panera. I also think this will (perversely) further commoditize Wi-Fi hotspots, because coffee shops (etc.) that offer free Wi-Fi will steal traffic from those that do not until free becomes the norm (except maybe in dominant airports where there is little choice.)

Together, this will cannibalize the operator revenue growth the way that mobile has done to landlines and IPTV is starting to do to cable and dish. Skype (with cash from parent eBay) and its knock-offs will put a cap on what people will pay for semi-reliable voice service

This is the beginning of the end of 30 years of mobile phone revenue growth. On the regulatory front, it’s time to tip the king as the outcome is decided. Will the carriers admit that they can’t win and quietly back down, or will they fight to the end?

While Verizon, AT&T and T-Mobile may dig in their heels, this could prove an opportunity for Sprint to embrace the inevitable future as a market opportunity. Perhaps one of Sprint’s smartphones (for now limited to the Pre or a BlackBerry) will come bundled with a VoIP client if (iPhone-style) there’s a mandatory data plan.

Once the leader in shifting mobile phone pricing, Sprint was strangely the laggard when carriers finally offered (overpriced) unlimited use plans. Its current CEO, Dan Hesse, has severe financial pressures but also fewer ties to the old way of doing things than his three major US competitors.

This is one of the few chances Sprint has to control its own destiny. On the other hand — as I teach my strategy students — in a price war, everybody loses, it’s just that the low cost leader loses a lot less.

An easy change to make

In his first month, the focus on President Obama’s policy choices has been his tax and spending policies. Given the fight over the $800? $900 billion in new spending (plus the $300b blank TARP check that Tim Geithner gets to spend) this is not all that surprising.

However, the change in administration is also going to bring a change in antitrust policy, something that (unlike economic stimulus) can happen relatively quickly.

It's not clear how dramatic the change will be, but given that Sen. Obama was clearly to the left of where Gov. Clinton was, it seems likely that this will be the most aggressive regulatory environment since Carter if not LBJ. The contrast will be dramatic, coming after the Bush administration, which next to Reagan was clearly the most laissez-faire postwar regime when it came to economic policy.

Two big test cases are coming up on antitrust regulation (called “competition policy” everywhere outside the US).

The easiest one will be the disposal of the excess licenses that Verizon Wireless acquired in its Alltel acquisition. As has been true with cellular mergers for nearly 20 years, the acquiring party must divest one license (usually choosing the weaker one) in any market where it would significantly reduce competition through the combination.

The WSJ reported last week that AT&T wants to buy the licenses that Verizon is divesting. AT&T has the most money and so would either give Verizon the best price or at least push up the price in a bidding war. (Sprint us unlikely to be able to bid given its problems). The problem is, AT&T has about 28% share and Verizon has about 31% share, so the acquisition would decrease competition more than letting the licenses go to the #3, #4 carrier or some private equity group (which hopes to flip it someday to a big 4 carrier).

So unless some AT&T exec has an insider relationship with the Obama administration (like Bernie Schwartz to Clinton or the Texas oil industry to Bush), this seems like an easy bid for Obama’s antitrust appointees at FCC to reject.

The more problematic — both legally and politically — is the pending merger between Live Nation and Ticketmaster, providing vertical integration in delivering live rock concerts. Ticketmaster essentially has a monopoly in reselling concert tickets, so it would normally be subject to the strictest scrutiny in its actions.

However, Live Nation’s plans to compete with Ticketmaster are only incipient and not fully realized. Plus the vertical integration could deliver some efficiencies. Finally, as with artists vs. record labels or actors vs. producers, Hollywood (and its political donations) are at least somewhat split here and not speaking with one voice.

The Obama administration has yet to tip its hand on antitrust issues, so there are no indications how strict it will be. I would not be surprised if the new administration ends up blocking both efforts — AT&T’s acquisition of Verizon Wireless assets and Ticketmaster’s purchase of Live Nation. I would also not be surprised if the efforts are allowed to proceed with restrictions. About the only thing that would surprise me is if both were allowed to proceed with few if any restrictions, the sort of Bush-like outcome that the president (and his allies) vowed to eliminate.

Mobile app BTE

Ofir Leitner writes the knowledgeable (if opinionated) blog “NextGenMoco.” Since I first saw it (through his self-promotion to the Mobile Monday mailing list) a year ago, I’ve found some interesting tidbits that intersect the technology and business of mobile phone application development. An example of this is a post a year ago on the carrier-by-carrier hoops that am app developer must jump through to deploy a J2ME app in the US.

His latest posting is “Top 8 rules for mobile entrepreneurs & application developers.” Fortunately he doesn’t take himself too seriously in that the last rule is “Don't listen to rules”:

Mobile is a new space and there's still a lot of practices we haven't found. Some of the things that look like Axioms today, might change along the way and open new opportunities. Perhaps you'll be the one to discover them when not following any rules.

Among his other advice, I found solid his first two points about dealing with carriers and how they price data plans. However, as a game developer he is strongly J2ME-centric, which means his platform advice is less applicable to developers targeting smartphones (whether Symbian S60 in Europe or iPhone in the US).

Bye bye Nortel

Once North America’s 2nd largest telecom equipment maker, Ontario-based Nortel Networks Corp. filed for bankruptcy this morning. The expectation is that the company will be sold off in pieces to the highest bidder.

Apparently the proximate cause was a (US) $107m interest payment due tomorrow. Another factor was today’s expiration of a 30-day waiver granted by Export Development Canada on a (US) $750m line of credit — a waiver necessary to use the line of credit after Moody’s downgraded Nortel debt to junk bond status. In its bankruptcy filing, Nortel reported that it owes $187m on that line of credit.

While all B2B firms are facing cutbacks on capital goods orders, Nortel had a particularly bad 2008. Its shares fell more than 95% in 2008 and it was facing delisting on the NYSE. Its September plan to sell off the two units with the highest potential growth — Metro Ethernet and its 4G (LTE) operations — were said to have rattled buyers worried about the longterm viability of the associated product lines.

My guess is that buyers of multimillion dollar infrastructure were spooked because they can read the papers: Nortel has lost nearly $7 billion in the three years that Mike Zafirovski has been CEO. Nortel’s 2006 decision to sell its W-CDMA base station operations to Alcatel was also not a sign of strength for a company that claims to be serious about LTE, the 4G successor to W-CDMA.

In happier times, I would expect that Motorola would be interested in Nortel’s operations, but this is also looming as a bad week for Motorola as well.. Zafirovski is former COO and President at Motorola, and so would know many of the key players there. Motorola’s 4G wireless base station operations are too small for it to make the top ranks of LTE vendors. Motorola and Nortel had a brief (CDMA) infrastructure joint venture in the early 1990s, and back in 2002 there was speculation about some form of combination.

One thing is clear: the death of the 113-year-old former Western Electric subsidiary will be a major blow to Canadian national pride. The company has consistently been the country’s largest R&D spender — still 6x as big as Research in Motion — although increasingly that R&D has been sent offshore to China and other foreign subsidiaries.

Today's funniest press release

As a world-famous blogger with dozens (if not hundreds) of readers, every month I get various unsolicited press releases and PR inquiries (when are you available to interview our CEO). Since I have to keep my priorities straight (i.e. keep my day job), I ignore anything that would require additional primary research, particularly if it’s to tout one company.

Today I got the first newsworthy press release ever. Well, actually, not newsworthy — but amusing and worth sharing. It began:

Wirefly.com Announces Winners of Its “Most Embarrassing Moment with Your Phone” Contest

The winners of the contest (lightly edited from the press release) were:

1. Karen Emerson [won the grand prize] for her unfortunate, yet amusing story of absentmindedly forgetting her cell phone in her garter belt on her wedding day and having it ring to the tune of “Girls Just Want to Have Fun” at the most inopportune time -- as her father walked her down the aisle. The contest judges were taken with Emerson’s story because of its inimitability, as well as her gracious attitude to be able to laugh off an otherwise regrettable incident.
2. Jon Froehlich: Believing he was speaking to a co-worker on the phone, Jon Froehlich referred to his boss, Mr. Clifford, as “The Big Red Dog”, referencing the popular children’s book. Unfortunately, it was Mr. Clifford on the other line.
3. Stacy Sawyer: Stacy Sawyer had to mitigate an argument between her parents because her father was continuously receiving text messages from “Lo-Cell”, whom her mother believed was another woman, when in reality, Sawyer’s father was merely receiving notifications that his battery was low!
4. David Toledo: David Toledo accidently dropped his BlackBerry into an airplane toilet on a flight to visit a client. He was able to fish it out of the toilet and it was still fully operational. However, when he arrived to the meeting, he was informed by his client that he had a huge blue stain on his face. The disinfectant in an airplane toilet was much stronger than he thought.
5. Stacey Fisher: While attending a Renaissance fair with her husband, Stacey Fisher tripped over a tree stump, causing her cell phone to soar through the air and land directly into the bosom of an unassuming woman, who was dressed in a bustier and corset, an authentic renaissance costume typical of maidens during that time.

The complete winning stories can be found at WireflyContest.com.

Let’s hope this doesn’t generate more lame press releases for my inbox. Right now the batting average is below .050.