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The iPhone’s Wary New Rivals June 16, 2009

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Talked to BusinessWeek about the new iPhone.

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WIRELESS June 14, 2009, 7:30PM EST

The iPhone’s Wary New Rivals

By cutting prices on some iPhones, Apple is moving its iconic handset onto turf held by low-end smartphones and full-featured cell phones

By Olga Kharif

New iPhone products and price changes are never cause for celebration among Apple’s rivals in the wireless industry. The latest additions to the iPhone family are no exception. This time around, Apple (AAPL) has lowered the handset’s price, moving the iPhone onto turf now occupied by low-end smartphones and full-featured cell phones.

On June 8, AT&T (T) began selling an iPhone for as little as $99 with a two-year contract. The new price should help Apple reach new, more budget-conscious buyers—people who have never purchased smartphones before. According to research recently released by Yankee Group, 41% of 1,500 Americans surveyed in February said they are likely to buy a smartphone, vs. a regular-featured phone, for their next mobile device. The price cut alone may increase demand for the iPhone by an extra 10%, estimates wireless expert Chetan Sharma.

Lowering the price moves Apple into new realms. “The phones that are most vulnerable are the less-advanced smartphones in the $100 range,” says Ross Rubin, director of industry analysis at consultant NPD Group. Samsung, LG, Sony Ericsson, and Pantechare in danger of losing some ground within AT&T stores, says Matt Thornton, an analyst at Avian Securities.


These handset makers’ margins might erode as well. In the first quarter of 2009, the average smartphone sold for $155 after carrier subsidies, down from $204 in the year-ago quarter, according to NPD. Now smartphone makers must be prepared for another $50 price drop. “That sets the bar higher for the competition to undercut or match Apple,” Sharma says. “[Manufacturers] will have to cut their margins and carriers will have to match what AT&T offers.”

As it cuts prices on the existing generation of iPhones, Apple is also releasing a new device, the iPhone 3G S, which it says will have faster data transmission speeds. Apple says the new model can surf the Web twice as fast as the older iPhone 3G, offering video recording capabilities and longer battery life. RBC Capital Markets analyst Mike Abramsky expects Apple to have 2.4% of global handset market share by the fall of 2010, up from 1.1% last year.

Rivals may take some solace from analysts who say that while this iPhone is better than older iterations, its improvements are not as earth-shattering as those of earlier models. This “is not a huge, dramatic change for what people want it for,” says Michael Mace, principal at Rubicon Consulting. Arguably, prior-generation iPhones offered more drastic improvements. Introduced in 2008, the iPhone 3G came with a built-in Global Positioning System and an applications store, in addition to offering twice the speed of the original iPhone. The year before, the original iPhone was the first best-selling device to boast a touchscreen.


Indeed, rivals are also better prepared to meet the iPhone’s challenge head-on with their own best-selling products. “There’s a change now,” says NPD’s Rubin. All major U.S. carriers boast strong iPhone alternatives: Sprint Nextel (S) offers the Palm (PALM) Pre;T-Mobile USA sells the T-Mobile G1 smartphone, which runs the Android operating system put together by a Google (GOOG)-led coalition; and Verizon Wireless and Sprint, like AT&T, continue to sell versions of Research In Motion’s (RIMM) BlackBerry.

What’s more, some loyal Mac-heads are rebelling against high prices to upgrade to the iPhone 3G S. Existing users upgrading to a newer device typically account for about 20% of new-model sales during the first quarter of availability. But many 3G S upgraders will have to shell out an extra $200 to move to the new device. A petition circulating on the Twitition site asks Apple and AT&T to let existing iPhone users upgrade at the same rate as new users. It gathered more than 11,400 signatures in a matter of days.

But AT&T and Apple may have ways to create headaches for rivals. AT&T is considering reducing its iPhone plan rates. The company is finalizing a slew of new, more affordable family and business calling plans, as well as cheaper data plans that will be exclusive to the iPhone, says Richard Doherty, director at consultant Envisioneering Group. The new plans are expected to be announced in the coming weeks, though possibly not in time for the iPhone 3G S launch on June 19. For weeks, however, AT&T has been mum about any move toward more flexible iPhone pricing. “Our rate plans for iPhone 3G S are unchanged from iPhone 3G,” writes AT&T spokesman Mark Siegel. “We don’t have further comment on this.”


Today, an iPhone plan costs at least $1,680 over the two-year term of a contract. That amount needs to come down by at least $240 over two years for AT&T to grab mainstream phone buyers and boost iPhone sales by as much as 25%, Sharma estimates. Apple has sold 21 million iPhones in the two years that the device has been on the market. The boost would give AT&T even more of a lead in smartphone services; the company already claims it has twice as many smartphone users as any other U.S. wireless service provider.

As subscribers move to AT&T for the iPhone, Verizon Wireless and Sprint Nextel could suffer the most. While it has a temporary exclusive on the popular Palm Pre device, Sprint “does not have a product it can offer at $99 that can be a strong competitor to the iPhone,” Rubin says. As the next-largest rival, Verizon Wireless may have the most to lose, he says. T-Mobile USA may be on safer ground, he adds. “T-Mobile users tend to spend less on data, and it’s unclear if in this economy they’d make a jump to AT&T,” he notes.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

A Tale of Two Smartphones – iPhone vs. Pre June 8, 2009

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(Image Source: Engadget)

It is not every week that you get two blockbuster announcements within a matter of 48 hours. Palm Pre which was introduced earlier this year took its sweet time to come to the market and was officially launched this weekend. Launching it two days before WWDC was always going to be a risk, and launching it many months after the introduction is never a smart idea, it gives competitors enough time to respond.

While, Pre is a solid device and has great features, strategically, it missed out. By keeping the inventory artificially low, the company made matters worse. Now, it has to also compete with a $99 iPhone and 3.0 and of course the HSDPA iPhone for the same price of $199. Apple is known to have products in the store within days of announcement and competitors should learn from that otherwise they will get creamed time and time again. Pre will push iPhone and others to be better devices but will it be worthy of being an effective competitor remains to be seen. All the indications are that it will sell well but will fall short of sales expectations.

Silicon India Article: Mobile Media Evolution June 3, 2009

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Silicon India invited me to write a short piece on Mobile Media Evolution.


Over the last 2-3 years, consumption of digital media has evolved significantly. As content is becoming more digital, as devices are becoming more powerful and able, and as the consumers are becoming dependent of mobile devices for their media needs, the wireless phone is playing an important role in how digital media is consumed around the world. The digital rush has helped make mobile a $1.1 trillion (as of 2008) industry. As the demand for mobile content consumption increases, service providers are being rushed to enhance their infrastructure and keep up with the explosion of content and consumer interest.

The main drivers for increased activity on the mobile devices are three-fold: better networks in the form of 3G (and future upgrades of 4G+), higher processing power devices being available for mass-market prices around the world, and consumers becoming not only the consuming but also producing content at an exponential pace. As such from the early days of ringtones and graphics, the mobile ecosystem has evolved into more rich content experiences such as high-fidelity and multi-user mobile games, very high quality video in the form of multicast (though unicast is the one that is widespread), and social networking applications like Facebook and Twitter.

Additionally, the smartphone boom that followed the iPhone introduction in 2007 clearly changed the dynamics of the market and how consumers view their mobile devices. It is interesting to note that on such integrated devices, consumers only spend less than 20% of their time on voice; rest is on other applications and services.
Such a shift is also changing the service provider business models and how they run their business and plan for future growth. Mobile media and data services are the only driver for growth as voice revenues plummet (worldwide). Significant mobile data usage is also putting strain on the operator’s network and as such they are forced to come up with data expansion (like 3.5/4G) and alternate (Wi-Fi/Femtocell) strategies so that they can profitably stay ahead of the curve.

Also, the very definition of the mobile devices is changing. More and more consumer electronic devices are being launched with a wireless data connection (Wi-Fi or Cellular). Devices such as Amazon’s Kindle and Dash are introducing vertical devices that are changing the industry dynamics as well. Newer players are entering the marketplace and the competitive landscape is being impacted as well. Apple’s appstore changed the way applications found their way onto consumer’s handset. This made it easier and lucrative for a developer in a garage to launch new applications.
The increased mobile media consumption is also giving rise to a new category of services on mobile – advertising. As flat rate forces the operators to reduce the pricing on subscription plans, advertising provides a way to compensate for such pricing pressures. In developing countries like China and India which are the two biggest mobile markets in the world, it is particularly important as these mobile phones are the only digital channel available to the advertisers to reach consumers in an efficient manner.

While the opportunities to exploit mobile media remain strong, the ecosystem needs to worry about meeting the expectations of the consumers. They have to invest in infrastructure, developer ecosystem, and continuous flow of new and improved handsets to keep up with the growing interest. It is clear that as digital media consumption grows; mobile will be front and center of this evolution.

NY Times Article: Cellphone Locator System Needs No Satellite June 1, 2009

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Had a chance to talk to NY Times about LBS. Article appears in today’s paper.

Cellphone Locator System Needs No Satellite


Published: May 31, 2009

BOSTON — Wanderers with phones and other devices that have GPS chips can figure out where they are using signals from satellites thousands of miles up, but those are easily blocked by walls or trees. The founders of Skyhook Wireless discovered some alternative navigational beacons: the signals coming from the Wi-Fi network in the coffee shop across the street, or the apartment upstairs.

Librado Romero/The New York Times – In Harlem, Nandor Sala scans for Wi-Fi signals to add to Skyhook’s database.

Skyhook Wireless – A day of lookups around Times Square.

Skyhook uses the chaotic patchwork of the world’s Wi-Fi networks, as well as cell towers, as the basis for a location lookup service that is built into everyiPhone, making it easier to pull up a map or find Chinese food nearby.

The start-up was founded in 2003 by Ted Morgan and Michael Shean, who traveled frequently for work and noticed the proliferation of wireless signals each time they cracked open their laptops to check their e-mail.

“We were amazed by the sheer growth of Wi-Fi,” Mr. Morgan said in an interview in April at the company’s offices here. “We knew there had to be a new model for mapping location using those signals.”

Wi-Fi signals travel only a few hundred feet at most, so if you have a map of the Wi-Fi networks in a given area, you can use those signals to pinpoint a phone’s location.

Making that map is the tricky part. When Mr. Morgan and Mr. Shean decided to pursue their idea, they started building a database of Wi-Fi access points, along with cellphone towers, which have much more powerful signals.

At first they tried paying taxi drivers to carry equipment that silently recorded the locations of networks as they roamed the streets, Mr. Morgan said. Then they hired full-time drivers to cover ground systematically, much asGoogle does for its Street View service. Skyhook says it has scanned areas containing 70 percent of the country’s population.

“It doesn’t seem realistic to drive up and down every street in the U.S.,” Mr. Morgan said. “But you can.”

Skyhook now employs a fleet of 500 drivers to feed a database that spans North America, Asia and Europe. The landscape of signals changes constantly as people and businesses set up and take down wireless networks, so the scanning process never ends.

Each Skyhook car contains a laptop outfitted with antennas and equipment that sends out short blasts of radio waves, called probe requests, to detect nearby cell towers and Wi-Fi networks. The system calculates the source of the signals based on their strength and the location of the car. That information is logged in the Skyhook database, which includes more than 100 million wireless networks and 700,000 cellular towers.

Skyhook’s big break came in August 2007 when Steven P. Jobs, Apple’s chief executive, requested a meeting with the company. Mr. Morgan said he initially deleted Mr. Jobs’s voice mail message, dismissing it as a prank, but soon realized his mistake.

Since then, Apple has sold 37 million iPhones and iPod Touches worldwide, all with Skyhook’s software on them. Mr. Morgan declined to detail specifics of Skyhook’s financial agreement with Apple, other than to say that his company collects a commission for each device sold.

When an iPhone owner starts up an application that involves location — like the restaurant finder Urbanspoon or the forecast service WeatherBug — the phone calculates whether it is likely to get the best and fastest information from its own GPS chip or from Skyhook’s system. Skyhook says it can provide a fix on location in seconds, versus up to a minute for GPS, although Skyhook is less useful in areas with few Wi-Fi networks.

Skyhook checks a list of nearby Wi-Fi access points and cell towers against its database and triangulates the device’s location within 30 to 60 feet. The company says it is not connecting to those Wi-Fi networks, just detecting their presence. (As a backup, the iPhone can also use cell tower information from Google.)

Any new access points and cell towers detected by the iPhone are automatically added to the Skyhook database, making it, in Mr. Morgan’s words, “self-healing.”

Apart from Apple, Skyhook also has partnerships with AOL to allow people to see the location of their chat buddies, and with Navteq, a maker of car navigation systems. Skyhook is even embedded into Eye-Fi memory cards for digital cameras, where it keeps track of where photos are taken. The company says it handles 250 million location requests a day.

Skyhook has raised $16.8 million in venture capital financing from investors including Bain Capital Ventures and Intel Capital. Mr. Morgan said it was not seeking more financing right now and was working on expanding the business. “If we do that successfully, there will be plenty of good choices for us,” he said, perhaps including a public offering.

As Skyhook finds success and more gadgets become “location-aware,” competitors are likely to stake out their own share of the market, said Chetan Sharma, an independent telecommunications industry researcher.

Mr. Sharma says that Mexens Technology has a system that relies on user contributions to build a signal map. And a Google service called My Location works on many phones and uses a combination of GPS, cellphone towers and Wi-Fi. A Google spokeswoman, Katie Watson, said the company collected its signal data from several sources, including phones running its software.

“Skyhook is certainly ahead of the curve with its service,” Mr. Sharma said. “Whether they will sustain their momentum for the next five years remains to be seen. But they have a lot of opportunities to make it work.”

Charles S. Golvin, a principal analyst at Forrester Research specializing in mobile devices and telecommunications, agreed that Skyhook was well positioned. “There are so many more phones coming to the market that have GPS and Wi-Fi,” he said.

Mr. Golvin added: “Think about all the other devices with Wi-Fi, like the Nintendo DS,Sony PSP, netbooks, digital cameras.”

Mr. Morgan and Mr. Shean are trying to get Skyhook onto as many devices as they can. Programmers who want to build location-based applications for phones other than the iPhone can license its software, and several do. The company has deals to put its software into chips made by Qualcomm and Broadcom, and it plans to announce a partnership with a major manufacturer of netbooks by the end of the year.

Mr. Morgan is aware of the competition. “There’s always the threat that Google or some other company will just give that information away for free,” he said. To that end, the company has filed for multiple patents, including ones to protect its methodology for updating its database. Several framed patents hang on the walls of its offices.

“But we’re hoping that our six years of driving around in cars, mapping out the various countries, will pay off,” he said. “We’ve done more than 2,000 cities. They have a long way to go.”

Carnival over at Taptu

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Number of great posts

In case you missed ..

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Here are some of the articles that mentioned us in May. Thanks all.

Business Week – GigaOM to Begin Subscription Service

GigaOM – Meet GigaOM Pro, Our Subscription-Only Research Service

TMCnet – AT&T Considers Cheaper iPhone Service, Device

Poynter – Summer 2009 Could Be Right Time to Expand Mobile News Services

Telephony – Verizon Wireless not messing with prepaid

Boston Globe – Surreptitious success

Business Week – Cheaper iPhone Plans from AT&T?

TMCnet – Smartphones Contribute to Mobile Ad Growth

BizReport – US mobile revenue tops $10 million

NY Times – US Pulls Ahead in Mobile Data Revenue

BusinessWeek – Wireless Industry: Engaged in Double Counting?

Washington Post – US Wireless Data Revenues Hit $10 Billion For the First Time Ever

TMCnet – US Mobile Data Services Revenues Top $10 Billion in Q1

Mediapost – Mobile Marketing Company Velti Acquires Ad Infuse

Telappliant VoIP News – US mobile broadband market grew by 24% in 2008

GigaOM – The iPhone Will Not Destroy the Wireless Business

FierceMobileContent – US mobile data revenues cross $10 billion milestone

Mediapost – US Mobile Data Revenue Hits $10 Billion in Q1

TelephonyOnline – Is prepaid growth an illusion?

Telephony – Verizon, Google duke it out for employees

Moconews – Dying or Thriving? The Debate Over CDMA