Archive for the ‘Opinion’ Category

Ten Strategic Issues Facing Mobile Operators

Monday, February 23rd, 2015

In a recent consulting engagement, I was asked about the strategic issues facing U.S. mobile operators. I think I answered reasonably well, but it made me realize that the topic deserved a more thoughtful updating based on recent activities. With that in mind, I’d like to provide a high level outline of what I think are the biggest issues. I think each of these could be a future article in and of themselves.

1. Duopoly, The Rule of Three, or the Rule of Four
Perhaps the biggest strategic issue being played out right now is one of industry structure. Each quarter, Verizon and AT&T become stronger. Their strong balance sheets, fueled by rich cash flows, enable them to strengthen their hand. Meanwhile, the other two national operators (Sprint and T-Mobile) fight it out for third place. The Rule of Three claims that any market can only support three large generalists, implying that only one of those two can survive. Boston Consulting Group takes it a step further with their Rule of Four implying that perhaps two is the right number. American regulators would apparently block a combination of Sprint and T-Mobile, believing that a market with four competitors is better for consumers than a market with three competitors. But, in the long run, will that ultimately result in the failure of both #3 and #4, and in the short run, will it cause behaviors that damage the entire industry?

2. Wildcards: Google, Dish, América Móvil
Over the past few years, Google has done an admirable job of shaking up the broadband industry with the introduction of Google Fiber. In markets where the company has announced plans to build out local infrastructure, existing competitors have had to respond with improved offers to customers. Now, Google is rumored to be preparing to offer wireless services. Would they have a similar impact on the wireless competitive space, or are the disruptive moves already being introduced by T-Mobile and Sprint significant enough that Google’s impact would be muted? Meanwhile, Dish Networks has been spending tens of $billions accumulating a rich treasure chest full of spectrum which they are obligated to begin building out for wireless services. What will they do and how will that impact the competitive environment? Finally, América Móvil has spent the past few years preparing for a major global strategic shift. They already have a strong foothold in the U.S. prepaid market as an MVNO (TracFone), but their relationship with AT&T has been significantly altered perhaps positioning them for a more aggressive move into the U.S. Any of these three potential new entrants could have significant impacts on the American mobile market and must factor into the strategic scenarios for the four mobile operators.

3. Licensed versus Unlicensed Spectrum
As we’ll discuss more below, spectrum is the lifeblood of any wireless network. The global mobile industry has been built on licensed spectrum. Licensed spectrum has many advantages over unlicensed spectrum, including the ability to use higher power radios with better signal-to-noise resulting in greater range, throughput, and performance. Lack of unmanaged contention for the airwaves results in predictable and manageable performance, all resulting in higher reliability of each connection. The industry has invested hundreds of $billions to build out networks that provide a wireless signal for the vast majority of the U.S. However, the cost to build out a wireless network with unlicensed spectrum is a small fraction of that to build with licensed. Companies offering services with unlicensed spectrum are also unburdened by the regulatory requirements placed on Commercial Mobile Radio Service operators. The Cable MSOs have been most aggressive in shifting their focus from licensed to unlicensed spectrum. After decades of positioning to participate in the traditional cellular industry (winning spectrum in auctions, investing in Clearwire, partnering with Sprint, etc.), in 2012 Comcast, Time Warner, and others sold their licensed spectrum to Verizon and aggressively started building out a nationwide WiFi footprint using unlicensed spectrum. About a month ago, Cablevision introduced their Freewheel WiFi-based smartphone service to compete with mobile operators. Expect others to follow.

4. Spectrum Portfolio
Although mobile operators are toying with unlicensed spectrum, their strategies remain very centered on licensed spectrum. To effectively meet the growing demand for capacity, all operators will need more spectrum of some kind. However, not all spectrum is equal and operators know they need a balanced portfolio. There are a variety of criteria that factor into the attractiveness and utility of any given spectrum, but the easiest to understand is simply whether the spectrum is low-band, mid-band, or high-band. Low-band spectrum has a frequency less than 1GHz and provides the best geographic coverage (the signal travels farther) and in-building penetration (the signal passes more easily through walls). However, at these lower frequencies, there tends to be less spectrum available, and it has generally been made available in smaller channels, limiting the capacity (the amount of bandwidth that can be delivered to customers). High-band spectrum generally has a frequency above about 2.1GHz and, while it lacks the coverage of low-band spectrum, there’s generally more of it and it generally comes in larger channels providing lots of capacity. Mid-band spectrum (between 1GHz and 2.1GHz) provides a compromise – reasonable (but not outstanding) capacity with reasonable (but not outstanding) coverage. In the early 1980s, as the local telephone monopolies covering most of the country, Verizon and AT&T received free 800MHz low-band spectrum in each market they served. In 2008, the FCC auctioned off 700MHz low-band spectrum. Of the national players, only Verizon and AT&T had deep enough pockets to compete and walked away with strengthened low-band spectrum positions. Today, these two have the vast majority of low-band spectrum and T-Mobile and Sprint are hoping that the 2016 600MHz incentive auction will help them begin to balance their portfolios and are demanding that the FCC enact rules to avoid another Verizon/AT&T dominated auction process. All players have reasonable amounts of mid-band spectrum (with AT&T and Verizon again using their strong balance sheets to further strengthen their positions in the recent AWS auctions). The majority of Sprint’s spectrum is high-band 2.5GHz spectrum.

5. Network Technologies
Mobile operators face a number of strategic decisions over the next few years related to network technologies. There are enough uncertainties around the key decisions that each operator has a slightly different strategy. Two of the biggest decisions relate to small cell deployments and migration to Voice over LTE (VoLTE). AT&T has the most comprehensive strategy which revolves around their broader Velocity IP (VIP) Project, which they hope will free them from much of the regulatory oversight they currently endure in their monopoly wireline footprint and therefore provides tremendous financial incentives. This is driving a relatively aggressive small cell deployment and a moderately aggressive VoLTE plan. Verizon has been the most aggressive of the national players in deploying VoLTE, while (until recently) being the most hesitant to commit to significant small cell deployments.

6. Cash Management

6a. Capital Expenditures
None of this is cheap. It takes deep pockets to acquire spectrum and even deeper pockets to build it out. In a technology-driven industry, new network architectures will always require significant investments. As price wars constrain revenue, while demand for capacity continues its exponential growth, CapEx as a percent of revenue will likely become a significant strategic issue for all operators.

6b. Expense Management
Operating expenses and overall cash flow also can’t be overlooked. Growing demand for capacity and small cell deployments require increasing backhaul spend (although the shift to fiber for macro sites has helped bring that under control for most operators). But the biggest issue will likely continue to be the cost of providing smartphones and tablets to customers. As an illustration of how significant this cost is for a mobile operator, in Sprint’s 2013 Annual Report, the company reported equipment net subsidies of nearly $6B on service revenues of just over $29B (over 20%). In 2012, T-Mobile introduced equipment installment plan (EIP) financing as an alternative to subsidies and early in 2013 announced that it was eliminating all subsidies. Since then, the other three national operators have similarly introduced device financing. From an income statement perspective, this helps T-Mobile’s earnings since the device is accounted as an upfront sale, typically near full price. However, T-Mobile and their competitors have introduced zero-down zero interest (or close to it) terms, and they are discounting the monthly bill for the customer by roughly the same amount as their monthly equipment financing payment to keep the total monthly cost to the customer competitive with the traditional subsidized plans. The net result is that T-Mobile (and their competitors who have all followed suit) are taking on the financing risk without significantly improving their cash flow. For 2014, T-Mobile reported just over $22B in service revenues (a 17% increase over 2013). They also reported equipment sales of $6.8B (a 35% increase and 30% of service revenues). But, they also reported the cost of equipment sales at $9.6B (an increase of 38%) and they reported that they financed $5.8B in equipment sales (an increase of 75% over 2013 and 26% of service revenues). As of the end of 2014, T-Mobile had $5.1B in EIP receivables (an increase of 78%). That’s a lot of cash tied up in customer handsets. The strategy has worked in terms of attracting customers to switch to T-Mobile (which is why their competitors have had to respond), but it’s less clear that it’s been financially beneficial for the company in the long run. Verizon, for one, seems unconvinced and has been unenthusiastic about device financing. I believe this will continue to be an area of strategic deliberations at all mobile operators.

7. Plan Types
This shift from subsidized devices is also part of a disruption in how the industry views plan types. For decades, the industry focused on postpaid phone plans. These plans were subsidized, but the customer was locked in for two years, “ensuring” that the operator earned back their up-front investment in the device. Because operators, for the most part, managed this business with appropriate discipline, only prime credit customers could get a subsidized device and these tended to be fairly profitable customers. Those that didn’t qualify settled for a prepaid plan where they purchased the phone upfront at or near full price, which provided better cash flow early in the customer life, but less profitability over time. Eliminating subsides also eliminates the 2 year service plan (although the long term device financing still provides customer lock in) blurring much of the distinction between postpaid and prepaid. The number of people with multiple wireless devices is also increasing as we are carrying iPads and other tablets, as automakers are integrating wireless connectivity into the cars we drive, and as we move towards a day when virtually any product with a power supply will be wirelessly connected to the Internet. Different operators are taking different approaches to how to structure their plans to accommodate these changing customer behaviors within their business models, and I’m sure it will continue to be a topic for internal debate and discussion as the industry models evolve.

8. Commoditization
In many respects, wireless service is increasingly viewed as a commodity by customers. Operators continue to trumpet their network differentiation, but to the consumer there is generally the perception that all operators offer the same devices, in the same ways, and support those devices with networks that work reasonably well just about everywhere we go. Over the past 6 to 12 months, T-Mobile and Sprint have been very aggressive about reducing pricing or offering more for the same price, in a successful effort to take customers away from Verizon and AT&T. Those two larger operators have had to respond with lower prices or increased buckets of data. The operators may be denying it, but it sure looks like a commodity market to me, and I imagine that’s a discussion that’s happening in each operator’s strategic planning meetings.

9. Quad Play or Cord Cutting
For well over a decade, there’s been an ongoing strategic debate within the industry about whether a combined wireless and wireline bundle is critical to market success. At times, some players have decided that it will be and have taken actions, such as the strategic alliances between cable MSOs and wireless operators (Sprint, Clearwire, and Verizon), or advertising campaigns focused on integration across multiple screens (TV, computer, phone). So far, there’s little evidence that it really matters. Consumers take what landline voice, broadband, and video services they can get from the duopoly of cable provider or “telephone” provider and then they can choose from a competitive landscape for their mobile needs. For the last few years, it appears that none in the U.S. industry have seen any need to focus on a quad play future. In fact, the focus has been more on cord cutting and over-the-top players. However, in Europe, there’s a very different story playing out and it is driving massive industry consolidation. Especially while wrestling with the questions about commoditization, operators will once again question the benefits of a differentiating bundle.

10. Re-intermediation
Another common tactic to combat commoditization is to “move up the stack.” In the mobile industry, that would be “move back up the stack.” The introduction of the iPhone, followed by Android devices, led to the disintermediation of the mobile operator from much of the value chain. Prior to the iPhone, operators carefully managed their portfolio of phones, telling OEMs what features to build and it was the operators who largely drove demand for different devices. Operators collected the vast majority of revenues in the industry, directly charging the customer for the phone, the network service, any applications, any content, and any value added services (such as navigation or entertainment). The iPhone (and then Android) enabled better apps and content, provided a better marketplace for buying them, and provided an open connection to the Internet for a wide variety of over-the-top services. Although the operators had poorly managed the apps/content/services opportunity and therefore they didn’t have much “value add” revenue to lose, they clearly lost the opportunity to be more than just the underlying network. Over the past several years, the industry has tried to claw its way back up the stack. Operators pursued “open” strategies, introducing APIs for app developers and other tactics to try to be a “smart pipe” rather than just a “dumb pipe.” They have also tried to encroach on other industries by offering new mobile-enabled services, such as mobile payments and home security/automation. These efforts have not yet had meaningful success, although AT&T’s progress with Digital Life is promising. If operators want to escape the commodity “dumb pipe” trap, at some point they will need to figure out how to reclaim more of the stack.

Obviously, the mobile industry is dynamic and I expect these 10 topics to drive significant strategic decisions across all operators in the coming months and years. If you’d like to discuss any of these topics, drop me a note.

Mobile Impact Obvious

Monday, February 2nd, 2015

As my recent set of posts imply, I’m thinking quite a bit beyond the “mobility revolution.” A fascinating article at Wired makes it clear that the impact of mobile has become obvious, and when something is obvious, it’s much less interesting to me. (That doesn’t mean that execution and operations minded folks should ignore mobile – now is the time when the real money is obviously being made…)

Reading this article took me back to early 2012. Facebook’s IPO was the big story and the biggest knock on the company was that it lacked a mobile strategy. Today, more than half its revenue comes from mobile and they are being lauded as one of the few to have figured out mobile. Back then, Facebook wasn’t alone. Perhaps setting the tone for the year to come, in late 2011, the world’s largest technology company at the time, HP, ousted their CEO, at least in part, for a failed mobile strategy (the company doesn’t show up in the Wired piece because they haven’t been able to recover to a leadership spot in tech). Later in 2012, Intel’s CEO was forced to resign because of a failed mobile strategy. (Like HP, Intel rarely gets mentioned these days when folks talk about the companies leading the technology industry.)

2012 was the wakeup call. 2015 is showing which companies jumped and which hit snooze.

CCA 2014: Is Wireless a Commodity?

Thursday, September 11th, 2014

This week I participated in a panel at CCA on “The Evolving Operator: 2014 & Beyond” that was moderated by Sue Marek, Editor in Chief of Fierce Wireless. My co-panelists were Rob Riordan, EVP of Corporate Development for Cellcom, and Mauricio Sastre, Vice President of Product for FreedomPop.

For those that aren’t familiar, CCA is the Competitive Carriers Association and basically includes all of the wireless carriers smaller than Verizon and AT&T. Until Sprint and T-Mobile joined, it had been the Rural Carriers Association. So everyone at the show really cares about the success of small operators.

Early in the discussion, I answered a question by saying that I believed that we need to make three critical strategic shifts:

  1. We must recognize that we’re operating in a commodity market. Today, we don’t operate our businesses in a way that supports a commodity market.
  2. But, we can’t be satisfied with being a commodity, we need to find ways to differentiate.
  3. Finally, we need to act like an Internet company. (Move faster, focus on the customer experience, eliminate bureaucracy, do less and partner more, etc.)

That sparked a follow-on question from Sue for all three panelists. I was sitting in the middle at the table, and I’d say I was also sitting in the middle relative to this question. She asked “is wireless really a commodity?”

Rob is convinced it’s not. He passionately described how many competitors Cellcom faces in Wisconsin, and yet they take the largest share of subscribers. They do it by being part of the community and caring about the people they serve. They don’t operate an IVR – when you call them a live person answers. I don’t disagree with him. For operators like Cellcom, there is an opportunity to be seen as special by those in your community. You aren’t just another provider in a competitive matrix, you’re a neighbor who cares.

My position was that wireless is becoming a commodity. Especially if we look beyond the traditional mobile operators and recognize that we’re really competing against the Facebook and Google’s of the world, who provide over the top services using our own bandwidth against us, we have to realize that our traditional operating model must be challenged.

Mauricio kind of shrugged and said, yeah, of course it’s a commodity. FreedomPop wouldn’t be here and growing as fast as we are if it weren’t already a commodity.

What do you think?

Hmmm….

Thursday, April 24th, 2014

Years ago I drafted a post for this blog. After seeking the counsel of wise co-workers, I decided not to post it and it stayed in my drafts folder. For some unknown reason, WordPress autonomously decided to post it yesterday.

I apologize for any confusion it may have caused. The report and analysis referenced are years old.

For complete transparency, there were a couple of reasons folks recommended I not post it originally. The first was that the vast majority of my readers wouldn’t be able to access the report. In respect to Craig Moffett’s and Bernstein’s intellectual property, I couldn’t share enough of the report to do it justice and yet my readers couldn’t access the rest of it. That didn’t seem fair to my readers. The second reason was that, while I liked Mr. Moffett’s analysis in this report, there are many other reports that he’s written that I don’t agree with. By strongly commending his thought process and analysis on this one report I may lead people to believe that I was endorsing (or worse yet, that Sprint was endorsing – even though everything that’s posted here is my own and doesn’t necessarily reflect Sprint’s positions or opinions) Mr. Moffett’s entire body of work.

I do think Craig Moffett is a very intelligent man, that he deeply understands the industry, and that he often provides incisive perspectives on various players in the industry – whether or not I think he’s right or wrong. I also think this particular analysis was very interesting. I don’t have time now to go back and see how right or wrong he was (using 20/20 hindsight). But anyway, for those reasons, I’m not going to take down this post (unless Craig or Bernstein ask me to).

Is the Mobility Revolution Deadly for Big Bells?

Wednesday, April 23rd, 2014

Please see my follow-up note on this post here.

Craig Moffett of Bernstein Research recently published a very informative report titled

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“The Long View: U.S. Telecom – The End of the Line(s).” In it, he shares his learnings from very detailed analysis of the cost and revenue models of wireline businesses.

Mr. Moffett is a very smart guy. I can’t possibly fairly represent the depth of analysis he has provided in this 40+ page report. I recommend you consider becoming a Bernstein client so that you can read this full report and to follow what he has to say about the industry. He won’t always be right, but his analysis is always worth considering.

And after considering this report, I think it’s clear that the Mobility Revolution, and the resulting displacement of wireline services by wireless services, may prove deadly for the Big Bells.

To give you a sense for the challenges they face, here are some quotes from the report:

  • “The Wireline business – encompassing both the TelCo and Enterprise segments – still accounts for more than half of Verizon’s revenues (after adjusting for Vodafone’s 45% ownership of Verizon Wireless), and a similar amount of AT&T’s. Similarly, Wireline accounts for a majority of assets – at Verizon, about 69%. And Wireline accounts for an even larger portion of costs – the best measure of activity, or what these companies actually do – at about 65%. Indeed, if one were to also include the in-region wired portion of the wireless network as part of the broader wired picture then these companies’ still-overwhelming dependence on their wired franchises becomes even more striking, with what is almost certainly three quarters or more of the revenues and assets depending on the wired infrastructure.”
  • “The TelCo (or regional Wireline segment) represents a larger share of profitability than it does of revenue within the Wireline business. Although not disclosed in Verizon’s and AT&T’s published financial reports, both companies are quick to concede that the TelCo segment is significantly more profitable than Enterprise, even if the TelCos’ trends are deteriorating. At both AT&T and Verizon, we estimate that TelCo accounts for approximately 40% of total EBITDA.”
  • “The combination of competitition, technology, and regulation is a potent brew, and fifteen years after “Being Digital,” the world of the TelCos is a far different place. Consider that, at the time of the ’96 Act, local residential phone service was essentially ubiquitous, with 97% of households connected to the wired ‘grid.’ Nearly 30% of those homes had a second line, either for their AOL dial-up connection, their fax machine, or perhaps for their chatty teenage daughter. That’s an ‘effective’ penetration rate of ~125%. Fifteen years later, more than a quarter of all homes have ‘cut the cord,’ and a quarter of those remaining have left for cable voice. Second lines have dropped to 11%. That’s an effective penetration rate of ~60%; effective residential penetration has been cut in half. And if we look forward just five years from now, we are on a trajectory for more than 40% of homes to have gone wireless-only, for cable to have 40% of what’s left, and for second lines to be a thing of the past. Do the math. Five years from now, in the residential market the TelCos will preside over 60% share of just 60% of homes… an effective penetration rate of just 36%. That’s close to another halving, but this time in five years. That decline rivals that of the film business at Kodak.”
  • “The rate of margin compression appears to be accelerating. Two things have happened in the two years since the end of our ARMIS data set (ARMIS reporting was discontinued afer 2007). First, the rate of access line losses has dramatically accelerated; the country is no longer averaging -4.8% total access line losses as it was from 2000 to 2007. This year, the average has been north (or south?) of a -10% annual decline. Second, broadband growth has slowed dramatically. Indeed, DSL growth tipped slightly negative for the first time ever in Q3. As a result, operators can no longer count on offsetting gains in ARPU to lessen the impact of a declining access line base.”
  • “There is a troubling tendency to dismiss this progression as ‘yesterday’s news,’ to view the big TelCos as wireless operators, or to assume that the wired phone business will decline gracefully. It won’t. The Wireline phone business is a quintessentially fixed cost business. When fixed cost businesses decline – and especially when they decline rapidly – they leave huge and intractable costs in their wake.”
  • “…Intuition suggest, however, that Wireline costs are primarily fixed, and this intuition can be empirically confirmed by the steep slope of correlations between access line losses and cost per access line – drawn from our extensive analysis of state-level FCC ARMIS data through 2007. The correlation suggest an overwhelmingly fixed cost structure for the Wireline business (in a ratio of roughly 50 to 75% fixed and 25 to 50% variable).”
  • “Importantly, it is the nature of fixed cost businesses like telecommunications that ‘threshold effects’ become increasingly pronounced over time. As volumes decline, variable costs are shed. The remaining cost structure is therefore, by definition, more fixed and less variable than it was before. In any high-fixed-cost business, it is always the case that initial unit cost escalation yields even greater sensitivity to further unit cost escalation; as the margin ‘cushion’ gets smaller and smaller, it requires a smaller and smaller subsequent change to volumes to trigger a larger and larger subsequent change in profitability. If this ‘negative operating leverage’ dynamic is at work – as it appear to be – then it is plausible to expect that Wireline margin compression will not lessen; it will accelerate.”
  • “The combination of falling revenues and falling margins is a noxious combination; the dollar amount of EBITDA generated by the U.S. Wireline industry has dropped from an annualized run rate of $52B seven years ago to an annualized run rate of just $38B in the just reported Q3.”
  • “The implications of our analysis of the Wireline segment are troubling for the industry going forward. That access lines will continue to decline from here is a foregone conclusion. That Wireline margins will decline with access lines is more controversial, at least to judge by consensus estimates.”
  • “Our AT&T model projects a decline from 31.8% in 2009 to 26.3% in 2013 in overall Wireline margins. … As a context, each 100 basis
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    point decline amounts to about $650M in reduced Wireline EBITDA or operating income. Our 550 basis point variance from today’s margins amounts to a $3.6B gap by 2013, equal to 17% of ‘consensus’ EBITDA and 54% of ‘consensus’ operating income.”

  • “Our Verizon model projects an even steeper decline, as Verizon’s costs appear somewhat more fixed and less variable than AT&T’s. We project a decline in Wireline margins from 24.2% 2009 to 17.0% in 2013. … Every 100 basis points of margin contraction at Verizon translates to about $460M in EBITDA or operating income. Our 720 basis point variance from implied consensus amounts to a $3.1B gap by 2013, equal to 30% of ‘consensus’ EBITDA and 153% of ‘consensus’ operating income, putting income firmly in negative territory.”

Mr. Moffett is a very smart guy. I can’t possibly fairly represent with this tiny sample from his report the depth of analysis he has provided. I recommend you find a way to read this full report and to follow what he has to say about the industry. He won’t always be right, but his analysis is always worth considering.

Although Verizon and AT&T are clearly being very successful in benefitting from the growth in mobility, they are undoubtedly also carefully weighing how to slow the impact of mobility on their core wireline economic engine.

Some of us, however, would rather mash the accelerator to the floor and say – bring on that Mobility Revolution – full steam ahead!

Smartphone Adoption

Thursday, December 1st, 2011

It’s been a couple of weeks since I posted the initial piece on the four drivers of change in the industry. I didn’t intend to take this long to post the second piece, but I guess I’ve been pretty busy…

As I indicated in my first post, one of the key drivers of change has been smartphone adoption. Obviously, smartphones have been around for a long time. The Handspring and then Palm Treo’s were great early smartphone products for Sprint starting almost a decade ago. Nokia, Microsoft, and RIM also have had smartphone platforms for many years.

But, it wasn’t until Apple introduced the iPhone in 2007 that the smartphone became a mass market phenomenon.

I believe the iPhone also introduced a fundamental shift in approach to the smartphone. I’m most familiar with Palm, Microsoft, and RIM, so my apologies for not representing Nokia well. Both Palm and Microsoft focused on creating miniature computer environments. The experience had much more to do with running applications on the computer and also using the computer to make phone calls. Yes, there was an e-mail client and a browser, but these were application-centric models in the traditional PC mold. RIM always has been very messaging centric. Yes, there was a browser and yes you could run applications, but the model was very much about messaging.

The iPhone was the first smartphone that truly was Internet-centric. You may recall that for the first year, Apple didn’t even support native apps on the iPhone – they expected developers to create services/apps that were browser based. Of course, the iPhone had the first beautiful browser that ignored any concept of carrier walled gardens and gave users access to the full Internet. A year in, the App Store similarly ignored the concept of a carrier deck and created a win-win-win opportunity for developers to develop/market/sell/deliver applications and for customers to enjoy a rapidly growing array of available apps.

Of course, this invited competition and Google introduced Android at the end of 2007, with the first handset available late in 2008. And today, patents and intellectual property are the weapons of choice in this competitive battleground.

IDC estimates that US smartphone sales have increased from about 5 million in 2005 to over 100 million in 2011. Not bad growth…

Stay tuned…

The iPhone: the power and the danger

Monday, November 21st, 2011

My latest article for Christian Computing magazine is on the power and the danger of the iPhone. It can

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be read here: http://www.ccmag.com/2011_11/ccmag2011_11mcguire.pdf

Four Drivers of the Mobility Revolution

Sunday, November 13th, 2011

Just over a week ago, I presented “Seismic Shifts in the Mobile Ecosystem” at Sprint’s Open Solutions Conference. The session was well attended and seemed to be well received, so I’d like to share some of the content here. I’ll set up the topic in this post, and then dive deeper in additional posts over the coming weeks.

The basic premise of the session was that there are four key drivers of change that have resulted in ten seismic shifts in the mobile ecosystem. These changes reflect the Mobility Revolution and create opportunity for businesses that can understand and capitalize on these shifts.

So, what are the four drivers?

The first one is

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mass market adoption of smartphones.

The second is mobile bandwidth being built into all kinds of products.

The third is ubiquitous broadband (wired and wireless).

The final driver is the emergence of real world interfaces between mobile devices and the real world, including NFC, compass, gyroscope, cameras, and other sensors.

Steve Jobs: The Innovation Paradox

Thursday, October 6th, 2011

I’m already very late in writing an homage to Steve Jobs, so let me take a different angle…

Steve Jobs may represent the most successful example of a man and his company being able to maximize the profit from innovation. He and Apple have done this by taking an approach to innovation that appears to be a paradox: Steve Jobs was extremely innovative and extremely anti-innovation.

That Jobs was innovative hardly needs to be explained. He truly invented and reinvented industries over and over again. Years

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ago, I observed that Apple was great at introducing products that had great design, were first of their kind to truly appeal to the mass market, and that broke down traditional barriers. Over the years, I think the company has proven those points time and again. However, what I missed then was the nature of the boundary breaking… Jobs created and reinvented industries by breaking down the barriers between the digital and analog worlds.

Look at the industries that have been completely redefined by Jobs and his companies: personal computers (Apple II, the first mass market personal computer and the foundation of everything that followed), publishing (the shift to desktop publishing ushered in by the Mac), music (mass market adoption of digital music thanks to iPod/iTunes), movies (broad adoption of CGI-animation, led by Pixar), photography (Apple was a bit later to the party on this one, but the iPhone helped cement the role of the cameraphone), and telephony (or whatever you want to call this industry that connects the devices that are now central to our lives).

Bottom line, Jobs was a master at leveraging incredible design instincts to turn nascent ideas into mass market hits, and in the process completely redefining industries. That’s why I believe he was extremely innovative.

However, Steve and Apple have also been extremely anti-innovation. Not long ago I observed that Apple suffers from Big Bell Dogma. I summarized it this way:

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They want to put constraints on how innovation can happen so that they dominate the ecosystem and extract the most value.”

We have seen it time and again. They limit how their innovation can be leveraged. No one but Apple can make a device running iOS. Only a select few carriers can sell it, and then under far more stringent parameters than any other phone OEM imposes. Apple regularly tweaks the rules under which developers can operate – each time shutting down one or more areas of innovation that are threatening to the company. Apple sues competitors seemingly to keep their products out of the market. All of these actions put constraints on innovation. Without these constraints, there would be much more innovation in the ecosystem, but not necessarily to Apple’s benefit.

Which brings me back to my original point. Apple, perhaps uniquely, does an excellent job of monetizing innovation precisely because of this innovation paradox. The company focuses (i.e. actually deselects distractions) on innovating to create insanely great products (usually building on the innovations of those that went before them), and then protects their financial benefit from that innovation using every possible means (great marketing, carefully constructed legal agreements with complimentary partners, full legal enforcement of intellectual property, etc.).

Who knows if Apple, the company, has so fully integrated the nuances of this model to continue to enjoy its fruits for years to come, and who knows if the strategy will actually pay off with the current spate of patent

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disputes and developer decisions, but part of Steve Job’s legacy will undoubtedly be his mastery of this innovation paradox.

Whither Isis? Is Big Bell Dogma a dead dog strategy?

Wednesday, May 4th, 2011

Today’s news is hardly surprising. I think Fierce’s Mobile’s Sue Marek describes the news better than I could:

Less than six months after AT&T Mobility, Verizon Wireless and T-Mobile USA announced their mobile commerce initiative, called Isis, it appears that these major players are already starting to rethink their ambitious plans.

Today the Wall Street Journal is reporting that the operators are scaling back Isis, which they had originally hoped would compete with Visa and MasterCard and instead have decided to set up a mobile wallet.

Interestingly, this new mobile wallet plan sounds very similar to what Sprint Nextel has been doing. If you recall, Sprint was noticeably absent from the Isis joint venture. The operator said at the time that it was not interested in competing with the credit card companies and didn’t want to be part of a proprietary system. Instead, the company unveiled a mobile wallet solution in November that enables customers to use buy physical and digital products directly from their phones, entering a universal PIN code and billing purchases to their existing Visa, MasterCard and Amazon Payments accounts. Sprint’s Mobile Wallet is not a carrier billing mechanism, instead the company calls it a “container” for on-the-go customers to leverage traditional payment methods.

It appears that AT&T, T-Mobile and Verizon Wireless are taking a cue from Sprint. The WSJ article says that Isis is in talks with Visa and MasterCard and others to see if they will participate in this mobile wallet initiative.

Here’s what I had to say about Isis back in December:

Isis is a perfect example of Big Bell Dogma. Carriers think they can do a better job than Visa, Mastercard, American Express, and others in the payments ecosystem, so they invest billions to try to replicate capabilities and compete with existing players rather than focusing on what carriers actually do well and enabling the existing players and nimble startups to leverage the carrier’s infrastructure to bring real value to consumers. Carriers have been trying to do that for over a hundred years in different industries. Sometimes they get lucky and succeed, but most of the time it’s a miserable failure.

Does this Isis abandonment point to the death of the Bell’s “Big Bell Dogma” strategies?

I hope not. As I concluded in that December post:

Maybe I shouldn’t be trying so hard to put an end to Big Bell Dogma. Instead, in the short term, Sprint can enjoy the benefits of being the best partner for everyone else in the ecosystem, and in the long term, we all can enjoy the fruits of Big Bell Dogma’s glorious failures.

So, as the Big Bells continue to compete with their customers/partners in home security and social coupons, all I have to say to everyone in the ecosystem is: if you want to move at carrier speed, go talk to the big bells and wait for them to enter your market and compete with you. If you want to move at silicon valley speed with a true partner focused on mutual success, come talk to Sprint.