It's Value vs. Premium Carriers in the US

Among the four main US carriers a pattern has emerged. On the one hand you've got T-Mobile and Sprint positioning themselves as the "value" carriers with lower prices and more flexible or inclusive plans. On the other side are AT&T and Verizon, the "premium" carriers that have many more subscribers and tout their networks in their promotions and ad campaigns.

Now it's not entirely black and white; Sprint is pushing 4G and the fact that it will be the first carrier with a working 4G network in the US. And both AT&T and Verizon have recently lowered prices. But basically those are the battle lines in the market. 

Last week, T-Mobile USA released Q4 and full-year results and grew subscribers by almost 400K:

In the fourth quarter of 2009, total customers increased by 371,000, compared to net customer losses of 77,000 in the third quarter of 2009 and 621,000 net new customers in the fourth quarter of 2008.  

The reason for that growth was largely attributable to T-Mobile's aggressive pricing:

Branded customer additions benefited from strong holiday sales and the launch of the new Even More and Even More Plus rate plans during the quarter. The Even More and Even More Plus rate plans offer industry-leading value with features including unlimited nationwide voice, text and data services, and include rate plans with and without contracts and subsidized handsets.

Sprint for its part has seen substantial gains on the pre-paid/no-contract side of the house (Boost et al.) but not on the post-paid, higher value customer side. While it has stopped the dramatic customer losses it has seen in recent quarters, there are no indications of growth there. And with AT&T and Verizon lowering prices recently Sprit is forced to defend it's position as value carrier:

T-Mobile and Sprint now both have an array of strong handsets, which doesn't seem to be impacting their subscriber numbers in a huge way. Price will continue to probably be the lever that T-Mobile and Sprint compete with for the foreseeable future, notwithstanding Sprint's 4G plans. In order for the Sprint network to gain traction and attract new customers it will need to be noticeably much faster than rivals' 3G networks.

In the UK the merger of T-Mobile and Orange's UK operations has gained European Commission approval. More consolidation is coming to the US market and probably to one or both of Sprint and T-Mobile (as in the UK example).

I was somewhat surprised to see that T-Mobile now offers data-only plans, which I didn't think would happen (because of the potential for voice revenue erosion). Indeed, it portends the decline of voice revenues for carriers over time.

Sprint may be forced to match T-Mobile's more aggressive pricing in the near term. Meanwhile Verizon and AT&T don't seem to be compelled to match price reductions in the same way; they mostly respond to one another. But I wouldn't be surprised if we see another round of price cuts as T-Mobile and Sprint fight it out in the trenches. 

US mobile subscriber numbers:

• Verizon -- 91.2 million
• AT&T -- 85.1 million
• Sprint -- 48.1 million
• T-Mobile -- 33.8 million
• Others -- 13 million (approx)

Palm, It Never Pays to Be Arrogant

Roughly a year ago the release of the Palm Pre kept me from defecting from Sprint to AT&T for the iPhone. But today I'm an unhappy camper. Compared with the iPhone and Android it turns out that Palm has almost completely failed. The venerable company may have created a great OS in "webOS" but the overall execution is poor.

Yesterday that harsh reality was acknowledged when Palm said it was way off revenue targets:

Revenues for the quarter and full year are being impacted by slower than expected consumer adoption of the company’s products that has resulted in lower than expected order volumes from carriers and the deferral of orders to future periods. Accordingly, Palm expects fiscal year 2010 revenues to be well below its previously forecasted range of $1.6 billion to $1.8 billion.

"Lower than expected" . . . attempts to soften the failure. Palm isn't going to sell Pre handsets at anything like the volumes originally anticipated. In fact, the Pre is dead. The Pixi may have a future however.

The following comes from a letter to employees from Palm CEO Jon Rubinstein:

As we mentioned in our press release, our softer than expected performance is due to slower than expected customer adoption of our products, which in turn has prompted our U.S. carrier partners to put additional orders on hold for the time being.

The company is now clearly takeover bait, worth just under $2 billion. But the reason someone might buy the company is almost solely for webOS, which is worth less than the company as a whole. Arrogance blinded Palm to the challenges it faced in the market, including apparently the features and functionality to release on the Pre.

In addition, the company should also have done a lot more, earlier, to cultivate the developer community and build a better set of apps for the device: 

Image credit: Distimo/Wired

Finally, let's revisit comments made in early 2009 before the Pre's release by Roger McNamee, co-founder of Elevation Partners, which owns 39% of Palm:

"If you bought the first iPhone, you bought it because you wanted the coolest product on the market,” said McNamee, 52. “Your two-year contract has just expired. Look around. Tell me what they’re going to buy.”

How wrong could someone be? So wrong in fact that Elevation may lose lots of money on its investment Palm. Yesterday AdMob put out data showing that "webOS users are 3.4x more likely to not recommend their device relative to iPhone OS users."

Microsoft has said with Windows Mobile 7 that it no longer needs an acquisition to be competitive. Nokia may turn out to be the buyer, itself struggling to compete in the smartphone market against more advanced rivals. There are other OEMs that might also be interested too. 

It's pretty clear to me, however, that Palm's days as an independent company are numbered. 

Handicapping Palm's Future

Notwithstanding Windows (7) Phone's launch yesterday, some people believe that the only smartphone platform truly competitive with the iPhone is Palm's WebOS. But Palm's handsets are being overshadowed by Android, RIM and the iPhone -- and maybe Windows later this year when 7 handsets start coming out.

By most accounts Palm's handset sales have not met expectations, although the company is rolling out with other carriers in the US and abroad. However if sales don't improve the company will be under tremendous pressure. That raises again the question of an acquisition. 

However the most likely company to buy Palm, Microsoft, now says with the launch of Windows Phones it doesn't need to:

Asked whether Microsoft might ever buy a more fashionable rival, like BlackBerry maker Research in Motion, Ballmer said: "The word 'ever' is a big word but I certainly don't feel like that's the right strategy for us today."

He also said no major change should be expected in the company's policy of charging license fees to handset makers for its mobile software. Microsoft is the only major company to still charge a fee for using its mobile operating system.

"We don't comment generally but there's nothing that interestingly new," he said. Later, he told a news conference: "We plan on staying with the model that we are on."

I own the Pre and I've grown to dislike the phone over time, from ambivalence at the start. However, I think the major failures are ones of marketing and branding rather than design. Still, in retrospect, the Pre launched with too few apps. In addition, the absence of voice search or voice control and a virtual keyboard were and are also problems with the user experience. 

There were some poor choices and miscalculations by Palm executives. While the WebOS and new handsets offer a big improvement over the Windows Mobile Treo and Centro, they aren't dramatic enough to capture consumer attention in a market that is crazy with new product launches and competition. 

Palm will be in an increasingly tough position unless it gets a boost from newer carriers or overseas. Perhaps if it had launched originally with Verizon instead of Sprint it might have achieved more sales. We won't know. Now, at Verizon, Droid and BlackBerry dominate. Maybe the Pixi (as a low-cost feature phone upgrade) will see some adoption there. 

I suppose Nokia is potentially a candidate to acquire the company -- althought that's also a longshot with the company now developing and building on two operating systems.

Carriers Unite in Launch Long-Shot Apps Bid

Everybody's got an apps store, including many carriers. But the carriers increasingly see themselves becoming marginal players, ISPs providing the data connection while software and hardware providers take their place at the center of the mobile universe. Today at GSM a consortium of global operators announced an initiative aimed at creating an open apps ecosystem to bolster and improve their "relevance" to end users.

Called the Wholesale Applications Community, it consists of the following carriers to start:

América Móvil, AT&T, Bharti Airtel, China Mobile, China Unicom, Deutsche Telekom, KT, mobilkom austria group, MTN Group, NTT DoCoMo, Orange, Orascom Telecom, Softbank Mobile, Telecom Italia, Telefónica, Telenor Group, TeliaSonera, SingTel, SK Telecom, Sprint, Verizon Wireless, VimpelCom, Vodafone and Wind

A selection of these companies are also part of the Google-led Android Open Handset Alliance. 

The stated objective of the group is the following:

The alliance's stated goal is to create a wholesale applications ecosystem that – from day one – will establish a simple route to market for developers to deliver the latest innovative applications and services to the widest possible base of customers around the world. In the immediate future the alliance will seek to unite members' developer communities and create a single, harmonised point of entry to make it easy for developers to join.

This makes sense and may work for feature phones and in-between devices that are not feature phones but not quite smartphones. However it's unlikely to have much impact on smartphone users/owners. With moves like allowing VoIP over 3G (see Verizon and Skype's anticipated announcement), carriers are becoming less and less central to the user experience. (Indeed, they will likely see the erosion of voice revenues in the near-term.) They provide the pipe and not much else. 

Vodafone has perhaps been the most aggressive of the carriers in offering cross-platform social tools in Vodafone 360 and a range of developer APIs. The company is also getting more involved with mobile advertising. Location and demographic targeting data can be offered to third party networks with a revenue share to the carrier. 

Apple changed the mobile landscape and smartphones forever by making the device and platform more important than the data/voice provider. Carriers are reacting and struggling to play catch-up with moves like this, as ambitious as it sounds.

Notwithstanding this impressive lineup, it's very unlikely that the operators will have much success with consumer services/software for smartphone owners. However I believe there's still a massive feature-phone opportunity that's largely being neglected -- and that's where their efforts should be concentrated. That's where this consortium and its developer community can really play and potentially succeed. 

__

Related: Google reportedly believes the effort won't succeed.

And speaking of carriers and advertising . . . Orange is rolling out ambitious MMS/SMS marketing throughout its European and some Middle Eastern markets: 

Building on its UK success, Orange is sharing innovation across its footprint, starting in Spain this month with new interactive ad-supported service, Mio. Orange is taking a different approach with Mio, offering all mobile customers in Spain the chance to opt-in, reaching beyond youth audiences. Mio customers will receive gifts, content and the opportunity to win monthly and annual prizes. Interactive SMS and MMS advertising campaigns will roll-out to other Orange markets in 2010. Other mobile advertising trials are also taking place in Egypt and Jordan in the first half of this year, allowing for expansion into emerging markets, as well as mature markets.

The operator has partnered with Blyk in the UK and Velti in Spain, as part of the program. 

Would Google Buy T-Mobile? Unlikely

Years ago there were always suggestions and discussion about whether Google would acquire a newspaper or yellow pages publisher. The culture of Google and those types of companies were so different -- which the proponents never fully understood -- that it was never going to happen. Now we have a similar argument going on in favor of Google buying the US operations of German carrier T-Mobile.

T-Mobile is struggling in the UK and US. In the UK the company has sought to form a joint venture with Orange and merge their operations. It has yet to be approved by regulators. In the US there have been persistent rumors that T-Mobile would have to do something similar or buy smaller carriers or merge with Sprint, etc. to advance its position in the market. 

Android devices and aggressive pricing have not been able to move the needle for the company. The same is true for number three US carrier Sprint, however the company did lose a much smaller number of postpaid customers last quarter. 

From Google's point of view, there's a certain logic to buying a carrier: 

• It wants to sell phones directly to the market
• It gets a network
• It gets retail outlets to push its devices

However, I'm still quite skeptical that this would happen because of HR issues (buying employees) and other questions (direct competition with carrier partners). But it's not as much of a stretch now, given Google's plans and strategy, as the "Google should buy a newspaper" arguments made in the past. 

While Google is unlikely to buy a T-Mobile it's hypothetically possible that Google would make an investment in T-Mobile to gain access to its network, as it has with Sprint's Clearwire. 

Sprint Adds Apps, Slows Subscriber Bleeding

This morning US operator Sprint announced quarterly earnings and full year 2009 results. Here are some highlights:

The company served 48.1 million customers at the end of the fourth quarter of 2009, compared to 48.3 million at the end of the third quarter of 2009. This includes 34.0 million post-paid subscribers (26.0 million on CDMA, 7.3 million on iDEN, and 725,000 Power Source users who utilize both networks), 10.7 million prepaid subscribers (5.7 million on iDEN and 5.0 million on CDMA) and almost 3.5 million wholesale and affiliate subscribers, all of whom utilize our CDMA network. 

Sprint reported a loss but lost fewer customers than from Q2 to Q3 last year, when it saw its subscriber rolls decline by 500,000. Better handsets and aggressive pricing helped staunch the bleeding. 

The company also announced a partnership with GetJar that will provide access to the GetJar's 60,000 apps, for Sprint feature phone and RIM customers:

Through this agreement, GetJar's catalog of more than 60,000 free applications will now be available to all Sprint customers with feature phones such as the LG Lotus EliteTM, Samsung ReclaimTM and the Sanyo 2700. In addition, Sprint customers with RIM BlackBerry(R) and Windows Mobile devices also will have access to the GetJar library of applications. 

Apparently Sprint is also considering launching new brands in the pre-paid segment, where it already has three brands but also showing greater strength than in post-paid relative to the competition. According to DowJones newswires:

Sprint plans to target Boost Mobile--the principal driver of its prepaid growth over the past year--to heavy callers. For those looking for more features or data services, there is Virgin Mobile USA, which the company acquired in December. Last month, Sprint launched Assurance Wireless, which targets low-income households that receive government assistance.

Hesse hinted at launching one or two more brands in the second half of the year, noting there was still demand from the pay-as-you-go and heavy-user segments.

"What you're going to see from us on the prepaid side is the creation of brands with a very unique value proposition that appeals to specific segments of the market," said Dan Schulman, the former CEO of Virgin Mobile USA who runs the prepaid business for Sprint.

Each pre-paid brand would be targeted to a different demographic or user segment as the quote above suggests. Sprint's 48.1 million customers compare to 91.2 for Verizon and 85.1 million for AT&T.

Orange-T-Mobile UK Merger Hiccup, Carrier Consolidation in the US

In the UK, the proposed merger between the UK unit of France Telecom/Orange and T-Mobile hit a bit of a snag. According to Bloomberg the UK Office of Fair Trading wants to take over review of the deal from the EU. If that regulatory transfer should occur, it could delay or even thwart the ultimate completion of the merger. If concluded the combined operation would represent the UK's single largest operator with roughly 43% of UK mobile subscribers.

Back in the US market tier-two carrier Leap Wireless, which operates Cricket wireless, is seeking a buyer. According to a report earlier this week in the Wall Street Journal:

Cellular provider Leap Wireless International Inc. has hired advisers and formed a special board committee to look into selling the company or merging with rivals, several people familiar with the matter said . . . 

While some bankers consider rival MetroPCS Communications Inc. as the most likely partner for Leap, the company's advisers have in recent weeks been feeling out larger wireless carriers such as AT&T Inc. and Verizon Wireless to see if they would be interested in acquiring Leap, these people said . . .

One indicator of the change in prepaid operators' fortunes: Leap in late 2007 spurned an unsolicited all-stock offer from MetroPCS initially valued at $5.5 billion, about five times Leap's current market value.

The company has just under 5 million customers, most of whom are "underserved" by the broader market: 

• 60% are from "ethnic groups"
• 55% are under 35 years old
• 50% earn less than $35,000 per year 

The prepaid carrier offers a $45 monthly unlimited plan. Most of its customers, however, don't use the mobile Internet but are heavy SMS users. The impetus behind Leap's search for a merger or buyer is pressure from "above," in the form of major carriers encroaching on the prepaid carrier domain. In particular Sprint with Boost and Virgin is making significant gains among Cricket's prospect base, which it identifies as "91 million" people in the US.

Another thing to contemplate is whether Sprint itself and T-Mobile in the US will be compelled to do some sort of deal like the Orange-T-Mobile proposed merger in the UK in order to compete against larger rivals AT&T and Verizon. Sprint's WiMax/4G advantage may be very short lived as Verizon and AT&T push LTE aggressively. Reportedly those rollouts are on schedule.

Sprint doesn't seem to be able to do much to grow its post-paid business and T-Mobile is in roughly the same boat. The market will put pressure on both to do . . . something. We'll see whether that pushes them together. 

The iPad, AT&T and Advertisers

On the morning after the iPad unveiling people are still trying to figure out whether consumers will want the device, what it might be good for and even what it is. The mule (half horse, half donkey) of mobile computers, it seeks to create (or solidify) a new category of devices that offer the benefits of smartphone mobility, but with a larger screen is are lighter and more elegant than a laptop or netbook.

A number of companies rushed out releases saying they would build apps for or support it. In the mobile advertising realm JumpTap, Greystripe and Mobclix were among the first to make announcements or public statements. Motally said it would provide analytics for the iPad. 

Because of the high expectations there are a fair number of disappointed people. I'm relatively bullish on this device, but I see the confusion and hestitation as partly justified. 

Many of those disappointed have characterized it as just "an iPod Touch on steroids," using the tired metaphor. But is it? The iPod Touch analogy and the fact that it runs iPhone apps suggests that many/most of the advertising options will be comparable. I believe, however, that there will be many more and more varied opportunities for advertisers on this device -- assuming it sells. 

The 9.7 inch screen size means that ads on websites viewed through the Safari browser will be "viable" in a way they aren't currently on the iPhone or other smartphones. But it equally means that ads appearing within iPad-specific versions of magazines and newspapers will be more compelling and interesting than they could be within an iPhone app or on the mobile Web more generally.

Video will be central to the user experience, and so will video advertising. This is really the first device where mobile video advertising could get really interesting. 

And then there's retailing and catalog sales; this could be another very interesting opportunity on this device. Imagine the Macy's catalog on this device with embedded e-commerce -- not the Macy's e-commerce website but a visually rich version of the catalog, where users can turn pages as do in the physical, paper catalog. 

As these examples seek to illustrate the larger visual "canvas" will be a potential "game changer" (to use another tired metaphor) for marketers. 

Another striking element about the iPad is the pricing of the 3G plan from AT&T. Many (including me) had expected a more expensive devices with a cheaper version subsidized by a two-year carrier commitment. Instead the device offers two options: $14.99 and $29.99. The latter is "unlimited" and unlocked; there's no contract required. 

This pricing scheme may be a new precedent: low-monthly unlimited data on a non-phone connected device (Kindle doesn't count here). This isn't exactly like a dongle or wireless card. (BTW: this device can be used as a phone with a VoIP app.) However this lower-priced model for data could enable a wide range of new connected mobile devices. It could also bring competition from carriers like Sprint with additional capacity, looking for new revenue streams.  

Could IDC Be Really Wrong on Android?

IDC's recent prediction that Android would be the second most numerous smartphone OS in the world by 2013 has garnered much uncritical coverage. Here are the IDC bullets:

• Symbian will retain its leadership position worldwide throughout the forecast period. Due primarily to the strength of Nokia in markets outside of the United States, Symbian continues to lead all other mobile operating systems.

• Android will experience the fastest growth of any mobile operating system. Starting from a very small base of just 690,000 units in 2008, total Android-powered shipments will reach 68.0 million units by 2013, making for a CAGR of 150.4%. Android will benefit from having a growing footprint of handset vendors supporting it and will finish second to Symbian in shipments by 2013.

Before IDC Gartner made the same prediction, but by 2012. Both of these firms could turn out to be wrong -- very wrong.

It makes sense that Android will continue to gain, given the number of OEMs building and releasing devices with the OS. Indeed, Google SVP Jonathan Rosenberg, on the Q4 earnings call, said "Android started 2009 with just one device and is now at 20 in 48 countries." And the Verizon Android Droid is credited with dampening some of the iPhone's recent sales momentum: the iPhone sold "only" 8.7 million units vs. the 9.1 - 9.5 million that some of the most bullish Wall Street analysts had anticipated. 

OK, Apple sold 8.7 million iPhones in the most recent quarter, but it also sold sold 21 million iPods. The company doesn't break out iPod Touch sales. But while iPod sales are declining, iPod Touch sales are up. At the end of the last quarter there were almost 60 million iPhone OS devices around the globe (including the iPod Touch). Morgan Stanley estimated the number at 57 million in early December. 

So let's assume that 5 million of those 21 million iPods are iPod Touch devices. That would put the combined sales of the iPhone OS units at more than 70 million today. So the iPhone OS (not the iPhone itself) has already beaten the IDC Android unit sales projections for 2013. 

What happens tomorrow with the iPhone is important for the future success of the platform in the US market. Regardless of whether there's a new iPhone OS or 4G device, if Apple announces that AT&T exclusivity is through and that the handset will be available from Verizon and/or others, we're likely to see Android momentum falter. If not, Android will continue to gain steam.

Apple executives made some comments yesterday, however, that suggested AT&T exclusivity may not be done. They expressed confidence in AT&T and its ability to "fix" network problems that have frustrated and infuriated iPhone users. That kind of remark doesn't sound like one from a company about to walk away from its exclusive relationship with AT&T. But we'll see. 

If Apple fails to "cut the chord" tomorrow and broaden iPhone distribution in the US it will cede millions of users to Android. I would be happy using the Nexus One rather than switching to AT&T, with its network's mortally wounded reputation, to get the iPhone (I have an iPod Touch). And while it's not as intuitive or "elegant" as the iPhone, and the apps are not as polished, the N1 generally substitutes. Its speed and screen are better than the current iPhone as well. And the voice-text input features are compelling. 

Apple may not see this timing issue as critical. It will exit AT&T exclusivity at some point. If it does so now, it will establish itself on a trajectory to become the dominant smartphone in the US market and Android's rise will be blunted (though perhaps not RIM's, the current market leader). If it waits for 2011, US iPhone prospects will likely have moved on or set their sites on other handsets. All the defectors that are going to head to AT&T for the iPhone have already done so. 

As suggested, RIM is a wild card in this discussion and so is Windows Mobile, which is declining now but could get a big boost from WinMo 7. Nokia, regardless of Symbian UI upgrades, will continue to lose share in the US and Europe in the coming 12-18 months. It will remain strong in Asia, Latin America and Africa -- emerging markets that seek lower-cost handsets. Palm, I'm afraid, will be largely an also-ran in this race. 

The market for smartphones, however, is very much evolving and in flux. What happens tomorrow (from Apple) could be very significant for both the iPhone and for Android's future in the US. It might be that Apple makes the wrong choice, falters and Android benefits. The thinking that Android will automatically grow to be the world's number two, however, is simplistic. 

G Voice and the Apps vs. Mobile Web Debate

Finally, after the FCC investigation and finger pointing between Google, AT&T and Apple after the rejection of Google's Voice app for the iPhone, Google has created a "Web app" version of Google Voice. This is consistent with the direction that Google is generally taking on smartphones, as the company focuses less on "apps" and more on the mobile Web.

But between the "mobile Web" and true "apps," there is the "rich Web app," which offers almost all the functionality of an app but without the approval process or the required consumer download. 

Here's what Apple publicly said last July about why it rejected Google Voice as an app:

Contrary to published reports, Apple has not rejected the Google Voice application, and continues to study it. The application has not been approved because, as submitted for review, it appears to alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls, text messaging and voicemail. Apple spent a lot of time and effort developing this distinct and innovative way to seamlessly deliver core functionality of the iPhone.

According to Apple, the Google Voice app did a kind of "end around" around Apple's core calling function and so the company rejected it. But using Google Voice or Skype or Truphone is less about circumventing Apple than the carrier for most people, in this case AT&T.

Now the new HTML5 Google Voice the Web app can't be blocked by Apple or AT&T. In addition, iPhone users can add it to their home screen so that it's just as easily accessible as any app. The only thing that it doesn't do is integrate with the phone's contacts (but it does integrate with Google contacts). There's also a version for the Palm Pre/Pixi.

From the Google Blog post earlier today: 

Today, we're excited to introduce the Google Voice web app for the iPhone and Palm WebOS devices. This HTML5 application provides you with a fast and versatile mobile experience for Google Voice because it uses the latest advancements in web technologies. For example, AppCache lets you interact with web apps without a network connection and local databases allow you to store data locally on the device, so you don't lose data even when you close the browser.

Here's the customary demo video that goes with it:

CNET offers a generally favorable review; I haven't used it yet. 

Stepping back this new Google Voice Web app is symbollic of the different approaches of Google and Apple to the mobile market and user experience. I am now using a Nexus One, which has access to all the Android apps but isn't really about apps. People may disagree, but Android is really about fast access to the mobile Web. Apps are a strategic necessity in the short term, Google believes, to compete with the iPhone. 

Over the long term Google envisions a mobile Internet that offers rich HTML5 "apps," accessible from the browser and without a download like the mobile Web version of GMail or the new Google Voice.

Apple, while recognizing the value of the "mobile Web," sees strategic importance in apps and views it as a competitive advantage vs. rivals including Google. Apple's "app leadership" was mentioned at least two or three times on the earnings call yesterday by Apple executives. In addition, the company bought Quattro, according to Apple CFO Peter Oppenheimer, because Apple "wanted to offer a seamless way for our developers to make more money on their apps, especially those providing free apps." 

The company wants to cultivate, care for and feed well its developer ecosystem. The iPad coming out tomorrow will expand the apps marketplace for Apple and further reinforces its commiment to apps, even as it promises a potentially better mobile Internet browsing experience. 

Verizon Adds 2.2M Subs but Reports Loss; T-Mobile Has Merger on the Mind

Verizon reported Q4 results this morning. The wireless division added 2.2 million new subscribers, beating estimates, for a total of 91.2 million mobile customers. The company also reported strong increases (45.9%) in data revenue. However, jobs elimination-related charges pushed the company to an overall quarterly loss.

Verizon Wireless saw revenues of $15.73 billion (a 22.5% increase vs. a year ago). Post-paid churn was down to 1.06% from 1.13% in the third quarter. The company also said 4G/LTE was on schedule:

Verizon Wireless plans to launch its 4G network in 25 to 30 markets in 2010 and cover virtually all of its current nationwide 3G footprint by the end of 2013.

I didn't listent to the earnings call, where Droid might have been discussed, but the earnings release and related materials don't discuss Droid sales. Some analysts speculated yesterday that iPhone sales (which just missed expectations) might have been hurt in Q4 by Droid (and Verizon's $100 million ad campaign). 

Separately, T-Mobile is arguing in the UK that its merger with Orange should go through or the two carriers will have difficulty competing with Telefonica's O2 and Vodafone, a part owner of Verizon Wireless. That same logic may soon play out in the US market, as T-Mobile and Sprint struggle to keep up with Verizon and AT&T. 

Bloomberg: All US Carriers May Get iPhone

Bloomberg is reporting that all US carriers may get access to the iPhone over the next 18 months, according to a financial analyst report. The key word in that sentence is "may."

On Wednesday it's very likely that AT&T will lose iPhone exclusivity. Indeed if Apple wants to push the iPhone deeper into the US market it must make the device more broadly available.

The Nexus One, which I've been using for a few weeks, is the first Android device that's "good enough" to preempt the iPhone. In some ways the N1 is more impressive than iPhone 3GS; but expect the 4G iPhone to pull out some surprises. 

The current iPhone is GSM. But there's speculation about a CDMA version for Verizon, which could also work on the Sprint network. Apple reports earnings today and it will also reveal how many iPhone OS devices it sold last quarter. The total could well push the OS beyond the 70 million mark on a global basis. We'll see. 

The Palm Pre (which I own and increasingly dislike) and its sibling the Pixi are coming to Verizon. If Apple announces the iPhone for Verizon it will kill Pre sales there, though perhaps not the Pixi since that's a potentially different audience of potential buyers. One question is whether we'll see the same subsidy from Verizon that AT&T has been providing. Probably so. 

Another variable is the forthcoming tablet: Will it affect iPhone or iPod Touch sales? That depends in part on the price. That's unclear at this point although there is a range of theories: $800 unlocked to $500-$600 with carrier subsidy. The iPhone probably wouldn't be affected by the "iPad" but the iPod Touch could be. 

If in fact the iPhone comes to all US carriers, it will very likely become the dominant smartphone in the US market. RIM and Android/Google (and its OEM partners) will try and prevent that but the momentum would be huge. The caveats and questions are: whether the device will become available widely and how soon?

Even with "only" Verizon availability that would mean access to 89 million more potential buyers in the US market.

GroundTruth Emerges to Challenge comScore

The mobile analytics segment is starting to mature and rapidly becoming more competitive. M:Metrics has been arguably the strongest player in the segment for the past few years. The company was acquired by comScore in May, 2008. Since that time new players such as Pinch Media and Flurry have arisen, among others, to measure the smartphone apps marketplaces. These two firms merged in December.

But there are a slew of others out there trying to help marketers gauge where to place their mobile ad dollars. Today a company called "GroundTruth," based in Seattle and founded by one of the co-founders of Medio Systems, Michael Libes, emerged from "stealth mode."

According to the release out today:

To date, estimates of Mobile Internet traffic have varied markedly, making decisions difficult for publishers and advertisers.  Publishers have been unable to validate their audiences or use the information to understand their competitors.  Advertisers have struggled to justify media buys or effectively evaluate mobile marketing campaigns.

Ground Truth data comes directly from mobile operators and other data providers to report aggregate mobile data usage, on any visited mobile site.  What the company has found using this superior methodology dispels many commonly held beliefs about how consumers interact with the Mobile Internet. 

The company argues by implication that its analytics are much more accurate than competitors (read: comScore). GroundTruth is getting its data mostly from mobile carriers (probably by paying for it or cutting some sort of barter deal). The company received $2.6 million in venture capital funding to date. And GroundTruth's data set consists of 2.5 million mobile users.

As a teaser GroundTruth put out "Top 10 Mobile Web Sites"* for the first week of 2010 (January 4-10, 2010)
(Ranked by total Page Views)

1. MySpace
2. Facebook
3. Google
4. Mocospace
5. FunForMobile
6. AirG
7. Yahoo!
8. Cellufun
9. Mbuzzy
10. Myxer

*Not including pages served by operator portals

This is very different, for example, than Nielsen's Top Mobile Sites list for most of 2009:

1. Google Search
2. Yahoo! Mail
3. Gmail
4. Weather Channel
5. Facebook
6. MSN Hotmail
7. Google Maps
8. ESPN
9. AOL Email
10. CNN News 

Libes told Moconews some other observations about the market, based on its data:

• Ad mob is/was the largest mobile ad network "by far." Quattro was/is number two
• Most of the top-10 mobile sites (see list above) are mobile only sites
• 64% of all mobile page views are for social networks
• Carrier decks have about 10% of all internet page views

I'm actually skeptical of the top 10 list provided by GroundTruth. I assume this list is "everyone" and not simply smartphones or feature phones. I'm eager to talk to the firm about its methodology.

As popular as MySpace remains, I'm doubtful that it's truly the most visited mobile website. And while Mocospace has been around for some time, I'm also skeptical that it actually ranks as well as the GroundTruth list argues.

Consider the following list from Opera for November, 2009, which is based on actual usage rather than survey data: 

Regardless, GroundTruth is a potentially strong and direct challenger to comScore (and Nielsen) because of its claims of greater accuracy and methodology based on actual usage and behavior rather than sampling or surveys. 

Will Sprint and T-Mobile Have to Lower Prices?

The recent "price war" between US carriers Verizon and AT&T puts number three and four carriers Sprint and T-Mobile in a bit of a difficult position. Both had been competing on price, although more recently there has been a greater hardware focus in their marketing.

There's a considerable gap between Verizon and AT&T subscriber numbers and T-Mobile and Sprint. Will the two smaller carriers respond and further lower prices? For now, according to the WSJ, Sprint isn't going to: 

Sprint—suffering from an image problem following its Nextel merger—has used the lure of lower prices to try to stem customer defections. Price cuts by Verizon Wireless and AT&T Inc. have narrowed that advantage.

For example, a plan with unlimited calling, texting and data transfers costs $100 at Sprint. That same plan is now only $120 at AT&T or Verizon, compared with $150 before the price cuts that took effect Monday.

Sprint has a strong network (now with excess capacity because of subscriber losses) but that hasn't been able to stop the bleeding. The company's future hinges on its ability to deploy 4G faster than its rivals. But it may not be able to if cash becomes too tight and/or as Verizon and AT&T both seek to aggressively roll out LTE.

If the iPhone does come to Verizon this year (as is rumored) that may drive another round of losses for T-Mobile and Sprint in particular, which has had a harder time of retention. And even though the strategy has not paid big dividends to date, Sprint may be compelled to put more price distance between itself and its competitors. Recently, for example, it opened up the Boost $50 unlimited plan to the Sprint CDMA network.

As a consumer I'd welcome a full-blown price war; but the carriers don't want it obviously. They want to get rid of unlimited pricing entirely.

Google AdWords Gets Some New Targeting Options

As was reported yesterday Google has added some new targeting capabilities to AdWords for mobile devices:

If you've chosen to show ads on iPhones and other mobile devices with full internet browsers, you can now target specific mobile devices or carriers.

This feature makes it easier for you to reach the right users if you have a carrier- or device-specific message. This includes landing pages that have been optimized for a specific device, billing relationships with certain carriers, or mobile apps developed for a specific platform . . .

We're also making sure that ads linking to mobile app downloads will automatically appear only on devices that offer those apps. Plus, the ad will display a 'Download' link instead of a URL. Simply include 'itunes.apple.com/' or 'market.android.com/' followed by the app name in the ad's visible URL, and it will automatically display as 'Download iPhone App' or 'Download Android App.'

Here's what the screen looks like:

As the Google AdWords blog points out this is helpful if the advertiser is targeting a specific type of handset or specific carrier's users for a promotion. But there's also proxy demographic information here too. Ad networks such as JumpTap that work directly with carriers actually provide that data ("by age, gender, context, demographics, location, ethnicity, finance, occupation, handset, and language") to advertisers at varying levels of anonymity. Presumably Microsoft is also getting access to some of that data through its deal with Verizon. 

However, the profiles of users of MetroPCS and Cricket are going to be quite different than Verizon for example. Much of this information is out in public.

What's also interesting is that Google is adding carriers for whom there are effectively no smartphones. Boost/Nextel (Sprint) just added its first BlackBerry device and MetroPCS and Cricket have very limited smartphone selection. The prerequisite here for the showing of AdWords in mobile is the presence of a full Internet browser on the handset. This anticipates, in my view, Android devices for these carriers. 

This list of check boxes in the screen above will likely become more elaborate and precise over time. For example, the ability to target BlackBerry users (ultimately) might be important for advertisers wanting to reach an enterprise audience or more affluent users in certain cases.

Google's mobile AdSense units have a range of targeting options, including location (which also exits for AdWords). AdMob, which Google is seeking to acquire, offers more elaborate targeting including by gender and age. 

Boku Raises Beaucoup Funds, Becoming 'Paymo'

Mobile payments platform BOKU has announced that it raised "$25 million in series C capital led by DAG Ventures, Inc. with continued participation from Benchmark Capital, Index Ventures and Khosla Ventures." This brings the company's total funding to nearly $40 million. 

BOKU launched in the middle of last year and is immediately one of the leaders (the other being Zong) in the mobile payments and virtual goods space, already worth about $3 billion globally and expected to be worth billions more over time. BOKU said has "relationships with over 1,000 game and application developers, including almost all of the top applications for virtual goods and currencies purchased on Facebook.  BOKU’s mobile payment service, Paymo, is enabled across 190 carriers worldwide in 58 countries, and reaches a potential 1.8 billion customers."

Almost identical to Zong in its approach, the company enables online payments by using a mobile phone number. The benefits of this are that a mobile phone number is easily remembered, hard to commit fraud with (given the authentication/confirmation system) and removes friction from online payments.

The company acquired competitors Paymo and Mobillcash and will be changing its consumer brand to "Paymo." BOKU will remain on the platform and developer side. The company's CEO is Mark Britto, who ran Ingenio before it was acquired by AT&T. 

I spoke yesterday to Ron Hirson, BOKU's SVP Product & Marketing. We discussed various future scenarios for the company. Right now BOKU relies exclusively on mobile carrier billing, which limits transaction thresholds (although BOKU's are higher than competitors). In the future it could add credit card account association, which Zong has done.

Hirson and I discussed payment systems such as Square, that involve offline payment acceptance via mobile devices. Hirson expressed some skepticism about the size of that opportunity.

BOKU wants to move into more traditional e-commerce, but for that to happen carriers need to reduce transaction fees (which can be as high as 50% in some cases). Hirson said that was slowly happening. In addition payment thresholds would need to be significantly raised (from their current $10 to $30). I'm not sure there's an appetite for buying big ticket items with carrier billing, expect perhaps by people who don't have credit cards (analogous to BillMeLater). 

Most interesting to me is the use of mobile as a credit card substitute in the real world. That's not a market BOKU is yet focused on.

I asked Hirson about who he thought BOKU's major competitors are/would be over time. He said PayPal, Facebook (potentially) and maybe iTunes, if Apple chooses to go in that direction. I said I also thought that Google would make a bigger play at some point and acquire someone, given that they largely missed the opportunity in round one with Checkout. 

Here's a video demo of how BOKU works: 

4G and the End of 'All You Can Eat'?

Verizon has just changed/streamlined its pricing and plans. As a practical matter these changes will represent an increase for those on the lower end of pricing but a real cut in pricing for those on the higher end. Verizon's unlimited calling plan (w/o text or Internet) is now $69.99.

These plans undercut Verizon's chief rival AT&T. That may cause AT&T to respond by similarly cutting prices (which it has this afternoon).

This sort of aggressive pricing is somewhat at odds with where carriers want to take the market. Indeed, Verizon is planning for a time when it switches from flat-rates to usage-based pricing. Verizon CTO Dick Lynch recently was quoted by the Washington Post: 

The nation’s largest wireless service operator thinks the days of flat-rate plans may be over, according to Verizon chief technology officer Dick Lynch in an interview Thursday at the Consumer Electronics Show. Instead, the company will probably charge a base rate for its users and allow multiple authenticated devices to be attached to its network. Then it will charge by how much bandwidth is used by a provider – a business model known as usage-based pricing.

“The problem we have today with flat-based usage is that you are trying to encourage customers to be efficient in use and applications but you are getting some people who are bandwidth hogs using gigabytes a month and they are paying something like megabytes a month,” Lynch said. “That isn’t long-term sustainable. Why should customers using an average amount of bandwidth be subsidizing bandwidth hogs?”

The strain placed on the AT&T and O2 networks from the iPhone is well documented. AT&T made lots of silly and self-destructive remarks last quarter in public about getting heavy data users to voluntarily cut back even though they had unlimited plans. 

As Lynch's comments indicate the carriers very much want to do away with flat-rate pricing. As a matter of competitive reality that may be challenging. Sprint and T-Mobile are likely to continue to use it to lure customers -- or lure them from Verizon/AT&T of the two larger carriers change their pricing structures.

The shift to 4G, however, will provide an "opening" and opportunity for carriers to introduce new pricing schemes and get away from "all you can eat." We'll see if the market allows it. 

Cox Wireless to Compete on Price, Bundling

The US cable operators have tried and failed in the past to get into the wireless business. But with telcos gunning for their cable TV business, Cox and its brethern are getting back into wireless. Specifically Cox, "your friend in the digtial age," will be reselling Sprint's 3G and later the Sprint/Clearwire 4G network. Cox also owns some of its own 700 Mhz spectrum.

It will offer a "quadruple play" bundle: TV, Internet, landline (VoIP) and wireless. Cox is an investor in the Clearwire initiative. Whether or not people will "go for" Cox Wireless will depend on price: the stand-alone price of the service or the bundled price with other services. There's been no mention of what those prices might be. 

Cox has set up a website to advertise the new wireless service, to launch in March. Cox has also launched a humorous new TV campaign entitled "unbelievably fair":

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Related: Clearwire outlines plans for 4G smartphone

Clearwire, the US-based WiMax network operator, will launch the first 4G-enabled dual-mode smartphone in the second half of this year, according to chief executive William Morrow.

A dual-mode WiMax smartphone will enable mobile users to download internet content up to five times faster than the current generation of 3G handsets as well as make voice calls over Sprint Nextel's existing voice network. Sprint holds a 56.5 per cent stake in Clearwire