So, I stood in line with about 100 other people outside my local AT&T store just under a week ago, in order to be one of the first to get my hands on the 3G iPhone. It was hot, and we were lined up down the side of the building in which the AT&T store is housed, which had a bright white wall, nicely reflecting all that heat back onto the waiting hordes, causing a nice sunburn and considerable discomfort. But, in the end, I got one, and almost the model I wanted - they ran out of black 16GB models just before I got inside, so I got a white one instead.

So was it all worth it? Well, as one man standing behind me in the line (possibly a Rabbi - in the center of the picture below) said:

You have to do something insane once in your life!

And that was more or less my opinion too - I don’t often stand in line for these things, but once in a while you want to be part of something like this. I sat out the first round - no 3G, stuck on a Verizon contract, don’t buy version 1 of anything and so on - but wasn’t going to do the same this time around.

I love the device. It’s a fantastic experience, and certainly the most fun I’ve ever had with a new phone. To date, I’ve downloaded and installed 23 applications, requiring four home screens altogether on the device (I have a separate one for web clips). I did have activation problems on the first day, along with everyone else, although they were relatively minor and solved by the evening.

I’ve read a lot of articles denigrating the iPhone in pretty strong terms over the past few days - two examples. The thing that strikes me about these articles is that they seem to assume that the iPhone is taking over the world. The Lifehacker article is titled, “Why You’re Better Off Avoiding the iPhone” and the other suggested the iPhone is going to kill the Internet.

Let’s tone that done a bit, shall we? For starters, Apple sold a total of 1 million phones in the first weekend and has since been largely sold out. Compare that with Nokia, which sells more devices than that every single day of the year, and you are quickly reminded that Apple does not dominate the mobile device market (or even the smartphone segment). Secondly, no-one is being forced to buy an iPhone - you have a choice about buying it as you do with every other device out there - and as a consumer you will weigh the pros and cons as you would with every other device. If you don’t like the relatively “closed” ecosystem and approach to applications, you don’t have to buy the phone. But, if you want the design, interface, web browsing, ease of use and so on and think the closed application environment is a small price to pay, then you’ll want to buy it anyway.

The most alarmist and hostile stuff I’ve read comes from the Free Software Foundation, which seems to have a definition of “free” which is much narrower than most people’s would be. But again, it seems to somehow assume that Apple has some kind of monopoly and that everyone is somehow tied into the Apple model whether they want to be or not. The Apple DRM approach in particular has come in for a lot of criticism, which is funny since it’s done at the behest of the record companies rather than any particular agenda Apple has. In order to secure for itself a strong position in online music sales, it acceded to the requests of the record companies to provide adequate copyright protection for their music. As the record companies have become more enlightened in their approach, Apple has begun releasing music in non-protected formats. But again, you have a choice - Amazon, Rhapsody, Napster and plenty of others offer alternative models for purchasing digital music online, and files bought from all those companies will play on iPods and iPhones.

Overall, I think Apple is adding a lot more to the mobile industry than it is taking away, and on a personal level I love the device and especially the ease of use of the device itself and the process of adding applications and media to it. It may not be everyone’s cup of tea - the FSF recommends the Free Runner, which strikes me as being an utterly uninspired (and uninspiring) device. But whatever floats your boat - and that’s the real point here: you have a choice. Stop moaning about the way Apple does things, and find a company that does things the way you like, and buy their stuff instead.

Back in February, I posted about the Qwest analyst conference and a brief conversation with Ed Mueller, Qwest’s CEO. Part of what I said was as follows:

On the wireless side, the company is planning to rethink its partnership with Sprint and form a new partnership (possibly with Sprint again but likely with someone else) which would provide deeper integration but also a portfolio for Qwest that would more closely mirror its competitors’. Mueller appears confident that he can get this, but given that Sprint has historically been much more aggressive about MVNO activities than the other major wireless carriers, and Verizon and AT&T have very little incentive to play ball, I’m not hopeful. It looks like Mueller may be a little naive in this respect.

This was a major theme from the event and one that got a lot of coverage at the time, though things had been fairly quiet on that front since. Well, today Qwest announced that it had signed a deal with Verizon Wireless. But rather than tighter integration, Qwest has gone for a far looser integration, and has taken another step back from direct participation in the wireless market. In the space of just four years, it has gone from being a wireless player in its own right to being an MVNO to being a reseller:

Qwest Communications International Inc. (NYSE: Q) and Verizon Wireless announced today they have signed a 5-year agreement for Qwest to market and sell Verizon Wireless service beginning this summer.

…

Under the agreement, Qwest customers will have access to the full line of Verizon Wireless handsets, smartphones and BlackBerry devices, as well as high-speed broadband wireless services for e-mail, Internet access and multimedia services. Residential customers will be able to choose “wireless only” and be billed directly by Verizon Wireless, or include Verizon Wireless service as part of a Qwest bundle with their home phone, Internet and video services, and receive one bill from Qwest for all services.

Ed Mueller had said in my conversation with him that, in the TV market, Qwest was perfectly satisfied to merely take commissions from its satellite partner, rather than participating directly (according to that conversation, these commissions are around 15%). It now appears that Qwest is willing to take exactly the same approach with wireless. Having recognized that it doesn’t have the skills to compete in this market itself, it is hitching its wagon to a player that can. But again, it is limiting its upside in one of the few markets that are still really growing. Once again, it appears that Qwest is not all that concerned about growth.

In the meantime, this is somewhat bad news for Sprint, which will have to cope with the loss of one of its resellers (albeit not the largest) and the expansion of Verizon Wireless’s ability to compete through bundling with wireline products, on top of all the other bad news it’s had recently.

I’ve just spent the last couple of days at CTIA (see yesterday’s post). I wanted to present some thoughts I’ve had during that time.

Firstly, it’s been interesting to see the shadow the iPhone casts over everything even though Apple isn’t visibly present at the show. Sprint’s big announcement was around the Samsung Instinct, which is a clear iPhone competitor. But the devices on display were running beta software which was glitchy and slow, and it was clear that - though they have some nifty features - these devices are not a match for the iPhone. AT&T itself had another device which mimics certain aspects of the iPhone - the LG Vu - but it is another poor match for the device on everyone’s minds. Of all the things that people love about the iPhone - the design, the UI, the browser, the ease of use - none of them are matched by most of the devices on display here, even though the manufacturers of those devices have been making phones for far longer than Apple. The Sony Ericsson Xperia X1 showed the most promise of any device I saw at CTIA, but won’t be launched for several months.

And AT&T appears to be keen to cement the thought leadership the iPhone deal has given it. Its announcement that it will deploy Microsoft Surface tabletop computers in some of its stores will further up the cool factor for AT&T and put more pressure on its competitors to find ways to compete. I haven’t seen much from AT&T’s competitors that can match it in terms of providing differentiated experiences on devices or in stores. (I have to admit that throughout the Surface presentation I was thinking about this YouTube video which I first saw a few months back - “take that, Apple”).

I discussed managed mobility services with several players at CTIA, and found broad consensus in several areas. It seems clear that the next several months will see launches from major players including both AT&T and Verizon around managed mobility services, and that a range of factors are coming together to create a fertile environment for uptake of these services. The complexity I have referred to previously in the enterprise mobile arena is creating demand for these services. And technology is now available to enable the supply side, both from specialists like Mformation, Sybase and Nokia/Intellisync and from RIM and Microsoft. Launches in the next few months from those two big carriers and increasing uptake over the next year or two should follow.

“Openness” appears to be becoming the new “convergence” in that it is a term everyone seems to feel compelled to insert into every pitch and keynote despite the fact that it means different things to different people. AT&T still appears frustrated that Verizon has got so much attention for playing catch-up with the GSM world: as Ralph De La Vega (head of AT&T Mobility) put it today, “we were open before open was cool”. But he also suggested AT&T now views Android much more favorably than it did at first, ironically because Android will be “open” to AT&T’s branding and applications in the device UI, rather than being restricted to just Google and open source software. I’m hoping the open thing will soon blow over at least in the form of hype, and that we’ll start to see some significant real moves towards openness. Android will be important to watch when it launches - Texas Instruments is demoing two Android devices here - but it can’t be the only game in town.

Carriers need to get better at explaining that they already offer openness on the RIM, Windows Mobile and Palm platforms, where users get unfettered access to the Internet and the ability to install their own applications. But they also need to find ways to extend that openness all the way down the portfolio for those customers who want that. And they need to stop pretending that “choices” and openness are synonyms. Just because you give your customers a choice between two hand-picked applications does not mean your approach is open. Allowing them to pick the application they want regardless of whether you have endorsed it is. And carriers still have some learning to do in this department.

Overall, the show is as always a nice snapshot of a point in time for the wireless industry. But I hope that by the time the Fall show rolls around we’ll have moved forward in all these areas - compelling devices, managed mobility and openness in particular.

I was asked recently during a call with a client about the prospects for enterprise mobile social networking. My first response was that I thought two other things had to happen before that could become a reality - successful mobile implementations of social networking, and successful uses of social networking in business settings.

Having had the opportunity to think about it some more, I think that initial reaction is still the right one. Only once those two things are well established can the combination of the two really occur in the form of mobile enterprise social networking. And those aren’t insignificant barriers.

Ironically, even though I think the opportunities are far greater in some ways for mobile social networking, enterprise social networking actually seems to be taking off more quickly, in part because there are companies with the right assets to take the job on. Oracle, IBM and others are taking the lead in creating enterprise-grade social networks with the appropriate structure and controls for the business setting. They have the software expertise and the credibility and knowhow in business to make it work, and they are already doing so, both for internal use and for use by customers.

On the mobile side, most of the players only have half the story to tell - the social networking companies have the SN knowhow and the customer base, but not the mobile knowledge or operator relationships to really make things happen. The mobile implementation of Facebook (both the mobile website and the BlackBerry application) is limited at best and doesn’t do a lot of the things you’d want it to in order to be really useful. Mobile operators, who have many of the other pieces needed to make things work, don’t have the credibility as social networking providers in their own right, and so need partnerships with SN specialists to make things work. In time, the two groups will come together in such a way that mobile social networking is enabled in a more mainstream way, but we still have a long way to go.

Only once both of these trends move a lot further down the road does it make much sense to expect mobile enterprise social networking to take off. But that doesn’t mean that the various stakeholders shouldn’t start thinking about how it might work now. Both the Oracles and IBMs and the mobile operators and social networking sites should be actively working out how they will take advantage of this future opportunity today. But that shouldn’t prevent them from staying focused on nearer-term opportunities in both mobile and business flavors of social networking individually.

Ed Markey’s at it again, this time meddling in the wireless services market. He has a new bill out which is aimed at wireless carriers primarily (see my post on his previous effort here.)

From the preamble, which lays out the context for the proposed legislation:

(2) Wireless service has become a replacement for traditional telephone service for millions of consumers in the United States.
(3) As wireless service is increasingly used and relied upon by residential and business consumers, such consumers will increasingly depend on Federal and State authorities to apply and enforce essential consumer protections applicable to such service in a manner commensurate with the role such authorities have played in ensuring consumer protection with traditional telephone service.

So, the key argument here is that, since wireless services are replacing wireline services for at least some people, the same (or similar) “consumer protection” provisions are required for wireless services as have previously been made for wireline services. Before I got to the second half of (3) above while I was reading it, I assumed it was going to say “the same protections as are applied to other commercial businesses under existing US law.” Because that’s the logical thing to say: wireless consumers should be subject to all the same consumer protection provisions as consumers of any other product or service. Why do we need special rules for wireless services?

In Section 101 (a) (1) we get to the meat of the matter. The Bill proposes that carriers should have to disclose to consumers the complete terms of any plan they’re signing up for, including the duration of the plan, the number of minutes included (although no mention of data transfer), any trial period, “the terms of subsidizing any wireless customer equipment” (whatever that means), and information on early termination and other non-recurring fees. Carriers also have to disclose up front any and all charges, including taxes (which could be tricky since they change from time to time, as do charges).Now, in and of itself, this is reasonable enough, but isn’t the bulk of it covered by existing consumer protection laws? And if not, why does the wireless industry have to be different from other industries?

Section 102 deals with early termination fees. The first requirement is:

each commercial mobile service provider to offer a wireless service plan for which there is no early termination fee;

Which would presumably be covered by prepaid plans, now offered by all major carriers. Which makes this a bit of a hollow provision. Section (2) adds:

that if a commercial mobile service provider offers such plans with subsidized wireless customer equipment, such provider shall offer to consumers the opportunity to purchase subsidy-free wireless customer equipment in return for the ability to secure service, without a long-term wireless service plan, at a price no higher than a comparable wireless service plan offered with subsidized wireless customer equipment;

Now, some people have assumed this means that AT&T would have to offer unsubsidized iPhones. I’m not sure it does, since it doesn’t specify that customers shall get the same “wireless customer equipment”. At the very least, this is an easily exploitable loophole. But it’s not clear that Markey’s intention is even to force de-subsidization of all handsets, just the option to buy one or more handsets in this way. Of course, Verizon Wireless has already announced that it plans to allow customers to attach any phone that meets basic requirements to its network, and AT&T and T-Mobile as GSM carriers offer this option by default.

Section (3) requires that early termination fees (ETFs) must be prorated over the life of the contract, and that the proration is just based on the cost of subsidizing handsets (which suggests that ETFs should be different for each handset rather than standardized).

Then we get onto wireless coverage maps, which must be provided by each carrier, and which must depict sufficient detail that they show

(A) generally geographic areas where commercial mobile service is not predicted to be regularly available; and
(B) whether or not a consumer is predicted to receive commercial mobile service in the general geographic area in which such consumer’s primary residence is located, to the extent prediction of reception in such area is feasible using the formats specified in paragraph (1).

“General geographic area” is just vague enough to be completely useless. All carriers provide some kinds of maps for coverage - see:

• T-Mobile
• AT&T
• Sprint
• Verizon Wireless

These tend to provide enough detail to see if your street gets coverage, and that’s about all that can reasonably be expected. So what’s the point of this provision? To be really useful, these maps need to tell you whether you can get coverage inside your house (which is where most people have problems) but that’s impossible. So again, this feels pretty pointless, especially given the fact that the carriers are already providing such maps without legislation requiring them to.

Markey also wants the carriers to do the government’s dirty work for it:

to require that any charge specifically required by a Federal, State, or local statute, rule, regulation, or order to be collected from a subscriber be listed in a separate section of each bill sent to a subscriber and itemized separately in clear and plain language;

Section 105 is the “create employment in the wireless industry section” (not really, but it could be), since it requires potentially huge amounts of disclosure on the part of the carriers about their coverage, signal strength and other items. This seems to be covering more or less the same ground as the mapping question, but could potentially go a lot further in the hands of an interventionist FCC.

Now onto contract extension. The bill requires that customers not be provided contract extensions unless:

the subscriber agrees to extend such plan by providing express consent to such extension

Cue angry customers a few months from now wondering why the heck their cellphone service has been cut off when they pay their bill every month, because the alternative to extension is cessation of service, and we all know a lot of customers won’t respond in time.

We now get to the Verizon clause. Apparently, the fact that Verizon has offerered a 30-day trial period (its “Worry Free Guarantee“) means not that the market will take care of this on its own, but that everyone should be forced to do it. At least the bill doesn’t require carriers to pay back any fees racked up during those 30 days as Verizon has willingly agreed to do.

This Worry Penalty Free option is pretty ironclad:

a wireless service plan may be canceled upon the request of a subscriber for any reason during the 30-day period that begins on the date on which such plan was executed.

Note: “for any reason” - i.e. just if they feel like it, or if they enjoy hopping from carrier to carrier just to drive them nuts and cost them money by forcing them to restock used devices and sell them at a discount. And this next point is not quite clear either:

If a subscriber exercises the right to cancel such plan under paragraph (1), a subscriber shall receive a pro rata refund of the charges, if any, paid for wireless customer equipment used in conjunction with such plan if such equipment is returned during such 30- day period.

What’s pro rata about buying a phone? If they mean that carriers can charge a reasonable re-stocking fee, that seems sensible, but there’s nothing pro rata about that.

I’m not going to dwell on the wireless broadband stuff or the spectrum efficiency stuff at the end but might come back to that later.

Overall, this feels like more intervention in a market which has generally done very well by consumers in terms of providing good service at declining prices and offering compelling devices and services. Yes, there are transparency issues, and yes, there are misunderstandings about contracts, but I believe these can be addressed under existing laws and through market-based incentives (just look at that Verizon Worry Free Guarantee and the presence of coverage maps on all the major carriers’ sites as examples). We really don’t need more legislation in this area.

In my post on the flat-rate wireless plans being launched in the US recently, I suggested that Sprint might take the route of:

charging $99 or slightly more for a plan that would include unlimited voice and messaging and/or data usage.

I didn’t explain this at the time (although I seem to have been right I have no insider information here and it was still just an educated guess), but my thinking here was that Sprint would want to undercut the others, but would also want to do it in such a way that it kept ARPU high while providing for its growing base of unlimited data customers (both personal and business users).

By throwing everything into the package Sprint is going after the power users on all networks. But it is also effectively capping ARPU at $99, including data, which means it’s closed off the only real avenue to future growth, which is data revenue. The plan includes:

unlimited voice, data, text, e-mail, Web-surfing, Sprint TV(SM), Sprint Music, GPS Navigation, Direct Connect(R) and Group Connect(R).

So almost every revenue-generating service Sprint has. For business users, there will still be the opportunity to sell additional productivity, horizontal and vertical applications, but it’s really maxed out for consumer users. Now, a $100 ARPU isn’t bad, and certainly a lot higher than Sprint’s current average, but who’s to say this is where the price will stay?

And since this was announced on the same day that Sprint suggested they will lose 1.2 million postpaid subscribers in the first quarter, it’s going to have to be a heck of a powerful shovel if Sprint’s going to dig its way out of that hole.

Several major wireless carriers this week announced unlimited wireless plans for $99 - Verizon kicked things off, AT&T followed suit, T-Mobile joined the crowd, then US Cellular finished off the week with its own announcement.

The Verizon and AT&T deals are pretty much identical - $99 per month for unlimited calling. T-Mobile threw in unlimited texting, which makes sense since its user base tends to skew young and therefore is more prone to communication via thumb than mouth. US Cellular’s is a national offering too but its user base is more regional.

Financial analysts and investors have largely seen all of this as a bad thing, either because it will start a price war, or because it will take everyone spending over $100 on voice currently and bring their spending down to $100, by definition decreasing their spending (Om Malik would appear to be a case in point).

There is already speculation that Sprint will attempt to undercut all of the above, which it could do by simply charging less than $99 for its unlimited voice plan, or presumably by charging $99 or slightly more for a plan that would include unlimited voice and messaging and/or data usage. Certainly, Dan Hesse has suggested that he has what have variously been described as “nukes” or simply “missiles” he can fire off to kick-start the turnaround at Sprint, and one of these is presumed to be a dramatic move on prices. With the other carriers having now stolen a march on that particular idea, he may need something new.

However, it’s not clear that it would have made a huge difference even if Sprint wasn’t playing “me too” at this point. Think about it. Wireless churn stands at somewhere between 1 and 3% for the larger US carriers. That means that in any given month, only 3% (or fewer) subscribers switch carriers, or put another way the average lifetime of a subscriber is between 3 and 8 years. Even the most dramatic move on pricing would be unlikely to loosen up more than a small number of additional subscribers in any given period. Look at the iPhone - growth appears to have slowed, and there are doubtless several reasons. But one is the simple fact that many people are locked into 2-year contracts (which by themselves would limit churn to just over 4% if everyone stayed in them) and over three quarters of US wireless subscribers are currently with a carrier other than AT&T.

Given that Sprint currently has negative “flow share” towards the other three big carriers, just turning that trend around would be something. But simply reducing prices will not likely do the trick on its own, especially when competitors are making similar moves. Forrester has a survey which has been used by Morgan Stanley to look at brand loyalty, and it illustrates where Sprint’s problem really lies:

Verizon scored an average response of 7.7 out of a maximum score of 10, AT&T and T-Mobile scored 7.2 each, with Sprint Nextel averaging 6.1 among their customers. Factors such as reliability, trust and prior experience
were rated as key factors in making a carrier choice.

Sprint has by far the lowest rating of any of the main carriers (Nextel’s independent rating is even lower), and this ties in directly with its churn. It needs to be doing a better job of keeping existing customers happy at least as much as it needs to win new ones.

As to the question of whether the impact of unlimited pricing plans will be good or bad, it’s hard to argue they’ll be good. The answer really depends on which of four resulting trends is strongest:

• existing customers of a carrier switching to a higher-priced plan (i.e. going from limited to unlimited), which would have a positive ARPU and revenue impact
• existing customers of a carrier switching to a lower priced plan (i.e. because they currently spend more than $99 either because their plan costs more or because of overages), which would have negative ARPU impact
• customers switching from other carriers, which would have positive subscriber and ARPU impact, but which seems relatively unlikely on the whole because the model has swept all but one of the major carriers in the space of a week
• new customers signing up with the carrier because of the new plan (which seems least likely of all, since current wireless non-subscribers tend to be poorer, with poor credit scores, and are therefore much more likely to adopt pre-paid or at least low-priced postpaid offerings.

Given that the fourth trend is likely to be negligible, and third also small, that leaves the first two. There is an argument for switching from a lower-priced to a higher priced plan if it allows you to make another simultaneous change - i.e. to switch your calling from another network to your wireless carrier. If people cut the cord either at home or in business as they make this change, they may save money overall while increasing spend with their wireless carrier. The premium on top of more modest allowances of minutes is likely to be at most $50 and probably considerably less, so it would be competitive with unlimited wireline calling plans. However, it seems likely that the percentage of subscribers currently paying more than $100 for their voice services who will switch to the $99 plan will be close to 100% within the first few months. While providing some goodwill benefits similar to those enjoyed by Sprint with its Fair & Flexible plans and AT&T/Cingular with its Rollover minutes, it’s not clear those will translate to sufficient churn reductions to offset the loss in ARPU / revenue.

Had Verizon been alone in making this move, the picture would look very different, even if it only had a few months of lead time over the other carriers. But because the others have responded - or are likely to respond - very quickly the overall impact seems likely to be at least slightly negative.

On the other hand, it’s also worth asking what would have happened to voice ARPU over the next year anyway. It has been stable for some time, and with most growth coming from prepaid and family plans at present it is likely to drop considerably in the coming years. Per-minute pricing has been dropping for some time, since that ARPU has been buying ever larger numbers of minutes over time. The current model for consumer communications has flat-rate pricing as its endgame every time (see broadband, wireline voice, TV), and although it has taken a very long time to get there with wireless, we’ve arguably had several baby steps already - the “bucket of minutes concept” and the elimination of long-distance and roaming charges being among the most obvious. This will doubtless accelerate the decline in ARPU somewhat, but overall it may simply cap voice ARPU at a nice high rate (about twice current ARPU), freeing consumers to increase spending on data, which is where all the growth is today regardless. It may not be as bad as some people think.

Note: the image used in this post is a picture I took myself a while back on a walk through NYC. Unaccountably, a huge inflatable rat was sitting on the back of an unattended trailer outside a Verizon Wireless store. Seems somehow strangely apt for this story. Original can be viewed here.

The mobile world is keen to replicate the success of Google (and to a lesser extent others) in making advertising pay on the web. Mobile advertising was one of the major themes at the last two CTIA shows and will likely continue to be so. But I always find myself wondering whether mobile advertising isn’t just another example of these companies doing what they want, not what their customers want.

Pretty much all advertising, Superbowl notwithstanding, is an attempt to force on consumers something they don’t want. And the last thing I want is another venue (my cellphone) where I will be subjected to it. Isn’t this one of the biggest reasons why the pause and FF buttons on your remote are so important? I certainly understand the constant drive towards new sources of revenue, and there are some interesting business models which rely entirely on advertising, but I can’t help but feel that in this case mobile operators are inherently fighting their customers. If they were to use advertising on an opt-in basis to reduce service fees I can just see customers responding to it, but I assume they’re just going to use it to grow revenues, and it will end up being a source of considerable friction with their customers.