AT&T to Ms. Parks: “Go to the back of the bus!”

You may have noticed this news item about a class action lawsuit against AT&T Mobility and Radio Shack.

So, how did we get to the place where Billie Parks, an honest subscriber, gets surprised with a $5000 bill?

Fundamentally, the problem is that mobile broadband has deployed onto a scarce resource, namely wireless spectrum. So, YES, 3G and 4G technologies are capable of multi-megabit download speeds, and, NO, they cannot provide those speeds to all of the subscribers in a sector at the same time.

The solution to this problem, in AT&T’s view, is to charge an additional fee for each Megabyte of data consumed above 5 Gigabytes during the month.

Huh??? How does that solve the problem???

I guess in AT&T Mobility’s view the answer is obvious: the economic penalty for consuming more than 5GB is so steep that Billie Parks will willingly stop consuming data when her limit is reached. Then, with Ms Parks offline, or in the back of the bus, so to speak, there will be room on the channel for other subscribers to consume their share of those multi-megabit download speeds.

That logic is flawed and has appeared to work for a few years, but only because 5GB is plenty for the road warriors using laptops that need ubiquitous access to email, and because the devices that consumers use are not well suited to consuming lots of entertainment. Why would anyone want to pull 5GB of video down to a cell phone???? They wouldn’t, of course.

But Billie is a consumer, interested in entertainment, and using a laptop.

AT&T Mobility extended the subsidy model beyond cell phones to include ultraportable laptops with built-in HSPA, and the result is a very attractively priced computer.

If you are one of the many computer users that have grown to love watching TV shows via Hulu, then you can imagine why Billie Parks ran over her limit. The logic goes like this:

Billie: “I have a trusty old computer at home and I watch my favorite Hulu TV shows on it. AT&T and Radio Shack jointly offered to sell me a very attractive new laptop for $100. How can I pass that up? Now I can watch my Hulu shows anywhere!”

AT&T’s response: “Yup, you sure can.” (And in fine print): “Oh, but be sure to stop watching when you get to 5 GB.“

And then Billie is supposed to say: “OK, I’ll check my account on AT&T’s website frequently and the 5GB limit will probably be reached at a time that is convenient for me.”

Yeah, right.

The real solution to the problem lies not with economic penalties, but with the integration of billing systems and QOS controls. I’ve mentioned wireless broadband QOS in previous posts (here, here) and I’ll keep bringing it up because it is a topic I’m passionate about.

Billie Parks was offered one choice of service:

• Best Effort Hi Rate Pkt Data (HRPD), with a 5GB cap, for $60 per month
  • Good for email, browsing and file downloads
  • Also good for Hulu if the sector is lightly loaded

But mobile packet data service needs should be segmented into multiple categories:

According to the segmentation in that table, here are the service options she could be offered instead:

• Best Effort Low Rate Pkt Data (LRPD), no cap, $10 per month
  • Good for email, Machine-to-Machine telemetry, GIS tracking, instant messaging
• Streaming LRPD, no cap, $15 per month
  • Good for PTT voice but not full-duplex voice
• Realtime Streaming LRPD, no cap, sold in minute usage bundles
  • Good for voice telephony
• Best Effort HRPD, no cap, $40 per month
  • Good for browsing and file downloads, but you may not be satisfied with the result if you try streaming data – depends on sector loading
• Streaming HRPD, no cap, $60 per month
  • Good for video entertainment like Hulu
• Realtime Streaming HRPD, no cap, sold in minute usage bundles
  • Good for video telephony (a future service)

(My price suggestions are just that, and the market will ultimately determine pricing.)

Note that I proposed no caps on any service. When QOS controls are used it’s not necessary to also use caps and penalties to motivate certain usage patterns. QOS will allocate the available bandwidth in the sector according to the service that the subscriber is authorized to receive. And if too many subscribers are authorized for the available bandwidth, then the next subscriber will be denied service, or offered a lower-grade of service. In this manner, when a sector approaches its capacity limits, users with “best effort” subscriptions will find their connection to be slow and intermittent, while users with “streaming” subscriptions will continue to receive satisfactory service. Wa-la! People get what they paid for, with no caps and no billing surprises.

My friend Dan commented about Billie Parks’ lawsuit at lunch yesterday, saying “she’s the Rosa Parks of wireless.” Hopefully her stand against the archaic usage caps will accelerate the deployment of QOS based service offerings on the part of the mobile operators. I’m definitely pulling for her to win this one.

3G: It’s Not Just About Cell Phones

Now that title doesn’t surprise very many readers, I’m certain. Nearly all of us are familiar with the PC Card cellular modems that plug into laptops, and are aware that the newer USB versions have hit an even steeper trajectory of sales growth. One of my Cisco friends often says “I live on 3G,” and he’s referring to the reality that with his home in North Carolina, his co-workers in San Jose, and his customers spread in between, nearly all of his Internet consumption travels via the Verizon Wireless EVDO card in the laptop he uses while on the road.

 

Many of you are also aware of the rapid advancement of Machine to Machine (M2M) communications and the dozens of MVNOs sprouting up to focus on it. That industry uses 2G and 3G devices integrated into equipment, such as oil rigs, billboards and windmill generators, to transfer the real-time and non-real-time data needed to keep performance high and costs low.

 

But 3G is showing up in lots more places too, and we’ve only just begun to see the spread. I am personally intrigued with the use of 3G to enhance devices that we were familiar with in a prior version . In a previous posting I mentioned the recent arrival of 3G integrated into Personal Navigation Devices. I want to take that theme farther now and start building a list of newly connected devices.

 

So, here’s the criteria for making it on to the list:

-          Human oriented devices, that is, unlike M2M the purpose of the device must primarily serve for human consumption.

-          One of the following:

o       Devices whose traditional functionality is enhanced via the 3G connectivity.

o       Devices whose traditional functionality is maintained while valuable new functionality is added via the 3G connectivity

o       New devices that weren’t feasible or practical without the 3G connection

-          And of course, primarily voice oriented devices, such as cellphones, are excluded

 

Here’s the complete list of 3G enabled devices that I am currently aware of:

-          Amazon Kindle – A true breakthrough product, and even more so because I believe that most Kindle owners are only vaguely aware that the thing is using Sprint’s cellular network.

-          Personal Navigation Devices – notable for the absence of Garmin or Motorola

o       Dash

o       Insignia

-          IVC Remote Video Security Camera – Good news for construction companies. Now you can remotely monitor any location that falls within 3G coverage.

-          Vizit Photo Frame (coming Spring ’09) – In my view a digital photo frame is most useful in the role of bring Grandma into the loop of digital photography, allowing her to appreciate the photos you take of the kids without requiring all the messing around with printing. But, how many Grandmas have WiFi????  Send her this frame in the mail. She plugs it in. You send photos to it. Simple.

-          uConnect Web service (aka Autonet Mobile) available in 2009 Chrysler vehicles. Now the kids can keep their iPod Touches operating while the family is on the road.

-          LG Watch (LG-GD910) – OK, just what you always needed, video streaming to your wrist!

 

Please point me to other products that you know about and I’ll add them and give you credit.

 

Here’s some devices I’d like enhanced with 3G:

-          YouTube Video Cameras

-          Digital Cameras

-          Handheld Multi-Function Displays for aviation, e.g. the Garmin 696, using Aircell’s EVDO network

 

I’d love to hear your ideas for products that are ready to be connected.

Motorola’s Disconnected PNDs

OK, Motorola has introduced their own branded Personal Navigation Devices. In reviewing the product descriptions I cannot identify any differentiating features.

 

Motorola has world-class capabilities in 3G devices, and yet their PNDs are not connected. That’s very hard for me to rationalize, and I would love to hear ideas for what their strategy is here.

 

Hopefully, their next PND will include 3G connectivity and some cool new features that uniquely leverage it.

Garmin’s Predicament

Garmin’s Personal Navigation Device (PND) business used to enjoy excellent gross margins but those margins are rapidly slipping as lower cost competitors are taking away significant market share.

 

I continue to admire Garmin for their ongoing innovation, and their PNDs are rapidly increasing functionality as general purpose GPS devices. However my own PND is an off-brand, purchased for $100 at Fry’s, and it even includes spoken street names (aka TTS) and NAVTEQ maps! It’s a Windows CE based platform so I give up some UI elegance in exchange for the low price.

 

So, one key threat they face is the entry of low cost competitors, some of whom have adopted an open-platform strategy. Garmin remains completely proprietary.

 

VZ-Navigator has also shifted the landscape, followed by similar offerings from Sprint, Alltel and others. Credible industry analysts are predicting that personal navigation and associated capabilities will be largely taken over by cellphone applications in the near future.

 

So, a second key threat they face is the emergence of cellphone applications as substitute solutions that can be easily adopted by consumers since they don’t require the user to possess yet another piece of equipment; everybody already has a cellphone.

 

Virtually all of these GPS solutions depend on geo-content obtained from either NAVTEQ, the leader, or TeleAtlas. I think Tom Tom, the leading competitor to Garmin in the PND space, foresaw how things would unfold and acquired TeleAtlas for the purpose of reverse integrating into what might actually become their primary business. There are many more barriers to entry in the geo-content space than there are for PNDs.

 

And, of course, NAVTEQ has been acquired by Nokia, the world’s leading cellphone vendor. (The strategy behind that move might be the topic for a future posting.)

 

So, the third key threat Garmin faces is that the primary suppliers of the geo-content upon which they depend are now allied with competitors.

 

What should they do? They are at a fork in the road, consisting of the following choices.

 

First, they could deemphasize their own proprietary approach and embrace third party platforms, then seek to become the navigation software application of choice for every cellphone, Windows device, and OEM’d nav solution in vehicles. Admittedly, they are late to the game here, and their differentiation is not obvious, but it may be their best shot at maintaining a significant share of the navigation market.

 

Alternatively, they can continue to embrace their proprietary platform approach and crank up the innovation engine to leave competitors in the dust. They may be late to the game here too. For example, they should have been first to market with a “Connected GPS” device, but Dash Navigation and Insignia beat them to the punch. Garmin wasted precious R&D time on the misguided Nuviphone when they should have pursued cellular connectivity as an integrated function, a-la the Amazon Kindle, rather than the primary role of the device.  A Connected GPS device is a GPS device first, and the cellular data connection is complementary.

 

(By the way, what could Garmin have been thinking when they invested in developing a cellphone? Yes, Apple succeeded, but that’s a very tough business to make a go of.)

 

With cellular data a GPS device can add many new capabilities, including the obvious ones of real-time traffic reports and traffic based routing/rerouting. As another example, I would love to have a PND that overlaid graphical weather right onto the map display. Think of a mash-up between a Garmin PND and the MyWeather application available as a download on iPhones.

 

So, I recommend the second approach: A high margin business based on innovation on proprietary platforms, but without the dominant market share they’ve been used to.

 

From where I sit as an outsider I can’t say they are assured of success long term in the consumer space. They remain well-positioned in aviation and marine products, but the entry barriers are much higher in those markets, especially in aviation where FAA certification is an expensive process.

 

I’m watching to see what their next move will be. I’m betting that Garmin’s Connected GPS device will soon arrive, but it has already missed the Christmas season. They have some catching up to do!

 

 

Sprint’s One-Edged Sword

At one time, Nextel was the envy of the wireless industry. My, how things have changed!

 

Most readers here will know about the history of Nextel and the Motorola iDEN technology which served as the cornerstone for their brilliantly executed strategy to win and keep high margin enterprise customers. The Push-to-Talk feature was a key differentiator that other Mobile Network Operators could not match.

 

And, Nextel had a firm grip on this differentiator, with exclusivity arrangements that ensured they would not find themselves competing with other MNOs who were using the iDEN technology. Nextel even had the “foresight” to lock up the promising CDMA version of PTT, Qualcomm’s QChat technology, with a high dollar exclusivity arrangement, several years before it would come to market. (QChat is a set of proprietary extensions on top of EVDO Rev A.)

 

Then what happened next? I have a very simple view of the answer. Simply put, Nextel found that the sword of iDEN exclusivity was two-edged: the PTT advantage was nice but the cost of being virtually the only MNO supporting Motorola’s R&D on iDEN was more than they could bear. Nextel could not afford the cost of advancing iDEN to support 3G packet data capabilities nor could they afford the cost of a nation-wide buildout. (There were insufficient iDEN roaming partners to achieve good coverage.) Nextel had found themselves alone on an island, and in the world of wireless that spells certain doom.

 

And we all know what happened next. Sprint came to the rescue, acquiring Nextel, its iDEN network and those lucrative enterprise customers. And, a “brilliant” strategy fell into place: Since Sprint operated a CDMA based network with a clear path to 3G, the QChat technology that Nextel had previously licensed could be leveraged to provide a path off of the iDEN network onto CDMA. That PTT advantage on iDEN would carryover nicely to CDMA!

 

Now, this should be feeling like a Déjà vu moment. Here’s why.  The cost of bringing QChat to market was enormous. And who paid for it? Did Alcatel-Lucent, Nortel, Motorola, Huawei or ZTE speculate on that R&D expense, knowing that Sprint would be the only customer? I guarantee you that didn’t happen. Sprint covered the bulk of that R&D risk, subsidizing selected equipment vendors with NRE payments. So, QChat has become yet another two-edged sword. Can Sprint afford to be the only MNO that bears the cost of R&D on QChat? Oh, and by the way, QChat doesn’t roam.

 

To further disadvantage Sprint, Verizon Wireless used primarily non-proprietary capabilities in EVDO Rev A to deploy a much less expensive version of PTT, leveraging the earlier version of Motorola PTT that had flopped in Verizon. And the result is a darn good PTT solution. Not quite as good as iDEN, and probably not quite as good as QChat, but good enough (think Innovator’s Dilemma…).

 

So, Sprint is riding a proprietary horse, again, and Verizon Wireless chose a standards-based horse.

 

Verizon’s check-mate move came when they announced that they would adopt a non-CDMA path for their 4G technology. That leaves Sprint holding the R&D bag not just for QChat, but for all of CDMA if QChat is to survive.

 

 It is assured that there will be no version of QChat in the 4G networks. Will Sprint keep CDMA + QChat alive forever, or will they fall back to a standards-based PTT that operates on Wimax?

 

Sprint blew a lot of money on QChat, and ended up right back where they were with iDEN – all by themselves as the sole investor in a technology. Except this time the differential advantage of PTT has almost disappeared, leaving them with a one-edged sword – and it’s the wrong edge!