Do Multi-Year Exclusive Phone Handset Deals Make Sense?

When Apple launched iPhone in Europe it bucked traditional wisdom. Rather than striking short term exclusive deals with an operator in each market for 3-6 months, it chose to sign multi-year relationships. Matthew Key, then O2 UK CEO, confirmed this time period at the UK launch.

The press coverage, discussion and hype around iPhone was extensive, even before the iPhone officially launched in Europe. But the initial deals with O2 UK, Orange France, and T-Mobile Germany had only modest success during 2007 and early 2008 in converting that into sales.

While Apple secured an initial pr boost -- but one which Apple could have secured with shorter exclusive periods -- over the medium term Apple is completely dependent on a single operator to deliver a good network, customer service and brand experience that matches Apple's brand promise. If an operator fails, then Apple and iPhone suffers.

Long term exclusive operator deals may make more sense in the US. There, no single handset will work on all mobile networks so there is less to lose with an exclusive deal. The GSM/3GPP iPhone is compatible with either AT&T or T-Mobile but won't work on Sprint, Alltel or Verizon's networks. AT&T has certainly performed well for Apple in pushing iPhone. By contrast, going non-exclusive in Europe leads to vastly greater reach than any single operator could possible match as all operators use the same mobile standard and so all can offer the same handset.

In 2008, when Apple launched the iPhone into a swathe of new countries, Apple changed strategy and supplied multiple operators. Apple will have the data to compare the new batch with the exclusive deals from 2007.

Those operators sitting on exclusive multi-year iPhone deals must make sure they up their game if they wish to renew. Apple may decide it no longer needs their help and is strong enough to switch. Poor customer service, poor sign-up processes, patchy network performance, arbitrary restrictions on speeds, and so forth will destroy their case to be a partner to the Apple brand with its promise of quality and simplicity.

VirginMedia's Hangover from the Last Downturn

Yesterday VirginMedia announced it would cut 2200 jobs, 15% of its workforce, to take effect around the end of 2009.

On the radio, I heard this reported as being a result of the current downturn in the UK (in the third quarter the UK experienced negative growth). But VirginMedia's reasoning is not the result of a change in consumer spending.

The problem VirginMedia face is that they have been carrying billions in debt generated during the rapid expansion of cable networks in the UK during the 90s.

Over the last few years, the level of market competition that VirginMedia has faced has limited VirginMedia's ability to generate significant enough revenues to retrieve their position. The vaunted multi-play that has been at the core of VirginMedia's strategy has resulted in a war on multiple fronts: in TV against Freeview and Sky; broadband versus Carphone Warehouse, BT, Orange, Sky, Tiscali; and home phone against Carphone, BT, and numerous others.

VirginMedia's announcement was a hangover from last time's problems, combined now with the greater difficulty in raising capital and sustaining existing debts caused by the credit crunch. Effects of changes in consumer spending will take longer to come through. There may be more pain to come.

Read related research on the economic downturn from us. More will follow soon.

Vodafone Becomes a Major Broadband ISP

Today, Vodafone announced first half results. Unsurprisingly, mobile broadband was a key part of their strategy to maintain revenues as mobile voice and sms increasingly head towards becoming free.

They reported very fast mobile broadband growth, built upon aggressive pricing by other operators in European markets. Vodafone -- not aiming to be the cheapest priced -- reported an 84% increase in mobile PC connectivity devices and reckons about half of those are consumer buys. Given the early stage of the consumer mobile broadband market, that's an impressive result. Data-related revenues will be harder to secure: they rose by just 27%.

In the UK alone, Vodafone reported >500k mobile PC devices. This would place Vodafone among the leading ISPs if compared with home broadband, and with growth levels that only Sky could approach (but not match).

Note to non-European readers, pricing for mobile broadband is as low as 10ukp for one months' use on a pre-pay SIM, or 5ukp if an add-on to an existing contract plan. This isn't in every country, but in some where low prices exist, the market is moving extremely quickly.

There will be much more mobile broadband adoption to come as data spreads into emerging markets. Both Vodafone, and all of the operators I heard speak at last weeks' FT Telecoms conference, were sure this would happen very soon. Most, thought the opportunity is even greater than in Europe.

Vodafone's CEO: "In emerging markets: The Internet will be mobile."

Given the strength of some of the early mobile broadband take-up and of the arrival of numerous laptop-mobile subsidy sale models in retail, I think that's too narrow a statement, should read:

Ian: "The Internet will be mobile."

By that I mean that everyone, retailers, PC makers, home broadband providers, website owners, everyone... will have to adjust to the arrival of mobile/cellular in their businesses. Increasing numbers of consumers will go online using laptop PCs on relatively slow mobile broadband connections -- including very small netbooks -- leading to website design tweaks. Where and when people go online will change. Operators, retailers and device makers will have to embrace mobile industry pricing and packaging with subsidies and tight contract lock-ins. Additionally, and in parallel, phone handset Internet access is on the rise too.

I see any attempt to write about fixed and mobile Internet in isolation, or home broadband and mobile broadband on their own, as doomed to failure. Strategies must embrace both.

There is now one Internet, although with a few different flavours.

Exciting times.

Economic Crunch Impacts on Mobile & Home Broadband

We're not financial analysts here, so I'm going to sidestep the discussion about whether or not we are in a recession or just a slow down. Instead, I suggest you read this great Economist article for some perspectives on recessions. I could see this going either way for the rest of 2008 and 2009. There are such vast sums being pumped into the system, the outcomes are extremely hard to predict. Whatever words I use below, feel free to read them however you like: I'm going to use the r word, slow down, slump, crunch etc. pretty interchangeably here to refer to the wider economy.

While the extent of the economic crisis is debateable, regardless there will be direct effects on digital businesses, operators, startups, device makers etc. irrespective of whether the world's economies formally enter a recession or not:-

Consumer perceptions have likely been shaken by the extensive coverage of the credit crunch, housing market, stock markets, banks etc. These perceptions will effect consumer behaviour. Just as in a boom, perceptions can accelerate the rise, in a slowdown negative attitudes can turn a controlled dive into a tailspin. We'll be able to spot how consumer activity has changed when the latest Forrester consumer survey data comes back in a few weeks time.

In countries where the housing market is locked up with negative equity, or sharp price falls, that make moving logistically difficult there may be a retention benefit for fixed operators. Moving home is a key decision point in life when consumers are forced to reconsider what services they take. If people move less, this decision point won't come up.

Broadband and TV is an essential part of life now which will limit churn due to a slump. I strongly believe that home broadband, and even pay TV, will be resistant to a slow down. Few consumers will wish to end home broadband access if they have time on their hands and need to job hunt, or have renewed impetus to use the Internet to bargain hunt for cheap deals on utilities or retail. Similarly, consumers with more time, will have more time for entertainment, although I do see consumers becoming more likely to switch down to cheaper packages with the same operator, especially where they pay for premium channels.

If access to capital is difficult for any appreciable length of time, then operators' new network spend will likely be deferred. Fibre roll outs will take many years, rather than a few years. Current DSL and cable will dominate for longer. The result is that current home broadband networks will have to last. Product managers must become more creative with packaging and adding new features cheaply. In mobile, the much heralded WiMAX networks may never launch in Europe: WiMAX has, perhaps, a small window of opportunity after which cellular mobile broadband will be ubiquitous. If they miss that window, WiMAX will be in trouble.

(Some) Consumer product pricing will be less suicidal. This is perhaps a little controversial. In the boom, we've seen repeated examples of over-aggressive pricing, which was not profitable or sustainable in the medium term. In a slow down, few operators will be prepared to take such a cavalier approach to revenue and profits. Recent examples of such suicidal pricing include the mobile broadband offers in Austria and the UK.

Consumer prices for broadband and mobile will remain under pressure. Despite the above note about an end to suicidal pricing, operators will have to focus on value and price in a softer economic environment. Ideally, operators should pursue both approaches: tactically adding more features/texts/minutes/speed/data volume to some packages to add value and defend prices; while tailoring no frills but low price packages to other segments. Both the home broadband and mobile telephony market are mature or fast maturing, this would have happened to an extent regardless of the wider economy, but the crunch will accelerate such moves.

Unprofitable products will be killed if the slowdown continues. We will see a weeding out of free, advertising-supported, and even some paid services that are not delivering financially. This opens opportunities for competitors with a better business model to clean up. I see a lot of the online video services at risk here, as well as some telecom operator IPTV services and cable provider free video on demand services, but there are many others too.

Operators will have the option to buy Internet assets much more cheaply. Given the above, I suspect many start-up investors will be keen for an exit at a much lower price than they would have required six months ago. Operators, for the most part, are generating very significant quantities of cash. Should they choose, they will be able to select from a wide menu what they wish to take on to support their long term strategies. Many of these options will be poor buys, but there will a few bargains mixed in.

There are many other likely effects. If you're a client please send us an inquiry and I'm happy to chat further and point you to the relevant upcoming reports on the impact of the economic slow down on your area.

Whether you are a client or not, please join the discussion with me on twitter.

Signs & Portents: Nokia's 5800 with Touch Screen

Today, Nokia announced its first mainstream touch screen mobile phone, the 5800 XpressMusic. This is a mass market phone that's an evolutionary extension of existing Nokia designs. Priced at Euro279 pre tax or subsidy, the phone will be available for free on many contracts and should rapidly become available on pre-pay.

Whatever you may hear, this isn't Nokia's first touch screen device or even its first touch screen mobile phone. But unlike the 7710 this will be a mass market platform with real developer support. And Nokia will need it, as many existing Series 60 applications will require developer effort in order to work on the 5800.

The 5800's device aesthetics fit its price point. This phone isn't going to turn heads -- unless the extremely loud speakers catch people's attention -- although it's not ugly either. The deep curved shape fits nicely into the hand and its narrowness makes the 5800 very comfortable to hold and likely explains the leaked 'tube' codename. There are sensible button options along the sides to act as shortcuts for the media bar, dim the screen, adjust volume, go to home, or the classic Nokia green and red buttons to control the phone. While Nokia has forsaken its anti-touchscreen religion it has avoided the fallacy of adopting a new anti-button at all costs mantra, Apple-style.

In countries where both are available, the 5800 will be the flagship Comes with Music (CWM) device. This offers unlimited music downloads, both over the air, and onto a PC, for purchasers of a 5800 that is sold with a CWM bundle. Interestingly, while the 5800 will ship in 2008, the CWM bundle version won�t arrive until 2009.

The software is clearly existing Nokia Series 60 with light enhancement for touch screen use. It works surprisingly well but the appearance is unexciting and lacks wows. Example: it's possible to switch photos by dragging a finger across the screen -- iPhone-style -- but there are no eye candy transitions, one photo just vanishes to be replaced by another in its entirety.

The 5800 should do well. Nokia are smart not to go head to head with the iPhone with this handset. At the lower price, it's a compelling phone. But I can't shake the feeling that this is a phone Nokia could have built several years ago.

Also, the premium N Series ranges' positioning feels orphaned: The 5800 delivers a better browsing experience, a better music experience, and has a larger screen for video playback compared with any current N Series handset. I wonder if Nokia has imminent plans for a revolutionary touch screen N Series mobile phone? Perhaps a new high end phone based on Nokia's Maemo Linux OS which was recently announced to have had mobile telephony support added?

3g Mobile Phone Battery Life

This is a slide from a report I wrote over three and a half years ago on Mobile Music Phones.

In other words, the more successful a phone is with its design, the more people want to use their phones various features, and so the more strain is placed on the battery and a phone's daily life expectancy falls.

Related research reports:
Mobile Devices - Meeting the Service Needs of Upgraders, published on August 16, 2008.
Mobile Music Phones, published on January 12, 2005.

Music Playback Competes with Many New Media Features for Battery Power

Swisscom Markets a Naked DSL Fixed-Mobile Bundle

Another example of an innovative European incumbent: Swisscom has been bundling home broadband with mobile, without requiring a home phone. I suspect Cablecom's home phone + broadband + TV bundles drove Swisscom to innovate.

This has created enough of a stir with their rivals to prompt a referral to the competition regulator. However, now the regulator rules they may continue.

Received wisdom: Only the altnets, the competitive operators, will market these kinds of offers. Naked DSL benefits over the top VoIP players.

My take: If a competitor is successful, most European incumbents are nimble enough to respond by adjusting product strategy to maintain their market position. There is no reason for an operator not to have a home broadband + mobile offer like this as a part of their overall product portfolio.

Plus, if the mobile pricing is sufficiently cheap, and includes enough bundled minutes, then a consumer will see no need to add a home VoIP service to their naked DSL service.

Marketing The Whole Internet

I'm becoming increasingly bewildered by the UK's advertising standards rulings (e.g. on cable allowed to be described as fibre broadband).

Latest is that the ASA has decided that Apple's iPhone should not be advertised as offering access to all the Internet.

Interesting points:

• There's an implicit assumption here that the Internet = the web. It doesn't. Think about Skype, instant messaging, email applications, iTunes downloads, peer to peer apps, etc. etc.


• Irony is that the iPhone does offer a much greater amount of the Internet and access to more different web sites than any other mobile phone.


• Double irony is that following the same ASA logic, the Mac could not be advertised as offering all the Internet either due to the number of sites that still require Internet Explorer. There is no Mac OS version of IE6 or version 7.


• For similar reasons, and just because they don't run Windows and Internet Explorer, many of the new tiny cheap netbook-class laptops running Linux can't access some websites or some parts of those sites. Will the ASA intervene here too?


• Many of the key sites that require Flash or Java plug-ins do work on the iPhone through specific iPhone applications, or special iPhone websites. Examples: BBC iPlayer; Youtube; Last FM; iTunes shop; Truphone; Palringo; AIM; Remote Desktop; Mocha VNC etc. etc.

My take - the spirit of Apple's advertising was correct.

iPhone Achilles Heal - Mobile Internet is Not Always-On

Mobile Internet and Mobile Broadband is not an always-on experience and this isn't going to change soon. Near term, there will always be places or situations where the cellular data network doesn't reach or where only a poor slow 2G signal is present (+). Product managers must design around it.

The best current mobile applications and devices understand this, and download what content/messages they can as soon as they can. SMS works this way: messages are delivered direct to the handset. Blackberry push email's main benefit is that when a user opens their email, there is no wait while messages download.

This to my mind is the greatest advantage of building a mobile application, rather than a mobile website. Good applications work anywhere, anytime, whatever the network situation, and can use local storage and sync to deliver faster responsiveness than a website.

But Apple has made a strategic decision with the iPhone to target always-on behaviours.

The iPhone's entire design assumes that there is always a fast network connection present, for both the built-in Apple applications, and the bulk of those from the new app store.

Some examples:

• Google Maps (built-in) does not store any map data locally, even if the user has browsed that map before. Effect: the user has to wait for the map to download each time they open Maps, the speed depends on the vagaries of the mobile network. Despite the new GPS chip which works anywhere, the maps application is only usable if there's a data network. So, its usefulness in very rural areas is limited. Alternative approach: Nokia Maps automatically caches map data locally, speeding its responsiveness, saving the operator from unnecessary data transit, and avoiding data costs for the user if roaming abroad.
• Apple's iPhone email only automatically downloads the in box, not other folders, so there's a delay each time a user opens any other folder, and it doesn't work when there's no signal. How long the delay is depends on how many messages and the speed of the data network. With a 2G data connection and 20-30 messages I find it takes at least a minute or two. Similarly, there's no user setting to control how much of a message is downloaded, so routinely users experience partially downloaded messages, even if the iPhone has many Gb free space.
• Apple's new Exchange email support does not allow messages to be moved or deleted if there's no connection. Weirdly, Apple's IMAP support allows it. The experience when I tried to use Exchange email on the tube, above ground where there is patchy coverage, reminded me of the user access control alerts from Vista: the iPhone kept popping up warning messages.
• Sending SMS messages only works when there's a network present, and the iPhone does not auto-retry sending in the background until there's coverage. Effect: I write a message on London's tube where there's no signal and I have to remember to click send when I surface. I've seen the same poor behaviour on Windows Mobile 6. Alternative approach - my Nokia 7110 from 1999, write an SMS, try and send it, fails, but the text stays in the outbox and the phone auto-retries in the background. The SMS gets sent as soon as it's possible.

• Apple Weather app downloads weather each time the app is opened and has no local cache. Effect, doesn't work on London's tube. Slow to launch. No different in experience for the user compared with accessing a bookmark of a mobile website that has been saved to the iPhone home screen.
• Evernote (a great third party application) stores all notes on its servers with no local cache or sync, unlike the PC and Mac versions of Evernote that sync notes between Evernote's cloud and the local computer. Alternative approach - Windows Mobile syncs notes from Outlook to the handheld with a full copy of each note in both places.

• The newspaper applications for iPhone are little more than skinned websites, but which take longer to load than the iPhone's Safari web browser, and still only work with a live mobile data connection. Mobile News, Bloomberg, SFNetNews applications all require a connection to read stories, just like accessing a mobile website in Safari, yet take longer to launch and have a less standard UI as they are all distributed as separate applications. Alternative approach - antique Palm application Avanto Go, enables users to download content to their PDA for offline viewing. More recent Windows Mobile and Symbian versions offer over the air download. Local storage improves the speed to jumping between pages, so people read more, and see more adverts. The New York Times app for iPhone also appears to do this, but it needs a better UI to display when it has finished downloading stories.

If there's no data connection the current iPhone UI repeatedly nags the user to remind them to switch off flight mode (if the user has set it to on), or that there is no data connection if the mobile is "on" but has poor reception. This reminds me of the worst of Vista's user access control pop-ups (which can at least be switched off).

Bottom line - Apple needs to improve the iPhone's ability to operate where there is a slow connection, or when there is no mobile data network present. They need to add automatic local caches to their standard applications, and offer the user a few more settings to manage data roaming, beyond the current blunt on/off. Apple also need to make it easier for third party apps to store and cache data locally as well.

+ Examples of coverage issues:

In-building, 3G signals often don't reach or are weak. In rural areas, mobile networks routinely only offer gprs and sometimes there is no reception at all. Airplanes don't allow cellular radio use. Public transport often lacks good coverage: cellular masts tend to have been positioned along main roads, not along train lines, plus cuttings and tunnels break up the signal. London's tube has no underground mobile coverage whatsoever. If a 3g cell becomes very busy, speeds slow, and the geographical area that 3g covers actually shrinks. Etc. etc.

If a user is moving in a train or a car, there is no guarantee that a good mobile data signal, or any signal, will continue to exist as the user roams between cells and locations. They may start an activity in good coverage and then lose it.