Carriers

iPhone Emerges as Mixed Blessing for AT&T

In the beginning it appeared that iPhone exclusivity was a big win for AT&T. It got PR buzz and corresponding sex appeal; it seemed to gain a lot of new subscribers too. However, there have been bottom line costs as it bears a substantial subsidy ($400 per handset) and customers see AT&T as the bad guy when problems occur.

In addition the NY Times (in a piece about iPhone users heavy data requirements) cites a PriceGrabber consumer survey that reveals barriers to further growth:

[A] recent survey by Pricegrabber.com found that 34 percent of respondents pinpointed AT&T as the primary reason for not buying an iPhone.

This is certainly true for me. I would own and iPhone but for the AT&T requirement. AT&T's brand and reputation have suffered lately, probably more than they've gained from the iPhone relationship -- especially the in wake of the 3Gs launch and network problems. The Wall Street Journal elaborates on the mixed blessings of iPhone exclusivity:

While AT&T has disclosed at least 10 million activations of iPhones since it became available in mid-2007, only about 40% of those were new customers. That number dropped to 35% in the most recent quarter when the 3GS phone became available.

That means only four million new customers signed up, about 5% of AT&T's total, or 6% of "postpaid" customers on costly monthly contracts . . . More important, perhaps, is that the iPhone likely has kept some AT&T customers from defecting. AT&T's churn, the percentage of customers who leave, has dropped to 1.49% from 1.7% since the third quarter of 2007. Over the same period, Verizon Wireless's churn has risen to 1.37% from 1.27%.

Then there is the extra revenue. AT&T has consistently said iPhone customers generate much higher revenue per user than the average, close to $100 a month. AT&T's "postpaid" average revenue per user has risen 4.7%, to $60.21, since the third quarter of 2007.

Apple is increasingly looking to move beyond exclusive deals, recently breaking O2 exclusivity in the UK, which helped the phone come to market intially. There's a question about whether AT&T will be able to retain Apple exclusivity (now being probed by the FCC) beyond next year, although the company would like to retain it until 2011 according to various reports.

Indeed, non-exclusivity is the key to future iPhone growth. Android, the Pre and Windows Mobile all would be threatened further if the iPhone were equally available on Verizon, T-Mobile and Sprint.

China Unicom-iPhone Deal Non-Exclusive

The outlook for Apple's iPhone in China just got stronger. Apple confirmed that its agreement with China Unicom is non-exclusive:

"I can confirm it is not an exclusive deal," Apple spokeswoman Natalie Harrison said in an e-mailed statement.

This potential gives Apple access to China Mobile's 500 million subscriber base, if a deal can be worked out between the companies. China Mobile will be offering Android phones in the near future. 

The market for high-end smartphones such as the iPhone is currently tiny but will grow in the next several years as Chinese carriers build out high speed networks. 

How Do You Say 'iPhone' in Mandarin?

After more than a year of rumors and speculation it has finally been confirmed that the iPhone will be coming to China -- to the number two carrier there, China Unicom. It was announced formally today in an earnings release:

On 28 August, the Company and Apple reached a three-year agreement for the Company to sell iPhone in China. The initial launch is expected to be in the fourth calendar quarter of 2009. This will provide users with brand new communication and information experience.

China has three operators: China Mobile, China Unicom and China Telecom, which are just now building out their 3G networks. China Unicom lags far behind the dominant carrier China Mobile. But even small success in China, which has a relatively small smartphone market today, will mean big numbers for the iPhone. 

There are almost 700 million mobile users in China, more than 2X the US population as a whole. China Unicom reportedly has roughly 140 million subscribers. The largest US carrier Verizon has 87.7 million mobile subscirbers. China Mobile, the largest carrier there, has roughly 500 million. 

Reportedly China Unicom has agreed to buy 5 million iPhones as part of its three year exclusive deal. Wifi will be disabled (as is currently the case across the industry in China).

China Mobile will have two Android-based phones to compete with Unicom's iPhone, including the Dell Mini 3i

Apple reported that it had sold 45 million iPhone and iPod Touch devices globally (80 countries). That breaks down to 26.4 million iPhones and 18.6 iPod Touch devices. About 25 million of those devices are in the US and the rest abroad. The 25 million US figure is divided as follows (per AdMob): 13 million iPhones and 12 million iPod Touch units. 

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China/Asia could move into second position on this chart if the iPhone succeeds in China. Imagine the potential Chinese apps market.

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Related: Here's additional color and analysis from the Wall Street Journal

JumpTap Issued Another Advertising Patent

In June JumpTap was issued what appears to be a potentially sweeping mobile advertising patent. Another patent was just issued (no. 7,577,665) to JumpTap and is discussed in the press release out this morning. The one-line description of the thrust of what is being patented is "user characteristic influenced search results." 

Here's the important language regarding when the patent would be implicated: 

(ii) receiving from the carrier information relating to a plurality of user characteristics derived by the carrier, wherein the plurality of user characteristics are at least:

(a) two or more demographics associated with the user, wherein the demographics are obtained from the billing system of the carrier; and

(b) shopping habits of the user as recorded through use of the mobile communication facility, wherein the shopping habits include views of or purchases of goods or services; and

(c) duration of on-line interactions by the user from using the mobile communication facility; and

(d) usage patterns of the mobile communication facility including past mobile communication facility transactions comprising click-throughs; and

(e) previous search queries entered by the user via the mobile communication facility . . .

This language appears to require data being passed from the carrier to the engine. I'll speculate then that it wouldn't apply to "off deck" search or circumstances where the engine isn't getting information from the carrier. So, for example, I could argue it wouldn't apply to Google search on smartphones but it might well apply in the following hypothetical scenario: Bing search on Verizon handsets where Verizon user data is used to influence what ads to show in search results.

As with all patents, it's typically not until a court gets to rule on the meaning of the language that we get a sense of what this truly means. But JumpTap now has two broad mobile search advertising-related patents.

Orange Brings LG Watchphone to UK

France Telecom/Orange in the UK has introduced the LG watchphone. It has a touchscreen and features video calling. According to the release out this morning, it's being positioned as a kind of fashion statement:

Available on a first-come-first-serve basis, and one device per customer to those who arrive in person at the store - the handmade 3G+ watchphone will guarantee those fortunate enough to purchase one that they’ll turn heads on the high street. The device’s slick scratch resistant touch-screen interface makes writing text messages easy, while an in-built speaker and MP3/AAC player lets you listen to the Essential James Bond theme album when you’re imprisoned in a fake volcano or battling with Jaws.

I have to say: c'est cool. But what about background noise? Click the image below to see the phone in action. 

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While we might label this a novelty device that is not mainstream -- especially not a price point of £500 (just over $800) -- this (hopefully) is just the beginning of creative, connected devices that we'll start to see in the market. 

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Related: Here are some potential "phones of the future." Less futuristic, we're also likely to see the first Android tablet, the Archos 5, in the West by mid-September.

Smartphones Above $200 Are DOA

The picture to the right is of the HTC Touch Pro 2, which has been well reviewed. It's being offered by T-Mobile for $349. That's with a two-year contract. And it's too much.

The de-facto price ceiling for smartphones in the US market is $200 (with subsidy):

  • iPhone 3GS: $199
  • Android/G2: $199
  • Palm Pre: $199 
  • BlackBerry Storm: $199

Effectively you now can't sell a mainstream device for more than that. Witness the lackluster performance of Nokia's high-end N97 "iPhone killer." According to Garnter's Q2 sales numbers:

Its flagship high-end N97 smartphone met little enthusiasm at its launch in the second quarter of 2009 and has sold just 500,000 units in the channel.

It launched in the US without carrier support and had a price tag of more than $700. DOA. 

Will Android Help Google with Share in China?

The news comes that Google has lost market share in China to native search engine Baidu, which now has a roughly 65% market share according to a report recently issued by US investment firm Bernstein & Co (relying on third party data). Others put the Chinese market even more in Baidu's hands (per iResearch):

  • Baidu: 75.7%
  • Google: 19.8% of the searches, down slightly more than a point from the previous year

It struck me, however, that Android might be a "back door" for Google into increased market share.

There are going to be at least two Android-based phones in the market through China Mobile in the next month or so (from Lenovo and HTC). Smaller rival China Unicom is reportedly working with Apple to launch the iPhone in China. There are also various rumors of a Dell smartphone launch announcement in China (OS unknown) in the next several days.

China is the world's largest mobile market with 700 million subscribers -- more than twice as large as the US population. Having several Android phones in China will give Google another bite at the Chinese search market, so to speak, which may enable the company to gain search share where it doesn't seem to be able to on the PC. 

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Related: The rumored Dell phone is reportedly to be an Android device. 

Slick Handsets Not Working for T-Mobile, Sprint

Last week T-Mobile USA reported Q2 earnings. Here are the highlights:

  • Service revenues . . .were $4.77 billion in the second quarter of 2009, in line with the first quarter of 2009, but down from $4.85 billion in the second quarter of 2008. 
  • OIBDA of $1.60 billion in the second quarter of 2009, up from $1.38 billion in the first quarter of 2009 and $1.58 billion in the second quarter of 2008. 
  • Contract churn was 2.2% in the second quarter of 2009, down from 2.3% in the first quarter of 2009 and up from 1.9% in the second quarter of 2008. 
  • In the second quarter . . .added 325,000 net new customers, down from 415,000 in the first quarter of 2009 and 668,000 in the second quarter of 2008.
  • Blended Average Revenue Per User (“ARPU” as defined in Note 1 to the Selected Data, below) was $48 in the second quarter of 2009, in line with the first quarter of 2009 but down from $52 in the second quarter of 2008.

The G1 has largely failed to ignite subscriber growth, just as the Pre has not really helped Sprint to attract higher value post-paid customers (unlike Boost which has grown on aggressive pricing in the pre-paid segment). Among smartphones, only the iPhone seems to have driving subscriber growth for AT&T. Verizon has grown at the expense of Sprint and other carriers and held its own against the iPhone.

At one point there was speculation that T-Mobile might try to buy Sprint, which itself just announced that it was acquiring VirginMobile. That company today announced quarterly results: profits were up though revenues were down amid 269,239 net subscriber losses. It ended the quarter with five million customers unchanged from a year ago. 

If these attractive handsets have failed to draw new subscribers -- and Android phones will be everywhere by 2010 -- what's left to drive carrier growth? Price competition and/or M&A. In particular, some of the smaller discount carriers will need to merge or will be acquired by T-Mobile and Sprint. 

Will Eco-Friendly Phones Gain Traction?

This past week, Sprint announced that it would be selling the new green-friendly Samsung Reclaim for $50 (after rebate) with a two-year contract. The phone has received generally positive reviews. For Sprint it's part of a larger push to reinvigorate the brand and associate it with environmentalism: 

When customers purchase Samsung Reclaim from Sprint, $2 of the proceeds will benefit the Nature Conservancy’s Adopt an Acre program, which supports land conservation across the United States and protects some of the world’s most beautiful and important natural habitats.

“This generous donation from Sprint will help us protect and restore some of America’s most beautiful and ecologically-important landscapes for future generations to enjoy,” said Mark Tercek, president and CEO of The Nature Conservancy.  “We applaud Sprint’s sustainability efforts, as innovation and new technology are crucial to the future of conservation.”

Sprint is also launching several new environmental initiatives in an effort to support its aggressive long-term environmental goals . . .

This is the second "green phone" to be introduced into the US market. The first was the Motorola Renew (through T-Mobile. What "green" means here is recycled materials (corn and recycled post-consumer plastic). What will sell this phone, however, is the low price and the features, the green components will get people interested and make them feel good about buying the phone.

Hopefully these phones will also motivate other OEMs to integrate more green into their development and manufacturing. 

What's also interesting here, as I wrote about the INQ "social mobiles," is that this is where the low-end of the market is heading -- to more full featured devices that offer a decent mobile Internet experience and built-in apps for some of the most popular functions (e.g., social networking).

Android MyTouch 3G Finally Arrives with Sherpa

In something of anti-climax (because Google previous gave out the phones causing a lot of early reviews), the T-Mobile MyTouch 3G is finally here (it's been out in the UK for many months as the Vodafone Magic). It's much improved over the clunky G1 -- sleeker and without a physical keyboard.

I've been using it fairly heavily for the past couple months. And today I finally downloaded Sherpa from Geodelic and got a chance to play with it a bit. But before I talk about Sherpa, here's my quick rundown on the MyTouch experience: 

Highlights:

  • Voice search and voice search on Maps
  • Google Voice app
  • Camera barcode scanning and camera search apps such as ShopSavvy and Amazon
  • Multiple apps running simultaneously (if you care about this; in my experience it's not a huge advantage or benefit)

Weaknesses:

  • Dull screen resolution (by comparison to the iPhone and Pre)
  • Awkward virtual keyboard (compared to the iPhone)
  • Poorly organized apps store (Android Market)  
  • Less intuitive user experience (than iPhone)

Overall it's a terrific phone but falls short in a couple of areas because of comparisons to the iPhone.

Sherpa, by Geodelic, is one of the "marquee" apps being promoted by T-Mobile to help differentiate the phone from smartphone competitors. In my very preliminary usage I'm relatively unimpressed  however. The app has a novel carousel interface that shows nearby businesses and attractions across listings categories. Users can "search" using a query box but the app is intended to offer up listings based on handset location and usage history/preferences over time. 

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Colorful icons allow users to find restaurants, cafes, banks, shopping and so on at the touch of a button. Profile pages initiate calls and map lookups. There are also map and list views of places. 

I recognize this is "version 1.0" but the offering at a high level, and in terms of some of the interface elements, is not very different than Where, AroundMe, Places Directory, Earthcomber, MapQuest and a few others. 

Many companies, including Geodelic, Aloqa and MobilePeople, among others, are now vying to be a kind of all-encompassing local search (or discovery) tool on the mobile handset, not to mention Google Maps, Yahoo mobile (app + mobile Web) or the Microsoft mobile/Bing smartphone client. 

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To succeed in this local-mobile segment, companies need to bring together rich and complete data, solid intuitive functionality and then some differentiating feature or combination of elements. It's a very tough challenge in a crowded arena. Companies need to think also about voice and the camera as auxiliary input mechanisms -- if they make sense for the application. 

I look forward to the Geodelic iPhone app and subsequent versions of the software.

JD Power Prepaid US Carrier Findings

Consumer satisfaction survey firm JD Power polled 4,229 US "non-contract" wireless customers between January and June, 2009 and profiled them as well as their ratings of their respective pre-paid carriers. Here are the aggregate profile data and the satisfaction ratings:

  • Prepaid carrier NET10 ranks highest in overall customer satisfaction among non-contract wireless users.
  • Also ranking at or above the industry average are TracFone, Boost Mobile, Virgin Mobile, Alltel, and T-Mobile, respectively.
  • Pay-as-you-go users spend an average of $35 for each airtime purchase, a decrease of $5 from 2008.
  • Monthly non-contract users spend an average of $25 less per month than those with contracts do. They report spending $56 per month compared with an average monthly service cost of $81 for contract users.
  • Non-contract customers report using 320 minutes per month—a notable increase from 233 minutes in 2008. Pay-as-you-go users report using an average of just 145 minutes, while monthly non-contract users report an average of 573 minutes per month.
  • Sixteen percent of non-contract users have switched carriers in the past 12 months. Fifty-one percent of these users previously had contract service.
  • Switching intent within the next year remains steady at 12 percent, compared with 13 percent in 2008. Among those intending to switch, 24 percent intend to switch to contract service.

JD Power prepaid ratings

JumpTap: Network Now Reaches 22 Million

Mobile ad network and search vendor JumpTap now says that its "premium ad network" reaches 42% of the US mobile internet audience, or 22 million people*, citing Nielsen figures. The premium network includes:

go2 Media, Hearst Magazines digital media, LatCel, Mobclix, MoFuse, and Weather Underground to an already impressive list of top tier properties. The network currently serves ads for hundreds of mobile sites, carriers and application developers including AT&T, Alltel, Ask.com, E! Online, Kargo (includes MotorTrend, Tiger Beat, Shape, US Magazine, Star Magazine, & BlackBook), LimeLife, MSNBC, and Shazam.

The company put out a release this morning that highlights its "momentum" in the market. I spoke briefly Friday to Paran Johar, JumpTap's CMO. He told me, among other things, that he's seeing "increasing mobile budgets, increasing seriousness" among advertisers. 

We discussed a range of industry metrics and he told me that the JumpTap's advertisers break out 60-40 in favor of CPM vs CPC. This is similar to what AdMob has indicated. 

Johar asserts that JumpTap is distinguished from other mobile networks by its carrier data targeting. In the US, for on-deck advertising with AT&T, US Cellular, Virgin Mobile and Boost (both Sprint properties), a range of carrier data are passed so that they can be leveraged for more relevant ad serving.

JumpTap started as a white label search provider, seeking to counter Google and Yahoo! with carriers. As Google and Yahoo! (and Microsoft) started to do more direct carrier deals, the company began to develop its ad network and that part of the business now represents the future. 

JumpTap and Medio Systems used to be almost indistinguishable in terms of their claims and presentation of their capabilities to the market. However I haven't heard anything from Medio in quite some time. JumpTap appears to be going strong. 

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*Nielsen assumes a total US mobile Internet population of approximately 53 million. We believe the numbers are larger than that, although they decline if frequency of usage becomes a critical variable. 

 

FCC Wades Deeper into Apple Apps Controversy

Last month, prompted by four US Senators, the US FCC began an investigation into carrier-handset exclusivity in the US. The focus is on the iPhone's relationship with AT&T. All that got kicked up a notch with the recent rejection of Google Voice on the iPhone (following the similar rejection of the Latitude app). Now, as you've probably already read, the FCC is asking questions of Apple, AT&T and Google to determine why Google Voice was rejected as an app and whether there are anti-competitive motivations at play.

Here are copies of the letters to the three entitities (courtsey CNN Money):

Here are the questions (verbatim) that the FCC is asking Apple:

  1. Why did Apple reject the Google Voice application for iPhone and remove related third-party applications from its App Store? In addition to Google Voice, which related third-party applications were removed or have been rejected? Please provide the specific name of each application and the contact information for the developer.
  2. Did Apple act alone, or in consultation with AT&T, in deciding to reject the Google Voice application and related applications? If the latter, please describe the communications between Apple and AT&T in connection with the decision to reject Google Voice. Are there any contractual conditions or non-contractual understandings with AT&T that affected Apple’s decision in this matter?
  3. Does AT&T have any role in the approval of iPhone applications generally (or in certain cases)? If so, under what circumstances, and what role does it play? What roles are specified in the contractual provisions between Apple and AT&T (or any non-contractual understandings) regarding the consideration of particular iPhone applications?
  4. Please explain any differences between the Google Voice iPhone application and any Voice over Internet Protocol (VoIP) applications that Apple has approved for the iPhone. Are any of the approved VoIP applications allowed to operate on AT&T’s 3G network?
  5. What other applications have been rejected for use on the iPhone and for what reasons? Is there a list of prohibited applications or of categories of applications that is provided to potential vendors/developers? If so, is this posted on the iTunes website or otherwise disclosed to consumers?
  6. What are the standards for considering and approving iPhone applications? What is the approval process for such applications (timing, reasons for rejection, appeal process, etc.)? What is the percentage of applications that are rejected? What are the major reasons for rejecting an application?

The iPhone app approval process is increasingly being regarded as capriciuous. As question four above implies: why should Apple have approved Skype or Truphone but not Google Voice? (People also don't remember that Voice Central allows one to use Google Voice on the iPhone today.)

A Google Voice app currently exists for Android and BlackBerry and will presumably be coming to other smartphone platforms. 

Until these questions are answered we won't know whether Apple or AT&T or both are ultimately responsible for the rejection and what the precise motivations are. Questions five and six may be somewhat overbroad, but the fact that the FCC is doing this is probably good for the market. 

MetroPCS Expands, Discounts Unlimited Plans

MetroPCS is now offering an array of low-cost "unlimited" plans. According to the release out today:

MetroPCS' $40 plan will include MetroPCS Unlimited Nationwide service for talk, text and MetroWEB and its flagship $45 plan will now include unlimited email, navigation and social networking applications. MetroPCS' $30 and $35 local unlimited plans will now include caller ID and call waiting. The $50 plan continues to offer smartphone customers complete HTML Web browsing and enterprise wireless email, at significantly less cost compared to other carriers' data packages.

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Boost Mobile's popular $50 unlimited plan represents a single offering and has been extremely popular for Sprint, which just announced the acquisition of Boost and MetroPCS pre-paid competitor Virgin Mobile. The discounted plan drove the acquisition of almost a million pre-paid customers for Sprint during Q2. Those gains were offset by continuing customer losses on the post-paid side. 

We've seen lots of price competition in the pre-paid segment but less in the post-paid category. T-Mobile has offered a $50 flat-rate calling plan to "loyal" customers but not to new customers. 

Sprint has used price as a differentiator in the post-paid segment with limited success. But if these pre-paid rates were to "break through" -- for example if T-Mobile were to offer, say, a $60 unlimited plan for new customers -- you'd start seeing lots of takers and switching going on. 

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Related: Matt Carter, president of Boost Mobile, said that the company would not get into a price war with others in the pre-paid segment. 

Are Carrier 'Apps Stores' Destined to Fail?

Although they've had mobile applications for some time, US carriers are now trying to raise their apps profiles more formally -- most visbly Verizon and AT&T. Yesterday AT&T introduced a meta-social networking app:

AT&T today announced the availability of AT&T Social Net, a free mobile social networking application that combines access to Facebook, MySpace, Twitter and customizable news feeds within a single application.

“Five of the top 10 searches on our mobile Web portal are for social networking sites, a clear indication of the growing popularity of mobile social networking,” said Mark Collins, vice president of voice and data products, AT&T Mobility and Consumer Markets . . . 

Through a single carousel menu, users can view and manage their social communities, communicate and track events in real time, and get live news feeds from over 35 leading news, sports, and entertainment sites. Once a user populates the application with his or her information, users can see and respond to tweets, status updates, wall posts, profile comments, photo activity and friends’ news feeds across their communities. Users can also access new or unread articles from their customized content feeds.

And yesterday also at its developer conference, Verizon Wireless formally launched its Vcast application store. The store will open in Q4 of this year. It will mimic the 70-30 payment split that Apple uses, with 70% to developers. RIM has also announced that it will support the VCast store. (The repositioning or expanded positioning of VCast suggests that the mobile TV service is not doing well.)

Carriers have access to customer data and have a billing relationship with subscribers. This gives them some "built in advantages." However I have doubts whether carrier apps stores can duplicate the success of the iPhone or Android. They might enjoy modest success, but carrier apps stores are probably better suited to lower-end handsets rather than smartphones.

Ironically carrier apps stores are party of a "dumb-pipe" avoidance strategy re smartphone owners -- to make them relevant to users beyond the billing relationship. However, smartphones minimize the carrier relationship with the subscriber. The device OEM is at an advantage with smartphones. And all the major smartphone OEMs are in various stages of launching their apps stores. So the question, for me as a consumer, is why would I buy from VCast if I can buy from BlackBerry Apps World directly? 

The reasons would be:

  • Payment: it's quicker and eaiser to buy the app through Verizon
  • Unique: it's an app that's not in Apps World
  • The overall Verizon apps store experience is better 

The fragmentation of the smartphone market will be reproduced for developers within a single carrier apps store because they will have to be available for multiple handsets with multiple operating systems. Developing for VCast means dealing with Windows Mobile, BlackBerry and so on.

If I were developing apps for the BlackBerry I would develop first for Apps World and second, if at all, for VCast (unless the financial deal from VCast was better than Apps World). If my app could go both places for more exposure, so much the better. Thus the carrier apps store potentially becomes a secondary marketing vehicle for the developer.  

Finally, the carriers are just not good at user experience design. Collectively all these variables and factors make me believe that they're not going to be able to pull this off and the handset based apps stores will largely prevail.

Bango Introduces 'WiFi Operator Billing'

I was ignorant of the fact that operator/carrier billing won't work if a user is buying something over a WiFi connection (e.g., a ringtone). But apparently:

While mobile operator payments deliver significantly more successful transactions than traditional payment methods, mobile content revenues have been impacted by the increasing popularity of smartphones, such as Blackberry and iPhone. Because these devices can connect to the web through Wi-Fi, operator billing that normally relies on traffic coming through operator gateways, becomes unavailable, making it difficult for consumers to buy content. 

Bango's payment system facilitates these WiFi-based transactions and enables users to pay on their carrier bill. Bango began as mobile payments company and then began emphasizing analytics. But the payments space is hot again with companies such as Zong, Boku, PayPay, Obopay, Monetise maneuvering for position in this emerging market segment.

Sprint's Q2: Nearly 1M More Post-Paid Customer Losses

Yesterday Sprint announced that it was buying VirginMobile USA. The latter has roughly 5 million subscribers but Sprint already counts them among its own because Virgin uses the Sprint network. Today, Sprint announced Q2 results; post-paid customer losses (almost 1 million) were partly offset by pre-paid gains:

[Sprint] today reported second quarter 2009 financial results that included consolidated net operating revenues of $8.1 billion, a net loss of $384 million and a diluted loss per share of 13 cents. The company generated Free Cash Flow of $676 million in the quarter and $1.5 billion in the first half of 2009. As of June 30, 2009, the company had $4.6 billion of cash and cash equivalents and $1.5 billion of borrowing capacity available under its revolving bank credit facility, for a total liquidity of $6.1 billion . . .

Wireless Customers

  • The company served 48.8 million customers at the end of the second quarter of 2009, compared to 49.1 million at the end of the first quarter of 2009. This includes 34.4 million post-paid subscribers (25.1 million on CDMA, 8.3 million on iDEN, and 1.0 million Power Source users who utilize both networks), 5.0 million prepaid subscribers (4.4 million on iDEN and 600,000 on CDMA) and 9.3 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
  • For the quarter, total wireless customers declined by approximately 257,000, including net losses of 991,000 post-paid customers – comprising 393,000 CDMA and 598,000 iDEN customers (including a net 69,000 customers who transferred from the iDEN network to the CDMA network). The company gained a net 938,000 prepaid iDEN customers, offset by net losses of 161,000 prepaid CDMA customers. The company also experienced a net loss of 43,000 wholesale and affiliate subscribers.

Wireless Churn

  • Post-paid churn in the quarter was 2.05% compared to 2.25% in the first quarter and 1.98% in the year-ago period. The sequential decrease is due to seasonality, along with improved credit quality of our customer base and better retention performance; and the year-over-year increase in churn is primarily driven by deactivations on business lines due to current economic conditions.
  • Boost churn in the second quarter of 2009 was 6.38%, compared to 6.86% in the first quarter of 2009 and 7.36% in the year-ago period. The sequential and year-over-year improvement in churn are due to fewer deactivations and a larger subscriber base of national Boost Monthly Unlimited subscribers.

Wireless Service Revenues

  • Wireless service revenues for the quarter were flat sequentially at $6.4 billion as revenue growth from Boost Monthly Unlimited subscribers offset revenue declines from post-paid subscribers. Year-over-year, wireless service revenues declined 9% as a result of fewer wireless subscribers.
  • Wireless post-paid ARPU has been stable for the past six quarters at around $56 primarily due to continued growth in fixed-rate bundled plans such as Simply Everything, offset by declines in usage and roaming. As a result of the company’s focus on improving the customer experience and 18 consecutive months of improvement in customer care satisfaction, post-paid ARPU benefited from reduced credits to customer bills.
  • Data revenues contributed greater than $15.50 to overall post-paid ARPU in the second quarter, led by growth in CDMA data ARPU. CDMA data ARPU increased more than 3% from the first quarter of 2009, to greater than $18.50, an industry-best that now represents greater than 32% of total CDMA ARPU.
  • Prepaid ARPU in the quarter was approximately $34 compared to $31 in the first quarter of 2009, and $30 in the year-ago period. The sequential and year-over-year increases reflect a growing contribution from prepaid subscribers on unlimited plans.
  • Wholesale, affiliate and other revenues were down 13% sequentially and down 44% compared to the year-ago period. The sequential and year-over-year decline is primarily due to subscriber losses from one of our large carrier customers. 

Sprint's losses to some degree have moderated vs the past. It's pre-paid business is doing very well. It's too early to measure the Pre's impact (I wasn't on the conference call). But clearly Sprint continues to bleed high-value post-paid customers. The beneficiaries of that blood letting have chiefly been AT&T and Verizon.

Sprint Boosts Prepaid with Virgin Mobile Acquisition

Just announced this morning, Sprint is buying Virgin Mobile for $483 million in an all-stock transaction. From the release:

Sprint Nextel Corporation and Virgin Mobile USA, Inc., announced today that their boards of directors have approved a definitive agreement for Sprint to acquire Virgin Mobile USA for a total equity value of approximately $483 million, which includes the value of Sprint’s current 13.1% fully diluted ownership interest in Virgin Mobile USA. In addition, at closing Sprint will retire all of Virgin Mobile USA’s outstanding debt, which is $248 million net of cash and cash equivalents as of March 31, 2009, but is expected to be no more than $205 million net of cash and cash equivalents on Sept. 30, 2009.

This acquisition will strengthen Sprint’s position in the growing prepaid segment by bringing together under one umbrella the iconic Virgin Mobile brand with Sprint’s successful Boost Mobile business. These complementary prepaid brands, each with a distinctive offer, style and appeal to different customer demographics, will continue to serve existing and prospective customers following the completion of the transaction.

Virgin Mobile is an MVNO that uses the Sprint network. Previously Virgin had acquired the struggling Helio business for roughly $39 million. As of the end of last year, Virgin had 5.4 million customers with the 170K subscriber Helio adds. Sprint at the end of Q1 had 49.1 million customers: 35.4 million post-paid subscribers, 4.3 million prepaid subscribers and 9.4 million wholesale and affiliate subscribers. What that suggests is that Sprint won't be adding any subscriber numbers to its rolls through this acquisition if it already counts MVNO figures as part of its subscriber base. 

It appears that Sprint will maintain the Virgin Mobile brand:

Following the closing of the transaction, Virgin Mobile USA will continue to license the Virgin Mobile USA brand from the Virgin Group under the terms of an amended and restated Trademark License Agreement. Sprint will pay $12.7 million for the initial term, which will continue through the end of 2021. The agreement contains several renewal provisions that will allow Virgin Mobile USA to extend the term until 2047.

The company will gain a bigger chunk of the prepaid business, which has been a fast-growing segment for Sprint with its aggressive Boost Mobile pricing ($50 all you can eat plan).

Verizon Q2: Profit Down, Beats Expectations, Pre Coming & Apple Tablet?

Verizon reported second quarter earnings this morning. Revenues were up slightly but profit was down more than 20%. There were continued traditional landline losses. Here are some selected highlights from the release and related materials:

  • 87.7 million total customers, up 27.7 percent; 85.2 million retail customers, up 27.8 percent; 1.1 million net customer additions, excluding acquisitions and adjustments, all retail.
  • 27.7 percent increase in total revenues; industry-leading retail postpaid churn, 1.01 percent; data revenues up 52.6 percent

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From the rumor and hearsay department, there's discussion that Verizon is rushing the rollout of its LTE network to coincide with the suspected launch of an Apple tablet computer. There are multiple sources for the tablet rumor, but the Financial Times puts the Apple timetable at pre-Xmas for the tablet launch. 

The thinking is that this is Apple's entry (or a substitute for an entry) into the low cost netbook market. Apple COO Tim Cook has repeatedly said that Apple can't build anything of quality that costs less than $500. So the scenario might be: Apple tablet subsidized by Verizon with connectivity provided there's a two-year commitment. 

In addition Denny Strigl, Verizon President & COO, said the following on the conference call:

We plan to refresh the Storm later this year. Android is on our roadmap. We have Motorola devices that are coming, and we plan to offer the Palm Pre early next year, and we have continued excellent relationship with the LG and Samsung.

Right now Verizon has what's perceived to be the best US wireless network (though empirically one could dispute this) but mostly lackluster devices (save the BB Tour). 

All My Devices: Finally Got Me a Pre

The picture at right is an image of all my devices: iPod Touch (with Skype and Truphone), Android G2/MyTouch, the Pre (finally) and a Sanyo candy-bar feature phone. I used to have a Windows Mobile 6.1 phone (HTC 6800), which broke and I didn't replace.

After owning the Pre for several days I can say the following:

  • It's got a great screen and solid mobile Internet browsing experience
  • Like the multitasking (Pandora + email, etc.)
  • Like the "web cards" and the ability to turn apps off but flicking them off screen
  • The camera is very nice (with flash); no video however
  • Physical keyboard/pad is awkward, reminiscent of the G1 (Pre needs a "cupcake" update to add a virtual keyboard)
  • There's so spell correct/auto correct feature when you type
  • Apps selection is very poor, although it should improve

The Pre needs voice search and other functionaity to minimize the need to slide out the keyboard. People who continue to complain about the lack of a physical keyboard on the iPhone or crow about the BlackBerry's keyboard and how it's superior are essentially luddites. The Android G2/cupcake virtual keyboard is not as good as the iPhone's. But the virtual keyboard on the iPhone is quite a bit superior to a physical keyboard in my view. I was a detractor until I got an iPod Touch and started using it regularly. I'm now quite a bit faster on the virtual keys than on the physical ones. 

In navigating the mobile Inernet, the need to switch between the touch screen and the physical keyboard (on the G1 or Pre) is really cumbersome and a deterrent to using the device. It's awkward to "surf" with the keyboard out but if not you are required to slide it open if you want to fill out a form, enter a URL or conduct a search. Here's where voice would come in really handy, so to speak -- listening Google or Vlingo? 

Overall however I like the Pre and its aesthetics. It also works well as a phone, something not always true of the iPhone. However the iPhone remains a superior device overall. After that I'd put Android by a hair and then the Pre, among my devices. The Sanyo phone teaches humility through the tiny screen and the pain of "triple tapping." 

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Related: Palm updates its software to overcome Apple's efforts to block it from syncing with iTunes. 

Inerest in the iPhone 3GS and Pre are growing, BB is trending downward right now (per ChangeWave):

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ChangeWave puts RIM's market share at 41% vs. Apple's at 25%, as the top two players in the US smartphone market.