Carriers

New Android Phones on (Really) Cheap Data Plans

I recently bought an Android LG optimus V on VirginMobile (one of Sprint's prepaid carriers) to see how good the phone and the experience were. The phone is pretty good, though vastly inferior to my HTC EVO. As an aside, the EVO is still better than the latest Android "flagship," the Samsung Nexus S.

The more important point is that users can get a $60 all you can eat plan with that phone on Virgin (no contract), compared to the more than $100 I pay monthly for essentially the same plan on Sprint. Sure I get access to 4G but the speed isn't that much better than Sprint's 3G network. 

Now Sprint's other prepaid carrier Boost is offering a lower-end Samsung Android phone, the Prevail. The phone costs $179; I got the Optimus V for $129 on sale (at Target). But the plan is incredible.

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The unlimited Boost talk and data plan starts at $50 and declines to $35 after 18 months, as a loyalty incentive. That means that a consumer could have a very decent Android phone with an "everything plan" on the Sprint 3G network for $35. That would be a $70 per month savings over what I'm paying for comparable service.

The Virgin plan is good but the Boost plan is amazing. Accordingly, we should see people migrating toward these lower-cost deals -- to the extent that they're publicized by the carriers -- as more Android handsets become available with prepaid plans. 

Android Continues to Steamroll Competitors, iPhone Flat According to comScore

The latest comScore data, based on consumer surveys (n=30,000), show that the Android surge continues. While the Verizon iPhone was reportedly the most popular individual handset in February, the Android collective -- supported by the top three OEMs -- has now overtaken RIM too. ComScore says that 29% of US mobile subscribers have smartphones -- a number that is now probably low -- vs. Nielsen's 31% estimate. 

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In part benefiting from Android growth (and vice versa) Saumsung was the most popular handset OEM in the US. While Android gained 7% during the three-month period former smartphone leader RIM was off almost 5%.

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Now compare the same charts from a year ago (February, 2010): 

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Apple's iOS has remained constant, as a percentage of the overall market, according to comScore's figures. Android's success vs. the iPhone is based in part on its wide availability from a range of characters and price points. The iPhone remains available from just two US carriers and is restricted to contract customers.

See related:

 

Against Backdrop of AT&T-Mobile, Sprint Goes 'All in' with Google Voice

The tech/telecom world is still focused on AT&T-Mobile and its prospects this morning. Meanwhile Sprint has gone "all in" with Google Voice. The carrier also introduced the Google Nexus S (Samsung) 4G handset with NFC capability.

In terms of the Google Voice integration, Sprint and Google Voice users can:

  1. Make their Google voice numbers operate as their mobile phone numbers on Sprint
  2. Turn their Sprint numbers into their Google Voice numbers.

It's a little bit confusing at first blush. In the former case Google Voice number becomes your Sprint mobile number (this is number porting). In the latter scenario, the existing Google Voice number is replaced by the Sprint phone number.

This is another step toward Google as "carrier 2.0" and the mainstreaming of Google Voice. For users the benefit of this is more control over how calls are received and routed. Google explains how it works:

Sprint customers will be able to use their existing Sprint mobile number as their Google Voice number and have it ring multiple other phones simultaneously. So now, calls to your Sprint mobile number can easily be answered from your office or your home phone, or even your computer through Gmail. Calls from Gmail and text messages sent from google.com/voice will also display your Sprint number. This basically gives Sprint customers all the benefits of Google Voice without the need to change or port their number.

Alternatively, Google Voice users can choose to replace their Sprint number with their Google Voice number when placing calls or sending text messages from their Sprint handset. This feature works on all Sprint phones and gives Sprint users all the benefits of Google Voice without the need for an app.

In either event Google Voice will replace Sprint voice mail. There are international calling benefits (via Google Voice) as part of the deal as well. 

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AT&T-Mobile: AT&T Buying T-Mobile's US Assets in $39B Transaction

AT&T and Deutsche Telekom AG the parent of T-Mobile just announced that AT&T (not Sprint) will buy the business of T-Mobile USA "in a cash-and-stock transaction currently valued at approximately $39 billion." Both companies boards have approved the deal; now the US must also do so. 

T-Mobile's growth has been stalled and the company has been exploring strategic options (mimicking what the company did in the UK with Orange). There was considerable speculation that Sprint and T-Mobile USA might combine or that Sprint might buy its assets directly -- to form a third equal player to compete with Verizon and AT&T. I had said under that scenario there would be a "big three" carrier configuration in the US. Now it looks pretty much like a "big two" -- if the deal is approved.

I suspect there will be a substantial review by the US FTC or Justice Department of the competitive implications of the acquisition. In my view there's a 50% chance that the deal would get blocked. If does happen AT&T becomes the largest US carrier by about 35 million people, with a total of approximately 130 million subscribers. That puts pressure on both Sprint and Verizon accordingly. 

Here are the current US carrier subscriber numbers, based on the most recent publicly released information: 

  1. AT&T: 95 million
  2. Verizon: 94 million 
  3. Sprint: 49 million
  4. T-Mobile: 34 million 

The two companies' "common network technology" (GSM) is cited in the release as one factor behind the decision. And in this technical respect AT&T is a much better fit, in the short term, for T-Mobile than Sprint (CDMA). Longer term it wouldn't matter, given the shift to 4G technologies. 

AT&T addresses the competition issue in the release very directly:

The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal. The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market. For example, in 18 of the top 20 U.S. local markets, there are five or more providers. Local market competition is escalating among larger carriers, low-cost carriers and several regional wireless players with nationwide service plans. This intense competition is only increasing with the build-out of new 4G networks and the emergence of new market entrants.

In contrast to these statements the market becomes much less competitive if this deal is approved. Local or regional carriers are, as a practical matter, not in a position to compete with AT&T and Verizon for most consumers. 

There will be three large carriers with any scale. And then the US market really becomes a battle between AT&T and Verizon. Sprint will probably have an increasingly difficult time competing with the other two because of their much greater scale and revenues. If the deal is allowed, however, there will (or should) be serious conditions attached. 

Carriers are trying -- so far relatively unsuccessfully -- to raise prices for consumers with tiered data plans, as voice revenues flatten and start to fall. The announced acquisition would potentially directly impact the pricing of data services in the US because it would effectively diminish choice and competition among carriers in the US market.

AT&T would be freer to raise prices, especially as we enter the 4G era and the company argues it must recoup its investments. 

See related posts: 

Google Making NFC Payments Push in NY and SF

An article in Bloomberg this morning says that Google is working with VeriFone and select retailers to test NFC-based mobile payments at stores in New York and San Francisco:

The company will pay for installation of thousands of special cash-register systems from VeriFone Systems Inc. (PAY) at merchant locations, said one of the people, who requested anonymity because Google’s plans haven’t been made public. The registers would accept payments from mobile phones equipped with so-called near-field-communication technology.

The project would put Google in a growing field of companies experimenting with NFC, which lets consumers pay for products and services by tapping a device against a register at checkout, giving them an alternative to cash or physical credit cards. The Google service may combine a consumer’s financial account information, gift-card balances, store loyalty cards and coupon subscriptions on a single NFC chip on a phone.

Because of a lack of universally accepted standards Apple has apparently decided against including NFC technology in the iPhone 5. Apple has 200 million credit card accounts on file and could become a major player in mobile payments if it decides to. Google has far fewer credit cards in Checkout, its payments platform, but the company can leverage its growing Android user base. 

Google's would be the first major test of NFC mobile payments in the US. Starbucks has rolled out a mobile payments app across its stores in the US; however it doesn't rely on NFC technology. There are various NFC roll outs now going on in Europe

US carriers and credit card issuers are also seeking to be major mobile payments providers. So are eBay/PayPal as well as a range of startups including Boku, Zong, Square and Bling Nation.

Beyond payments, NFC would support a range of marketing capabilities, not unlike QR codes today only more versatile. Beyond this Google would be able to capture a range of consumer data, including purchase behavior, that would be incredibly valuable to marketers and that Google itself could use to optimize and advantage its various advertising platforms. 

In-stat has projected that mobile payment users around the globe will surpass 375 million by 2015. 

Related stories:

Sprint, T-Mobile Merger Would Create a "Big Three" Carrier Lineup

Both Sprint and T-Mobile have struggled to compete with the much larger carriers AT&T and Verizon. The two companies have been spotted in M&A talks before to address the scale issue. But apparently now T-Mobile parent Deutsche Telekom is in real talks with Sprint about selling its American unit. Previously there had been discussions about T-Mobile investing in Sprint's majority owned Clearwire to gain access to its 4G network.

Last year, to address a similar situation, France Telecom and Deutsche Telekom formed a joint venture in the UK where T-Mobile's assets were merged into the Orange brand. The new Orange UK is the largest carrier in Great Britain.

A similar deal could be struck in the US, with Deutsche Telekom having an ownership stake in a larger Sprint. This would be very much like Vodafone owning a chuck of Verizon Wireless. Alternatively Deutsche Telekom could sell the T-Mobile assets outright. Sprint previously bought pre-paid MVNO VirginMobile USA but maintains the separate VirginMobile brand.

Right now here's what the four major US carrier subscriber numbers look like:

  1. AT&T: 95 million
  2. Verizon: 94 million 
  3. Sprint: 49 million
  4. T-Mobile: 34 million 

A Sprint-T-Mobile merger would create a combined subscriber base of 83 million, which could rival AT&T and Verizon. There are technology challenges, GSM and HSPA vs. CDMA and WiMax, but those would not be insurmoutable.

Sprint recently stopped the bleeding of subscribers with aggressive pricing, better customer service and an improved array of (mostly Android) handsets. The company, however, is still smarting from its value-destroying merger with Nextel a number of years ago. So there is likely to be some caution in pursing T-Mobile. 

Still Sprint feels pressure to grow and this is a way to do it quickly. It's unlikely that the carrier could grow much larger on its own. Alternatively Sprint could go after some of the smaller providers that still exist in the market, such as MetroPCS or Cricket. Either way there is surely more consolidation to come. 

My guess is that we will see a Sprint-T-Mobile transaction, which would pave the way for a "big three" carrier market in the US.

Big News Roundup from the Mobile World Congress: Tablets, Nokia, NFC and WAC

There were a number of major stories that drew focus this week at the Mobile World Congress, which is wrapping up. Here's my summary and commentary about what I thought were the biggest news items surrounding the conference. 

Nokia-Microsoft: 

Almost a week ago Nokia CEO Stephen Elop announced that Nokia would bet its future on the Windows Phone OS. Discussion of the wisdom and viability of that move has continued unabated. A group of nine Nokia shareholders tried to organize a revolt and called for Elop's head, only to abandon their effort a little more than a day later. 

Nokia several outlets are reporting that the first "Nokisoft" phones won't be out before October 2011 at the earliest

NFC-Mobile Payments:

There was plenty of NFC news coming out of Barcelona, with RIM saying that "a majority of new BlackBerry devices" this year will include near-field communications technology. All Android OS updates henceforth will also include NFC, as the Gingerbread-enabled Nexus S does now. Google CEO Eric Schmidt sees NFC being used extensively in advertising as well as in mobile payments. 

T-Mobile will be making a big NFC push in Europe and later in the US. T-Mobile parent Deutsche Telekom and other EU carriers France Telecom, Vodafone and Telecom Italia are joining forces to help advance adoption of NFC-based payments in Europe.

Facebook Phones:

HTC introduced two Android-based phones with dedicated Facebook buttons. This followed the INQ Facebook Cloud Touch phone, which offers a new and innovate Facebook interface on top of Android. Facebook and OEMs will be offering many more devices that seek to integrate Facebook deeply into the user experience and even the branding of the handset.

What's important here is the rise of Facebook as a huge force in mobile (and at some point a mobile ad network) and the beginnings of some interesting and innovative new interfaces on top of Android. 

Tablets and Android Handsets:

A range of tablets made their appearance at MWC or this week. Those include the Motorola Xoom (which will be $799 as originally thought) as well as slates from HTC, LG, Acer, HP-Palm. Samsung showed off a 10" tablet, the Galaxy 10.1. And more are on the way. However, despite the tablet mania now sweeping the market there will be only a few survivors a year from now. Pricing and features will be determinative of success. 

In addition to all the new Android (Honeycomb) tablets there were many new Android handsets introduced -- at least 10. Despite all this the iPhone 4 was awarded "best mobile device" at the show.

Apple and the iPhone:

Apple wasn't at the MWC of course but it strategically leaked information to the Wall Street Journal about the iPhone 5, a potential iPhone nano, MobileMe changes and other developments. For that reason this week has been full of talk about Apple devices. In addition Apple announced its content subscription plan for the iTunes store, which was followed the next day by a more publisher-friendly plan from Google

As mentioned the iPhone 4 was awarded "best mobile device" at the show.

Wholesale Application Community (WAC):

Global mobile carriers announced the formal launch of the Wholesale Application Community (WAC). Participants include ATT, Sprint, China Mobile, MTS, Orange, Smart, Telefónica, Telenor, Verizon and Vodafone. Hardware OEMs Huawei, LG, Samsung, Sony Ericsson and ZTE are also involved.

The idea is to create a developer ecosystem and apps platform of massive scale that carriers can leverage to give them independence from the iPhone and Android app stores. Despite all this participation the outlook for success of this effort is mixed at best. Apps may be developed that get pre-installed on handsets but there's a much smaller chance of success in the direct-to-consumer market.  

Nokisoft Alliance Gets Cold Shoulder from VZW

One of the main objectives of the Nokia-Microsoft alliance is getting back into the game in North America. However Verizon Wireless, the largest or second largest US carrier depending on the quarter, appears to be expressing doubt and potentially shunning the couple.

Here's what Verizon Communications CTO Tony Melone said at the Mobile World Congress yesterday (via CNET):

I do want a strong third OS out there . . . It gives the carriers more flexibility and balances the interests of all the parties. But I still have doubts whether Microsoft will get the traction they are hoping for with Windows Phone 7 . . .

I don't think Verizon needs the Nokia and Microsoft relationship . . . Right now the three OS players we see for our network are Android, Apple, and RIM.

These are very strong statements from the company that Microsoft reportedly paid millions of dollars in revenue guarantees to secure a "default search" position on Verizon handsets, only to later see that overshadowed by Verizon's embrace of Android/Google and now the iPhone. 

While Verizon may have doubts about the viability of "Nokisoft" handsets, Verizon is still introducing a Windows Phone in Q2.

Here are the latest mobile subscriber figures from the four major US carriers: 

  • AT&T: 95 million
  • Verizon: 94 million
  • Sprint: 50 million
  • T-Mobile: 34 million 

Mobile World Congress: CES Redux

Next week's Mobile World Congress in Barcelona is a gargantuan event that will feature a kind of soup-to-nuts inventory of what's happening in mobile: advertising platforms, developers, carriers and handset OEMs will all convene to promote themselves. The press releases are already flying fast and furious. 

Even though it's not a hardware show exactly, most of the focus will be on handsets and tablets. There will likley be little genuine news of interest and mostly PR about mobile. Probably the biggest news of the event happened today with the announcement of the Nokia-Microsoft deal

Microsoft's Steve Ballmer will keynote but there will be little new information. He will likely re-iterate the new world that Nokia's adoption of Windows opens up for Microsoft. Yahoo's Carol Bartz will speak. Twitter will be represented in a keynote. RIM co-CEO Jim Balsillie will be there. All the chipmakers and carrier CEOs are there.

Everything to say will already have been said in various forums: mobile is huge, disruptive and so on. 

I was actually seeking to go this but the absence of available hotel space thwarted my effort. Nonetheless I'm on the press list and will be receiving all the news. I will be blogging about the things I find most interesting but certainly not providing anything like comprehensive coverage. 

Apple will apparently have no official presence (just like CES) but will cast its long shadow over the event as Europe's most popular smartphone. 

MWC is like a mashup of CTIA (carriers) and CES (devices).

T-Mobile Fights iPhone with Free Phones

Third place carrier Sprint is introducing the mutant Kyocera dual-screen Android phone in a bid to offer the market something new and unique and capture some attention. And T-Mobile is once again offering free handsets with a two-year contract. The company successfully did this before but has timed the promotion to try and preempt some Verizon iPhone switchers.

According to the T-Mobile release: 

On Friday, February 11 and Saturday, February 12, all T-Mobile phones, even the fastest 4G smartphones running on America’s largest 4G network, will be offered for free at T-Mobile retail stores with qualifying plan on two-year contract. 

The company has also enlisted "New York Times best-selling author and TV personality Khloé Kardashian" to help promote the offer, which includes the following phones: 

  • myTouch 4G
  • HTC HD7 (Windows Phone)
  • G2 with Google
  • Samsung Vibrant

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T-Mobile is the smallest of the four major US carriers, with about 34 million subscribers:

  1. AT&T: 95 million
  2. Verizon: 94 million 
  3. Sprint: 49 million
  4. T-Mobile: 34 million 

The company is stuck in fourth place. Giving away free smartphones is not really a growth strategy; it's more of a PR stunt that will generate a short-term spike in interest and subscriptions. Long term growth will require a combination of true 4G network investments, agressive data and voice pricing and access to the iPhone eventually. 

We'll see how well the "America's largest 4G network" claims went over in Q4 when the company reports earnings later this month.

Pew: 89% of Those under 65 Have Mobile Phones

The latest Pew Internet report tells us a good deal of information we already know about device ownership and penetration among US adults. Based on a Q3, 2010 telephone survey of roughly 3,000 US adults the chief value of the survey its demographic information and the historical tracking of the same questions and responses over time.

I've pulled out a few of the charts below. The first one shows the penetration and growth of various categories of devices during the past four years. The noteworthy data point here is the decline of the desktop PC.

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At this point mobile phone ownership among adults is at or above 90%. According to Pew, it's 89% on average among US residents under age 65. Among those under 35 the numbers are 95% or more (if teens were to be included). Unfortunately Pew stubbornly doesn't seem to ask about feature phone vs. smartphone ownership.

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There are roughly 238 million US adults according to the 2010 Census. If we extrapolate the Pew figures it means that just over 200 million US adults (using the 85% overall average) have mobile phones. However these figures are probably low.

CTIA puts the number (including teens) of wireless subscribers at 293 million. While it's true that some people have two phones (e.g., BlackBerry, iPhone) most people do not have multiple subscriptions.

The four major US wireless carriers report roughly 272 million subscribers according to their most recent filings (rounded):

  1. AT&T: 95 million
  2. Verizon: 94 million 
  3. Sprint: 49 million
  4. T-Mobile: 34 million 

The iPad/tablet findings are also interesting. There is a separate chart and question for eReaders like Kindle; these data don't include Kindle or other, comparable eReaders accordingly.

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A major caveat here is that these figures don't include Q4 2010 (holiday buying). About 15 million iPads have been sold globally to date, a majority of which are still in the US. 

iPhone 4 Sellout Puts Demand Question to Rest

Until yesterday we only had speculation and survey date to fuel estimates of the demand for the iPhone 4 at Verizon (and its potential impact on Android). Now we know that the demand is real and the impact on Android (read Motorola) and RIM (in particular) is likely to be very real. 

Verizon said early this morning that the online pre-ordering of the iPhone represented, "the most successful first day sales in the history of the company." According to the press release it took only two hours to sell out:

In just our first two hours, we had already sold more phones than any first day launch in our history. And, when you consider these initial orders were placed between the hours of 3 a.m. and 5 a.m., it is an incredible success story.

There are several surveys that suggest that existing Android and RIM users at Verizon will switch in potentially large numbers. One of these (n=700 smartphone users) found

54 percent of respondents who have an Android or BlackBerry smartphone on Verizon are either very likely (25 percent) or somewhat likely (29 percent) to purchase the Verizon iPhone when it arrives next week.

Furthermore Verizon is now spending money on iPhone ads, which has the double benefit of enhancing the iPhone brand in the market and minimizing or eliminating pro-Android/anti-iPhone ads: 

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UK NFC Mobile Payments Go Live in July

Orange and T-Mobile (via their UK joint venture Everything Everywhere) are going to roll out NFC mobile payments this summer. The payments processor is Barclaycard. Reportedly more than 40,000 stores are set to accept NFC-based mobile payments.

According to the release:

  • The UK’s first commercial contactless mobile payments service, to be rolled out by Everything Everywhere and Barclaycard by early summer (second quarter of 2011)
  • The new service will offer consumers greater convenience and control on the high street with over 40,000 stores ready to accept contactless payments
  • Industry backed secure SIM-based payments approach, ensures excellent purchase protection for consumers
  • Latest move builds on Everything Everywhere and Barclaycard’s ongoing partnership, which has already produced a co-branded contactless credit card and the forthcoming Orange Cash pre-paid contactless card

The Google Nexus S is compatible with the service. And the iPhone 5, slated for summer 2011 release, is apparently going to have NFC built in. It's not clear how many other handsets will work with the new system.

Contactless payments allow users to waive their device in front of a terminal to conduct the payment transaction. Many will be watching the UK roll out to see how well it goes.

There are many other ways to do mobile payments/mobile wallets without NFC, however. And those methods will likely gain acceptance in the US before the requisite NFC infrastructure is developed. 

See related posts:

VirginMobile Making Android Really Affordable -- Really Affordable

Verizon now has the iPhone, which is going to adversely impact demand for Android devices at the US's largest carrier. However, Android will maintain momentum in part by making affordable smartphones available to the masses.

Indeed, VirginMobile, which has great prices but horrible customer service, is going to soon offer the LG Optimus on its network. This is the second Android device the pre-paid carrier and wholly owned subsidiary of Sprint is making available, following the Samsung Intercept.

For $150 from Radio Shack and $60 per month VirginMobile users in the US will be able to have an unlimited plan on the 3G Sprint network. But plans start much cheaper at $25 for unlimited text and Web. Sprint's other pre-paid carrier Boost offers a $50 unlimited plan that "shrinks" to $35 after 18 months of loyalty. (Expect more Android phones there.)

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Unlike the weak Samsung Intercept the LG Optimus has Froyo and was well reviewed. While Apple lures kids into its platform with the iPod Touch, many people, especially younger users, will be picking up inexpensive Android devices like the Optimus on pre-paid carriers. This may create an Android "funnel" where people start on lower-end Android devices and migrate up to others after they become "acculturated" to the Android look and feel. 

Cheap Android devices on pre-paid carriers may also put pressure on post-paid plans. Only a small group of business users and fashionistas will care about getting 4G access on the best Android handsets. The rest will be very happy with 3G and cheaper pricing. 

Nokia previously hinted at a potential willingness to build some phones on Android. I believe it will have to go this route as the market soon floods with highly affordable Android smartphones. Nokia will start to feel tremendous pressure in the developing world, where it has been exceptionally strong based on pricing, from inexpensive Android handsets. 

Back in the US it's going to be very hard to resist deals such as the one above: $25 per month for unlimited Web access on a very good Android phone. 

2011 Poised to Be 'Year of the Smartphone'

Business Insider makes the excellent point that there's a lot of headroom for smartphones at Verizon. That's equally true at the other US carriers. At Sprint and T-Mobile that's going to be mostly about Android and to a much lesser extent RIM. AT&T and Verizon will sell a lot of iPhones, perhaps a combined 15 million or more. 

Verizon said this morning that (only) 26% of all its 94 million subscribers are smartphone users. Interestingly, however, 75% of contract subscribers are buying smartphones. Thus overall smartphone penetration will grow dramatically this year at Verizon. AT&T has a higher percentage of smartphones, in excess of 35% penetration. 

Nielsen said in November that 28% of US mobile subscribers had smartphones and projected that number would rise to 35% at the end of Q4 2010. Given that the majority of new handset sales globally are from the ranks of smartphones it's likely that by the end of 2011 we will be very close to the anticipated "50% threshold" (overall US smartphone penetration).

When this happens it radically changes the entire marketing proposition for everyone. That would mean about 150-160 million smartphones. That would compare with just over 200 million US Internet users. General Internet growth is very small on a percentage basis year over year.

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Morgan Stanley has projected that mobile Internet access will exceed fixed-line Internet access globally by 2014. I had thought it would take much longer for that to happen in the US  . . . but perhaps not. 

VZW Announces Revenues, Readies for iPhone

Verizon announced quarterly earnings this morning. Subscribers grew at higher-than-expected levels but revenue ($26.4 billion) fell vs. a year ago ($27.1 billion). Earnings were slightly below expectations. 

Verizon added 955,000 customers overall in the quarter; 872,000 were post-paid. According to Verizon, "more than 75% of 4Q postpaid net adds are smartphones." Overall 49% of fourth quarter handset sales were smartphones. The company didn't break out sales by mobile OS but Android likely formed the bulk of those sales. 

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Verizon now has a total of 94.1 million wireless customers in the US. 

The carrier will begin selling the iPhone on February 10, in a couple of weeks. Analysts estimates vary but Verizon can be expected to sell millions of iPhones over the course of the year. Some will be new customers but many will be upgrading from other handsets. 

At the "premium" end of the market the iPhone can be expected to take some customers who would have bought Android handsets. However Verizon is giving away several Android devices with a two-year contract and so those kinds of promotions will keep Android "sales" at Verizon humming along. 

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Earlier T-Mobile acknowledged that 10% of the company's churn rate is caused by customers leaving for the iPhone. And reportedly Verizon will offer a $30 unlimited data plan for the iPhone. 

Chitika: iPhone May Breach Android's Fortress Verizon

The question of the iPhone's impact on Android at Verizon is now being widely debated. There was a note that came out from Canalys arguing that a VZW iPhone won't slow Android in the least. Maybe not because of Android's wide distribution and the absence of much additional competition (save RIM).

However ad network Chitika put out an interesting chart that shows most Android traffic/impressions (on its network) in the US are coming from Verizon handsets. Verizon is the largest Android carrier in part because of its popular/successful Droid line (driven by advertising). Chitika's research director Dan Ruby points to the fact that AT&T only has 2% of Android traffic and wonders whether it has to do with the iPhone. 

The answer is partly "yes" and "no." AT&T was somewhat late to the Android party and hasn't promoted the handsets as aggressively as the other US carriers because it had the iPhone. But it may also be true that the iPhone is such a draw for AT&T subscribers that Android suffers by comparison. 

Android has some very nice handsets and we're unlikely to see an immediate shift to the iPhone at Verizon. But there will certainly be some would-be Android buyers that will choose the iPhone instead. At the end of Q2 the picture will be much more clear. 

Assessing the Impact of a Verizon iPhone

Verizon is really, finally getting an iPhone of its own -- about a year too late perhaps. On Tuesday Verizon is holding a press event in NYC that will announce the device according to the Wall Street Journal. And some believe that Apple's Steve Jobs will be on hand.

There are a few questions that arise in my mind about all this:

  1. Is it simply an announcement of the iPhone 4, CDMA edition, or is there more to it?
  2. How will it impact Android sales at Verizon?
  3. Will it draw AT&T iPhone users to Verizon for a perceived superior network?
  4. What impact will the announcement have on Sprint and T-Mobile?

Some people have speculated that the mythical white iPhone would be announced on Tuesday. I can't imagine that the announcement will simply be: now we have the iPhone. Might it be an LTE-capable iPhone? We'll see.

My view has always been that Android sales (at least at the high end of handsets) would be negatively impacted by the presence of a VZW iPhone. Despite surging Android sales there is some evidence that were the iPhone more broadly available, beyond AT&T, some number of people would be buying that instead. I rounded up some of this data, from mid-2010, in an earlier post

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There's also evidence from some of this survey data that a percentage of AT&T customers would migrate to Verizon. 

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However, many of these people many not entirely understand that they'd have to buy a new iPhone because their devices aren't compatible with VZW's CDMA network. Contract-breaking penalties will also keep many would-be switchers at home. 

In terms of the potential impact on Sprint and T-Mobile: I do think there will be one. Sprint and T-Mobile will see little or no subscriber growth unless they continue with aggressive pricing. That will be the only way to retain and potentially grow subscribers. 

A CDMA iPhone would mean it could potentially come to Sprint but Verizon may now get some period of quasi-exclusivity. So I would guess it will be at least a year (if then) that the "tier-two" carriers will get access to the iPhone. 

Because VZW will now be seen as the carrier offering the most options on the "best network," Sprint and T-Mobile will suffer. Simply saying "we've got all these Android phones" will not be enough. They'll have to more aggressively discount their data plans, as VZW and AT&T seek to migrate customers to usage-based pricing. 

Pre-paid carriers with heavily discounted pricing (including Sprint's Boost, VirginMobileUSA) will continue to thrive because there are lots of people still who don't want to get into contracts, are looking for the best deal and don't need a high-end smartphone. 

Those are the predictions, let's see what happens.

As a final note, there were rumors in December of a late February Apple event. It's not clear if the VZW announcement on Tuesday is that event or whether there will be a separate event to launch the widely anticipated iPad2.

Story of the Day: The Explosion of Cheap (Android) Smartphones

A story getting a lot of comments and play this morning is last week's Fortune article: 2011 will be the year Android explodes. The story is about how cheaper chips will likely bring down prices of smartphones to under $100 and Android handsets in particular. The story, using analyst and OEM estimates, argues that Android growth next year will be explosive. 

If the prices do in fact come down to $100 or less -- or handsets are fully subsidized by carriers -- we will see huge growth as the article suggests. Unless AT&T and (soon) Verizon are willing to be extremely generous with their subsidies, the iPhone will not be able to compete for the low-end of the market with Android -- although today you can get a refurbished iPhone 4 from AT&T for $99 and 3GS models for as little as $44. 

Nielsen has long predicted that 2011 (now Q4) will be the year that smartphones cross the 50% threshold in the US. Morgan Stanley famously predicted earlier this year that 2014 would see mobile Internet access surpass PC access.

If nothing else this blog is dedicated to the idea that there are radical implications flowing from these developments and we've been discussing and speculating about many of them for that past few years. We also argued that Nokia, the dominant handset maker in the developing world, had much more to fear from Android than from Apple's iPhone:

Apple can't and won't offer low cost handsets to the market in these places; it's the premium brand and wants to ensure a uniform experience. Eventually we might see a single lower-cost handset from Apple (something like the iPhone Nano perhaps). But that won't be coming very soon, if ever. 

Google by contrast doesn't have any of those same brand-related concerns. If there are lousy Android handsets in the market it doesn't really diminish Android the OS as a whole. There's room for much more experimentation on Android.

Apple has charmed and captured the "high end" of the market. Google and its OEMs are competing there but can also compete at the lower end with lower price points. That's the area where Nokia is dominant. But for how much longer? 

Nokia may wind up adopting Android itself, but that remains to be seen. 

Android is the "Windows of the mobile world." Apple is, well, the Apple: a premium brand that seeks to maintain higher price points and margins accordingly. Just as there are lots of generic and "crappy" PCs we're going to see plenty of crappy low-end Android handsets. The image above is of the Samsung Intercept, one of these lesser Android devices. But to someone coming off a flip phone it's a revelation. 

If these low-cost Android handsets flood the market and become widely available, we'll see people trying to pair the best of lower-end Android handsets with the cheapest plans (i.e., Boost, Virgin). The only way for carriers to maintain the prices of their plans will be to limit the availability of the best handsets to their post-paid subscribers. Lesser phones on slower networks will be available to pre-paid subscribers. 

Regardless, there's enormous room for growth in the US market from non-smartphone users. If we accept the Nielsen figure that 28% of US mobile phone subscribers have smartphones that means (of course) that 72% do not. Cheap smartphones paired with cheap data plans will drive a huge number of that 72% into the smartphone -- and mostly Android -- camp over the next two years. 

One can never overestimate the impact of price on markets and consumer behavior. 

FLO TV's Failure Is AT&T's Spectrum Gain

That Qualcomm couldn't see FLO TV was destined for failure is somewhat amazing to me. But it has salvaged something from the debacle, having now sold the wireless spectrum to AT&T for just under $2 billion. The 700MHz spectrum will be used to support AT&T 4G services:

The spectrum covers more than 300 million people total nationwide: 12 MHz of Lower 700 MHz D and E block spectrum covers more than 70 million people in five of the top 15 U.S. metropolitan areas — New York, Boston, Philadelphia, Los Angeles and San Francisco; 6 MHz of Lower 700 MHz D block spectrum covers more than 230 million people across the rest of the U.S.

As part of its longer-term 4G network plans, AT&T intends to deploy this spectrum as supplemental downlink, using carrier aggregation technology. This technology is designed to deliver substantial capacity gains and is expected to be enabled with the completion of 3GPP Release 10.  AT&T expects to begin deploying this spectrum once compatible handsets and network equipment are developed.

AT&T has taken a terrible PR beating from competitors and consumers for having an unreliable network. This will help provide greater speed and capacity for AT&T subscribers in the future.