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ABI Research Blog (105)

Sprint and LightSquared Megadeal Will Shake Up the US Wireless Industry

Jul 29, 2011 12:00:00 AM / by Admin

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Sprint and LightSquared announced a broad agreement for cooperation yesterday.
There are lots of interesting points for discussion concerning this agreement, but let me start with the first few that come to mind.
LightSquared will pay Sprint to operate an LTE Radio Access Network using LightSquared’s L-band spectrum. Sprint will use the new multi-mode base stations which are part of their “Network Vision”.
This deal is good for Sprint because they will get a significant amount of cash from LightSquared to build the network, which will expedite the roll-out of Sprint’s own network services (to be announced in September). The deal is good for LightSquared because they can depend on Sprint to deploy and operate the network instead of doing it themselves.
LightSquared will deploy an LTE core network from Nokia Siemens Networks. NSN and LightSquared signed an 8-year agreement last year valued at US$7B to install an LTE network. Presumably the total value of the contract will now decrease because NSN will not be providing the Radio Access Network, but NSN should be happy with the core network deployment and services revenue. If NSN provides managed services to maintain and operate the core network for LightSquared, it could be very profitable for NSN. And now NSN does not have the headache of making base stations for the L-band spectrum.
As everyone knows, there are major concerns from the FAA and GPS users concerning interference with LightSquared’s frequency spectrum. The Sprint deal is contingent upon resolution of these issues, at least at a regulatory level. However, the difficult task of implementing base stations for this spectrum without causing interference problems will now fall into the laps of Sprint’s base station vendors Alcatel-Lucent, Ericsson and Samsung.
More to follow . . .
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Smartphones and Tablet PCs - POS Terminal Killers?

Jul 29, 2011 12:00:00 AM / by Admin

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Given the numerous advantages of the cellular-enabled POS terminal, its remarkable growth in recent years is unsurprising. What is surprising then, is the notion that this type of device could already be set tomake way for alternative technologies. However, an increase in the use of consumer electronics as payment devices hasalreadyled some to suggest that thisis the way the market is heading.

With the growing ubiquity of smartphones, and to a lesser extent tablet PCs, a whole host of companies have begun to offer solutions that let consumers harness the portability of their personal devices and empower them to accept payments. Such companies include: Square,Apriva, CHARGE anywhere, wCharge and Adelante, amongst others.As long as they have access to a compatible payment processing service, merchants previously reliant solely on cash can offer their customers the ability to pay by card using their existingdevices (and thus avoiding the need to invest in additional,expensivepayment equipment).This could well beappealing to those who largelyconduct theirbusiness remotely - e.g.handymen, taxi drivers, gardeners,private tutors etc.

But will this technology impinge on the overall market for the traditional wireless POS terminal?

When conducting researchfor a new reportonthe integration of cellular connectivity in the payments industry, I spoke toa leadingvendor about this verysubject. Askedifsmartphone- and tablet-based solutions would eventuallycannibalise the POS terminal market, theparaphrased reply was succinct: “Yes, but only to a very small extent” and I’d have to agree. Off the top of my head, two reasons why there won’t be mass-adoption of payment-enabled consumer electronics immediately spring to mind:

- There is ageneral warinesswith inputting one's card details into a phone/tablet PC that will almost certainlypersist.

- Phones/tablet PCs are high-value c​​onsumerdevices.Should a thief decide they want one, the merchant isn’t losing a POS terminal per se; they are losing a multifunctional device.

Pros and cons aside, one thing is almost certain – growth in the total available market for mobile payments (be they smartphones, tablets or mobile POS terminals) will continue apace.​​

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TomTom’s Q2 2011 Results: Where is TomTom’s Mobile Strategy?

Jul 27, 2011 12:00:00 AM / by Admin

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TomTom’s Q2 2011 results further confirmed the demise of PNDs with consumer revenue declining by 23% year on year to 209 million Euros despite an active user base of LIVE Services of 1.1 million. ABI Research extensively discussed the decline of the PND market in its recently published report Personal Navigation Devices - Making Money from a Declining Market. TomTom’s 2011 Outlook isn’t any rosier: global PND market decline of between 15% and 20% and even higher drops in the North American market.
Equally worrying is TomTom’s ailing maps and traffic licensing business unit posting a revenue decrease of 3% year on year and 4 % quarter on quarter. TomTom expects their Licensing unit to show flat revenue development compared to last year. TomTom seems to struggle to sell its maps and high quality traffic data with Mappy one of the rare commercial deals announced – next to a number of agreements with governments.
TomTom was also forced into another write-off (473 million Euro) on the Tele Atlas goodwill – following a previous write off of 1 billion Euro in 2008.This results in a sorry bottom line: a net result of -489 million Euro.
The (only) bright spot in TomTom’s Q2 results is the continued growth of its in-vehicle products. The Automotive unit revenue grew by 34% year on year to €60 million with more than 1 million Carminat TomTom systems sold by Renault since the launch and Blue&Me recently introduced in the US on the Fiat 500. The Business Solutions unit grew by 12% year on year to €14 million posting some impressive numbers: 13000 customers and 152000 vehicles under management.
However encouraging the in-vehicle initiatives have been they do not compensate for the decline of TomTom’s PND business and will not do so in the medium term future. Ramping up its currently sorry presence in mobile might be the key for TomTom to turn around the company. Considering the all-encompassing mobility trend – including the integration of smartphones into connected vehicle systems - TomTom should be much more aggressive, supporting all mobile platforms, designing in-vehicle hardware solutions which can interface with (smart)phones, and, most importantly, aggressively pursuing partnerships with handset vendors. Apple should be a good candidate as its two main smartphone rivals Microsoft-Nokia-NAVTEQ and Google-Android both own strategic mapping, navigation and traffic information assets allowing them to offer free navigation services.
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Comcast Xfinity powered by thePlatform and Elemental Technology

Jul 26, 2011 12:00:00 AM / by Admin

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Comcast is aggressively positioning its Xfinity platform to reduce churn and engage its customers in ways similar to Netflix and Hulu. Elemental Technologies and thePlatform recently announced they were the technology providers for Comcast’s Xfinity TV application.

thePlatform (a Comcast subsidiary based in Seattle) is a web publishing platform that handles content acquisition (bringing cable content to the web), content preparation (overseeing farms of transcoders that bring the content into the right format), and distribution. The platform also handles subscriber management and revenue generation (advertising). While thePlatform has no direct competitors, other ways of implementing this type of solution include online video publishing platforms such as Brightcove, or technology / workflow companies such as Telestream.
Elemental technology offers a very dense video transcoding solution based on nVidia GPUs. Note that Elemental is not the exclusive provider for thePlatform; it also supports platforms from Digital Rapids, Rhozet (now part of Harmonic) as well as Telestream.
In our Worldwide Pay TV Encoder and Transcoder Market report, we described Elemental and its technology.
Elemental Technologies is a Portland, Oregon-based venture capital-funded company developing video encoders using nVidia GPUs. The founders came from Pixelworks, while other management team members have experience at Omneon and Motorola. Elemental has live and file-based products dedicated to high-quality, live, multiformat encoding and transcoding. Elemental claims the high floating point (GFLOP) performance of GPUs enables it to offer very high-quality video from a standard platform, enabling multiple resolutions of streaming output from a single server.
Elemental has a significant number of trials and a few customer deployments in 2010 and is expecting a significant ramp up in unit shipments during 2011. Notable design wins include encoding for ABC’s iPad application and video behind MLB.com and the BigTen network. At the IBC (International Broadcasting Convention) in September, 2010, Elemental teamed with Microsoft to demonstrate live Microsoft Smooth streaming with 1080p 3D source video from Hamburg, Germany to the show floor in the Netherlands.
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Thisannouncement from Comcastmarks Elemental's most significant announced deployment to date; one of many events signalling they are moving from start-up mode to revenue production mode.

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Ericsson 2Q 2011 Results

Jul 25, 2011 12:00:00 AM / by Admin

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Ericsson, the market leader in telecommunications network equipment, announced second quarter financial results last week.

The juggernaut rolls on, with strong sales and healthy profits for the Networks business unit, unlike most of the competing equipment providers who are struggling to break even. However, there are some areas for concern. The Multimedia business unit continues to bleed kronor, primarily due to the Ericsson TV business (formerly Tandberg Television); the Multimedia results will look much better in the future due to the Telcordia acquisition, since OSS/BSS products are included in Multimedia, but Ericsson needs to get more traction in the content and applications businesses which are also part of the Multimedia business unit. The real concern, in my opinion, is the Services business unit.

Ericsson claims to be “the industry leader in managed services”, managing networks that serve more than 800 million subscribers. However, according to Ericsson’s 2Q2011 financial report, Global Services sales were down 5% from a year earlier, Professional Services were down 9% from a year earlier, and Managed Services were down 16% from a year earlier. The quarterly report blames the decreases on the strong Swedish Krona, but the real story is that services growth was not strong enough to outpace the currency appreciation. This is a serious problem for a business where profit margins on equipment are inexorably falling due to commoditization of products, and building a strong services business with lucrative margins is vital to the future of the company. All of the telecommunications equipment providers have been working on building their services businesses, with varying degrees of success. Managed Services, in particular, is hot at the moment, as more and more service providers look to outsource their network operations. Ericsson’s competitors are growing their Managed Services businesses with new contracts every quarter, and all that “the industry leader in managed services” can say is that sales this quarter would not have decreased if the Swedish Krona had not appreciated so much. If the best strategic plan that they can come up with in Stockholm is to just wait for the Krona to depreciate, their services business is in trouble, which means the company as a whole is in big trouble.​
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Telefonica's Costly Restructuring and Why It Didn't Start Earlier

Jul 18, 2011 12:00:00 AM / by Admin

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​I have no idea what the world record for layoff costs actually is, but Telefonica’s bill of 2.7 billion euro (yes, that’s US$3.8 billion) for 6,500 positions – averaging 415,000 euro per employee – must come pretty close. The Spanish unemployment rate is above 20% (close to 45% for people under 25 – which as such can’t be a big wonder if hiring and firing is that risky) and labor relations thus understandably tense, but even still that’s an extraordinary sum. To think about it, it's also rather extraordinary that atelecoms operator really has enough fat to shed almost one-fifth of its staff, in a market as developed as Spain and in the year2011.

I brought this up, because it reminded me of another factor that is often overlooked when analyzing telecoms operators’ growth outlook: demographics. Telefonica’s domestic market was a remarkably comfortable place to operate for most of the last decade, thanks to a combination of a booming economy (i.e. a housing bubble) and an exceptionally high level of immigration. Spain’s population grew by about 12%, or 4.5 million people, between 2000 and 2008. Equally importantly, those were also years when the country’s job market could accommodate the newcomers very smoothly.

For Telefonica, which even as of today holds a market shares of over 40% in the mobile sector and over 50% in the fixed broadband sector, that meant a huge windfall. Its domestic market saturated at a slower pace than those of other European incumbent telcos, and as a result it was able to maintain retail prices that were higher than the dynamics of its competition would have probably otherwise allowed. Once the Spanish economy in the end of the decade started to crumble, those prices have had then more scope to come down than in many other countries. And similarly, Telefonica have had more scope to downsize its organization.​

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Spotify Arrives in US: Cloud Music Is Not Only About Lockers

Jul 14, 2011 12:00:00 AM / by Admin

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Spotify's long-awaited launch in the US, the world’s largest music market, has taken place today. The price points appear to be pretty much what had been anticipated - $4.99 for a desktop-only subscription, and $9.99 for the premium(desktop + mobile) variant. Also the free, ad-supported version - which gotSpotify's PR ball rolling so impressively here in Europe - will be available, on invitation and with a monthly allowance of 20 hours of music. The free stuff can be listened only via the desktop client, so Spotify's arrival will probably mean that Pandora hasto shift its attention further onto the mobile environment, which is where its real edge lies.

One common misconception aboutthefreemiummodel is that the ad-funded version is meant to be a significant source of revenue. Rather, it's more of one approach to offeringa free trialof the paid-for service - which is something that every subscription provider essentially has to do. Withouta trial the threshold to subscribe would be prohibitively high for most consumers.Spotify's approach is surelymore expensive than that taken by its peers (offer a teaser period of a couple of weeks, or up to a month), but on the other hand it gives the users time to play around with the service's features. At least in theory, that may then result in higher conversion rates. Two weeks or so of free listening is a fairly narrow window to make it a habit.

You could expect the freemium element to attract quite a bit of press and viralbuzzin the coming months. That'sgoing to somewhat redefine the general talk about the cloud music as well, as more people realize that lockers aren’tthe only game in town, even if that is what the big guys are currently offering. For commentary on the iCloud and other lockers,check myearlier blog post.​If you haven’t already done so, you can also take a glimpse of our cloud music report.​​​

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Australian ACMA Rural 2.3GHz Spectrum Auction Complete

Jul 13, 2011 12:00:00 AM / by Admin

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ACMA Rural 2.3GHz spectrum auction

Australia has just completed its ACMA Rural 2.3GHz spectrum auction today, 13th July 2011.
NBN Co (National Broadband Network) landed 24 licences, Telstra acquired 12, while vividwireless (via its subsidiary, BKAL Pty Ltd) received 4 licenses. The 40 licences raised a total of AU$1.67 million. NBN Co and Telstra paid AU$1.33 million and AU$ 304,300, respectively. BKAL paid $37,300.
What is interesting is the use of this spectrum. NBN Co have the objective of rolling out Next Generation Broadband services to Australian homes and businesses. NBN Co anticipates that the vast majority of homes and businesses will access next generation broadband through fiber-optic connectionbut around 7% of homes/businesses will need access to LTE to realise that vision. NBN Co expects to complete its full roll-out by 2015.

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AT&T Prepares for Additional Media Tablet Roll-Outs on HSPA+ Network

Jul 13, 2011 12:00:00 AM / by Admin

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US network operator AT&T has thrown its support behind an additional pair of media tablets as carriers look to break out of the smartphone stigma.

AT&T and HP announced Tuesday that AT&T will be the exclusive mobile network operator provider of the upcoming HP TouchPad 4G. The HSPA+ model will beavailable through HP commercial channels, AT&T Business Service and major US retailers. The HP TouchPad 4G will have a 1.5 GHz applications processor, 32 GB of internal storage, and integrated GPS. The TouchPad will support Adobe Flash Player, Adobe Reader, Quickoffice, video calling, and the ability to print wirelessly to networked printers. HP recently launched its first media tablet, the HP TouchPad, in the US.

On Wednesday, AT&T added that it will be the exclusive HSPA+ service provider in the US for the Sony "S2" media tablet. The S2offers a dual, 5.5-inchdisplay(a la the Kyocera Echo handset)and will reportedly be PlayStation-certified, like the Xperia Play.

Pricing and commercial availability of these devices on the AT&T network has not been disclosed.

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If SIMs keep getting smaller, how long before they disappear altogether?

Jul 12, 2011 12:00:00 AM / by Admin

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A thought occurred to me whilst attending the recent SIMposium event in Berlin at the end of June. Given that there is a new standard​ being investigated/explored for an even smaller SIM card; how small can they get before they disappear altogether?

The new proposal, put forward by Apple for investigation by ETSI, the standards body, is for a SIM form factor even smaller than the existing 3FF micro SIM. The aim is to free up more space for other components within the handset body. However, on this basis, why not get rid of the SIM card and slot/connector altogether?

After all, with surface mount technology (SMT) being employed to embed SIMs within other equipment for M2M applications, the technology is there. Similarly, the ability to remotely provision and personalise SIMs has progressed quickly in the past two years. Numbers, operators even, can be allocated and changed after delivery/upon activiation - so why not do this with handsets?

I am summising and hypothesising of course. There is an existing ecosystem built around the current model which would take time to replace, plus MNOs would likely resist any changes, but it may not be too far from reality. And what would this mean in the bigger picture?

Potentially, smart card vendors would be forced to adapt and become software and services companies - something that some, such as Gemalto, are already moving towards. Meanwhile, the IC manufacturers could replace them on the hardware side of things, providing modules and SMT components directly to end equipment OEMs - something which they already do in some related applications, such as ID and payments. Could it be that market developments would result in the smart card manufacturers being replaced by their own component suppliers?

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