Mobile Sands

August 8, 2009

How Unlimited Voice at $50 or Less May Change Everything

Unlimited Nationwide Voice – Now for $50 or Less

18 months ago, on Feb 07, 2008 Sprint became the first major US carrier to launch an unlimited voice & data plan – for $119.99/month.  Verizon responded within 12 days with a $99.99/month unlimited voice planAT&T  immediately matched it & so did T-Mobile.  On Feb 28, 2008 Sprint lowered the price of its $119.99/month “Simply Everything Plan” to $99.99/month and few days later launched a $89.99/month unlimited voice plan.  Carriers called their offering revolutionary and there was talk of a price war.

In January 2009, Sprint’s Boost Mobile subsidiary launched a $50/month prepaid unlimited voice, text, PTT and data plan. Boost uses Sprint’s iDEN network and Sprint probably offered this plan because there was lot of spare capacity on its iDEN network after several quarters of steep subscriber losses. Within 8 weeks of launching this plan, Boost signed up 764,000 new prepaid subscribers – growth that took everyone in the industry by surprise. It was a game changing event. Boost, of course, is not the first unlimited flat-rate voice service. Both, MetroPCS and Leap Wireless, have been offering unlimited voice for $50/month for years. But Boost is the first one to offer unlimited flat rate on a nationwide network.  Virgin Mobile (a Sprint MVNO) announced a $50/month voice + data plan in April. Though Verizon initially criticized Sprint for halving the price for unlimited voice, it started testing an unlimited plan of its own called StraightTalk with MVNO partner Tracfone (an America Movil subsidiary) in June.

Carriers Use MVNOs and Subsidiaries to Offer Lower Rates

Unlike unlimited voice plans offered by major carriers in 2008, this year’s unlimited plans are being offered through MVNOs or subsidiaries. These MVNOs or subsidiaries use prepaid billing, offer a smaller range of handsets, do not require long-term contracts and do not offer any handset subsidies  High-end smartphones like Blackberry and Palm Pre are not part of the handsets offered by the MVNO, and customers may not get certain features they get on the main network.  Consumer now have a choice – they can go with the expensive “full-service” brand (Sprint, Verizon) or with the “discount” brand (Boost, Tracfone).

Service providers in other industries have tried such strategies in the past – often with limited success. This was the idea behind “Ted from United” and “Song from Delta”. Just like MetroPCS and Leap Wireless were offering unlimited voice service before Sprint and Verizon jumped in, Southwest and Jetblue were offering low-cost airfares before Ted and Song. With Ted and Song,  United and Delta tried to emulate Southwest and Jetblue’s cost structures by using single a class of planes (Airbus A320s for United and Boeing 757 for Delta), charging for in-flight snacks, and paying lower salaries to crews. They tried to differentiate against Southwest and Jetblue by using their national networks and frequent flyer programs. However, by doing so, they could not maintain sufficient differentiation between the discount and full-service versions.   Customers earned the same frequent flyer miles whether they flew Ted or United and were able to use the entire network of the full-service airline. Yes,  there were no first class cabins, but most customers did not care. By 2008, both Delta and United had discarded the sub-brands, and today United and Delta operate more or less like discount carriers.

What’s Next?

Though Ted and Song did not survive, they did help convince United & Delta that majority of consumers really don’t care about their “full-service” offerings; that it is better to charge a lower fare and sell snack boxes on board than to charge more and bundle-in meals. It also forced many carriers to simplify their fleets and re-negotiate labor contracts. The airline business was changed forever and Ted and Song were the harbinger of these changes.

Unlimited nationwide voice offered at half-the-price of comparable services, but through a prepaid, subidy-free, business model qualifies to be a similar disruptive innovation. And its impact is likely to be far-reaching. For instance, it may:

  1. End the current, handset subsidy-based business model
  2. Move from postpaid per-minute billing to prepaid flat-rate billing
  3. Change the set of must-have services. Integration with facebook may become more important than three-way calling.

Such far reaching changes will affect everyone in the wireless value chain – from handset vendors to network equipment suppliers.

  1. If handset subsidies go away, it will force handset vendors to compete on the basis of their brands and cost structures rather than carrier relationships.
  2. As ARPUs fall, operators will push equipment vendors to lower network cap-ex and op-ex, creating opportunities for some and eliminating the business of others.
  3. Change in must-have services will allow technology suppliers to make a stronger case for technologies like VoIP over EVDO/HSPA/LTE or femtocells that offer lower-cost but may notalways offer services parity.

Change is in the air. And though it may not benefit everyone in the industry, it will keep the engine of innovation humming.

    Advertisements

    April 18, 2009

    Verizon’s Open Device Initiative – now with LTE

    Filed under: eBooks, LTE — Tags: , , , — AJ @ 5:00 am

    Verizon today released its initial set of technical specifications for “open devices” that will run on its LTE network. The specs are avilable at www.verizonwireless-opendevelopment.com. Intrigued, I decided to register, download the specs and read some more about Verizon’s ODI. Verizon also has scheduled a web conference on May 13th that I plan to participate (if you would like me to ask any questions, please post them as comments on the blog)

    Devices for LTE

    As the first operator in the world to deploy LTE, Verizon must be thinking hard about what to do with the network, especially in the first 12-24 months when there will be few compelling consumer devices and apps.  As with EV-DO, the first devices sold to consumers will be data modems. Verizon has also been positioning LTE as a way to address the rural broadband problem and has recommended that its LTE network be included in the national broadband coverage map that NTIA is putting together.  

    To go beyond broadband coverage, Verizon needs new hardware and software applications that leverage its network. Its competitor, Clearwire, is making the same push and recently announced a WiMAX “sandbox” network in Silicon Valley. The device specifications that Verizon has released at this stage are limited to communication features of the device i.e. how one can get a LTE modem certified.  It is a good start. However, before application developers start investing, Verizon will have to provide information on:

     

    • allowed application development platforms and OSs
    • pricing – per MB and for “unlimited” usage
    • policy towards bandwidth hungry applications like video 
    • policy towards applications that may be compete with Verizon services
    • services offered by Verizon’s to-be-built LTE core
    • (and perhaps, more)

     

    Perhaps, some of these questions will be answered on the May 13th call, and more details will appear soon after. 

    Verizon’s Open Device Initiative (ODI) So far

    It is worthwhile to look at the track record of ODI so far. When Verizon announced it last year, it was touted as “Any App, Any Device”.  And folks like Gizmodo believed that, “a small company with mobile knowhow can develop and get their iPhone-killer certified and on Verizon’s network with minimal interference”.  

    Perhaps, that may happen some day, but not yet. The devices Verizon has certified so far are:

    • modems for machine-to-machine (M2M) communications, from BlueTree, Cal Amp and Telular
    • smart grid communication devices from Ambient and OpenWay
    • routers for sharing your EV-DO connection from folks like Cisco
    • specialized PCs like Motion Computing’s mobile clinical assistant 

    From the website, it does not seem that the ODI program is very well staffed. For instance, both the devices announed at CTIA on 04/02/09 – Motion Computing’s Mobile Clinical Assistant and Sierra Wireless’s USB 598 – were not listed on the page for certified devices on 04/18/09 . I was able to read all the posts on the developers’ forum (yes, all) in less than 15 minutes and all the Verizon replies were from one person, with many questions unanswered.

    Further the ODI program focuses on devices only, not on applications. So, if you want to an application certified, you need to go to http://www.vzwdevelopers.com.  The ODI program seems to be limited to device certification. There is no information on how data plans are priced on these devices. That is still a case-by-case discussion.  

    Even if we believe that no one has submitted an iPhone-killer for approval, it is surprising how few devices have been certified so far.  Perhaps there are dozens of devices in the pipeline! At CTIA, Verizon’s Tony Lewis did say that the carrier has been approached by five Kindle rivals (Kindle runs on Sprint’s EVDO network) and Verizon CEO Ivan Seidenberg forecasted the proliferation of M2M devices will lead to 500% wireless penetration.  Or perhaps, Verizon has a long way to go in making the process really easy and streamlined.


    February 26, 2009

    Verizon’s LTE Rollout – Lessons from CDMA

    Filed under: 3G, LTE — Tags: , , , , , , , — AJ @ 5:58 am

    There is lot of speculation in the press, among analysts and in the blogosphere about the timing of Verizon’s LTE deployment. This is unfortunate considering that Dick Lynch has actually provided very clear guidance.  In his interview with Sue Marek of FierceWireless he said, “…when we launch we will do what we did with 1xEV-DO and 1XRTT…” 

    Verizon, under Dick Lynch, has been remarkably consistent in its process for deploying new air interface technologies. If one digs through years of Verizon press archives, one will find that Verizon’s EV-DO rollout followed the same process as its 1xRTT rollout.  At both those occasions and now, Dick Lynch was at the helm and we should not expect anything different for LTE.

    As in EV-DO, Verizon has initially selected two vendors for LTE.  For EVDO, these two vendors were Lucent and Nortel. For LTE, it is Alcatel-Lucent and Ericsson. This does not mean that Verizon will not have a third vendor.  In EV-DO, the third vendor was Motorola, and as Dick said in his FierceWireless interview, “The rest of the vendors will have another opportunity in the future. We will go out again in mid-2010 and look for vendors for the next wave of the coverage”.

    As in EV-DO, each LTE vendor has been assigned one city that each is expected to get on the air in 2009. For EV-DO, Nortel had San Diego while Lucent had Washington DC.   Once the two cities are on the air, each vendor will be expected to work out all the kinks in its products, a process well known in the industry as “First Office Application (FOA)”. A FOA can take anywhere from 3-9 months, depending upon the complexity of the system and the quality of the vendor’s product.

    Once FOA is complete for LTE systems, either by the end of 2009 or in early 2010, Verizon is saying that it will start building out a sizeable national footprint.  In the EV-DO case, Verizon announced its decision to start building a national footprint in January 2004. Within 9 months, Verizon had launched EV-DO service in 14 metropolitan areas and by Aug 2005,  it covered 52 metropolitan areas.  All these services were launched using EV-DO data cards.  If Verizon’s LTE vendors can wrap up their FOA by Q1’2010, expect Verizon to at launch LTE data cards in dozen or so markets by Q3 or Q4 of 2010.

    The other key player whose actions determine the pace at which Verizon can roll out LTE services is QUALCOMM. Verizon cannot launch an LTE handset (smartphone) unless this handset supports both 1xRTT and EV-DO. It needs 1xRTT to support all the legacy voice features (tough to replicate on IMS) and needs EV-DO for data service wherever there are LTE coverage holes. QUALCOMM is the only company that can build a dual-technology LTE/CDMA chip, and it is doing just so. On Feb 16th, Qualcomm introduced its MSM 8960 3G/LTE chipset, and said that this chip will sample in mid-2010. Since handset vendors need at least 12 months from the date Qualcomm samples its chipsets, to build a commercial device, one should expect the first dual-mode CDMA/LTE handset to reach the market in Q3’2011.

    To summarize:

    • Verizon is likely to light up two cities with LTE in 2009 and have meaningful national footprint in 2010. They have a playbook for large scale wireless rollouts and they seem to be following it.
    • There will be no LTE handsets/smartphones in 2010,  just data cards. Therefore, Verizon will continue to add capacity to their CDMA network at least till the end of 2010.
    • Expect CDMA/LTE handsets to reach the market in Q3’2011. 

    Create a free website or blog at WordPress.com.