T-Mobile and Sprint: A Transformative Acquisition

If T-Mobile USA parent Deutsche Telekom does decide to attempt an acquistion of Sprint Nextel, and if that bid were to succeed, T-Mobile would emerge as the largest U.S. mobile provider by quite some measure.

Up to this point AT&T, Verizon Wireless and Sprint Nextel have held roughly equal shares of the market, and all three have had more than twice the market share of T-Mobile.

There are many regulatory, technical and even psychological issues to surmount, though.

Consider that T-Mobile and Sprint now operate three classic mobile air interfaces. Xohm will create a fourth. And then there's Long Term Evolution. Complexity means cost, and that's t0o many different networks to continue operating.

Still, Sprint's low stock price and strong Euro have to be driving some hard thinking about the feasibility of pulling such a merger together. Regulatory or other concerns might ultimately deter making of an offer, or scuttle a merger attempt.

But it would be a transformative move for T-Mobile.

VOD: First You Have to Find It

Before any form of on-demand media can be watched or purchased, it has to be found. That's been a growing issue even for linear media as channel counts have risen over the last two decades, not to mention user-generated video found only on the Web, or the growing range of on-demand video options.

In a parallel but almost-perfect metaphor, paper "viewing guides" have become dysfunctional. Even in the walled garden, linear programming, one screen world, there's just too much information, and too many choices, to display. And that means content isn't found.

Those of you who use the Netflix or Blockbuster DVD rental services, or simply try to find something to watch online, will understand the greater problems beyond linear-formatted TV. Search engines are helpful to the extent of locating pieces of content.

But trailers, sampling mechanisms, user recommendationsand recommendation engines and other sorts of processes are about the only way people can discover content they might enjoy.

Even in the walled garden, linear viewing world there are new efforts to aid the discovery process. ReelzChannel is a "media highlights" channel showing movie and TV clips, commentary and content-focused news.

The channel's research suggests its viewers purchase 24 percent more pay-per-view titles than non-viewers.

Also, in a recent study, 76 percent of users said they found out about a movie they had never heard of by watching the channel. About 21 percent watched a movie on premium services because of something they had seen on ReelzChannel. Another 16 percent ordered video-on-demand or pay-per-view titles, the company says.

Some 87 percent of those polled say ReelzChannel's “What2Watch“ promos were helpful when making a viewing decision.

Dead Company Watch

Azaire Networks, which sold a fixed mobile convergence security gateway product, has gone out of business, iLocus says. IPXstream/IPtelephony.org, a content and newsletter provider, also has gone under.

There always are periods of consolidation after big investment waves, and we are at the front of a winnowing process that already has claimed Pulvermedia and Verso.

Similar contraction cycles hit venture-funded CLEC and Internet firms between 2001 and 2003. Now it is VoIP's turn.

The next cycle, which will not begin for some time, is a similar weeding process for consumer-focused video start-ups.

O2 to Blanket UK with Broadband

O2 will extend its broadband coverage to the whole of the United Kingdom using BT's wholesale broadband network. O2 also seems to have earmarked a sizable amount--£6m (€7.7m)--to grab new customers.

O2 can do so because BT has created a separate business unit that sells wholesale broadband access to any retailer that wants to use it. The U.S. policy framework took a different route, and relies on vigorous competition between the local cable and telephone companies.

One might argue we'd see faster uptake, but less innovation using the functional separation model. Conversely, slower diffusion but more differentiation using the U.S. model. There are different benefits.

After a slower start, it looks as though access speeds and "price per megabit" propositions, plus managed services wrapped around the access, are finally starting to get interesting in the U.S. market.

Mobile TV: It Isn't About the Small Screen

Some observers might argue that most mobile users do not really want to watch TV on their handsets all that badly. Others might argue they'd like to, but the small screen or shortened battery life are barriers. Some would say the logical use is short form video to fill interstitial time, not long-form content or TV shows. Others will say people don't want to pay as much as carriers now charge.

All these objections have some merit. But what might be most significant is the limited amount of linear content people can get.

AT&T's new video service will deliver 10 television channels for a fee of $15 a month.

AT&T Mobile TV will be available in 58 markets including Atlanta, Chicago, Los Angeles and New York.

Two handsets are available immediately, the LG Vu, which sells for $299.99, and the Samsung Access, which sells for $199.99.

Observers often note that a typical TV viewer only watches about seven channels. The problem is that every person uses a different mix of seven channels. And that's the issue for AT&T and Verizon.

AT&T Mobile TV delivers CBS Mobile, Comedy Central, ESPN Mobile TV, Fox Mobile, MTV, NBC 2Go, NBC News 2Go, Nickelodeon, Sony Pictures and CNN Mobile Live.

As long as those channels cover enough of your seven favorites, you're going to be interested. If that list does not contain at least one of your favorites, you won't be that interested. And then any rational buyer is going to do a "cost per channel" analysis to figure out whether buying the mobile TV service makes sense.

And the end of the day, all the other objections likely can be overcome. The basic objection, though, is that people will want access to their favorite channels. That value proposition makes sense to 96 percent of all households.

What people won't want is to pay for is channels they don't really watch. Cable TV succeeded because it gave consumers more choice. Mobile TV today is lagging precisely because it doesn't provide enough choice.

Nokia, T-Mobile Enhance Mobile Web

Nokia and T-Mobile have signed a deal that has Nokia supplyng T-Mobile with phones especially tailored to provide easy access to T-Mobile’s “web’n’walk” internet service and Nokia’s mobile portal Ovi.

The two companies also saythey will work on making social network sites more mobile, and will cooperate on creating mobile widgets to create a “richer” user experience for T-Mobile’s web’n’walk service.

A couple of angles: Nokia supports its own content portal; T-Mobile, despite that possible conflict, needs Nokia to optimize handsets for web'n'walk. That's co-opetition, to be sure: competing and collaborating all at the same time.

Facebook Apps Skew Towards "Just for Fun"

Enterprise IT managers generally consider Facebook a huge time waster. They might be right. Most of the applications created for Facebook so far are of the playful sort, with no direct business application.

Still, there's more than a smattering of tools that can have business application, beyond the ability to create business-focused social groups.

There are more than a thousand apps self-described as business tools, and many of the others might be used in a business way.

Sure, it's a non-guided, messy process. But that's pretty much the way innovation is going to happen in any case.

It's just a process of discovery.

Lots of business-focused people are trying to figure out how to apply social networking in an enterprise context, so there is a clear sense that this is not all about "fun and games," even if that's where most of the apps are.

Dumb Pipe Isn't a Bad Thing

The unique contribution any communications network plays in a value chain is precisely the "pipe."

That doesn't mean "just" pipe, but connectivity is fundamentally important. Consider a Strategy Analytics forecast of global consumer and advertiser spend on mobile media and associated transport.

Strategy Analytics predicts mobile media spending will rise from just under $47 billion at the end of 2007 to almost $102 billion by 2012, driven by access to web services, video and music.

But note the contribution made by "data transport," which is the "dumb pipe" part of the business. Premium services are important, no doubt. But access is far from unimportant.

Over the same period the population of unique cellular users actively using mobile content services will more than double from 406 million to over 870 million.

What About Wal-Mart?

One issue the studios are going to have to grapple with, as they go with "date and date" release of DVD and video-on-demand movie content, is channel conflict. Specifically, Wal-Mart sells about 40 percent of all DVDs. Target sells about 15 percent. Add in Best Buy and you probably have half the market for retail DVD sales.

Those three mass market retailers won't be happy if DVD sales, used as loss leaders to drive shopper traffic, start to dwindle. Surely studio executives are thinking about this problem. Ultimately, they'll want to come up with some sort of kiosk operation allowing buyers to sideload rental or sale content directly to their iPods.

You'd think USB flash drives might do the trick. The issue will be the cost of storage required to hold a two-hour HDTV movie. And then there's the issue of moving that content directly to the TV for viewing.

The studios will figure this out, or somebody will help them figure it out. The studios won't want to make a key channel partner too angry.

Video Substitution Coming

In the movie content market, all revenue streams beyond theatrical showings basically are substitutional: money made in the DVD segment tends to displace revenue that might have been earned in the pay TV or broadcast TV segments, for example.

With the recent movement towards "day and date" release of movie content to DVD channels as well as video on demand, one should logically expect some revenue to shift from the DVD channel to the VOD channel.

But there's a difference in the "quality" of the revenue, from a studio standpoint. Studios make 60 to 70 percent profit margins on downloaded or streamed content; only 20 to 30 percent on DVDs.

Aggregate consumer spending might not change all that much, but studios might make more money. That is the only reason they'd even agree to a different "day and date" scheme.

Apple Gets Earlier Access to Movies

All you need to know about where money gets made in the movie business are the three letters "DVD."

Studios make 14 percent or less from theatrical showings and about half their revenue from DVD rentals and sales. Less than 10 percent is earned from all cable, satellite and telco payments, including content shown as premium channels such as HBO and video on demand.

DVD is where the money is, and studios aren't going to make any really significant changes they think will damage those revenues. So they must have concluded that "the times they are a changing."

After years of negotiating with the movie studios, Apple finally has gotten the major studios to allow rental of iTunes movies on the same day they release new DVDs. That's a big change, and suggests studios now have evidence that they will make no less money, and possibly more, if they do so.

Disney has had that arrangement with Apple since September 2006. Now Apple will be able to distribute movies from 20th Century Fox, Warner Bros. , Paramount Pictures, Universal Studios Home Entertainment, Sony Pictures Entertainment, Lionsgate, Image Entertainment and First Look Studios.

New movies can now be purchased for $15 or rented for $4. Older movies cost $10 to buy or $3 to rent.

For any number of practical reasons, such as the fact that hard drives always die, it is likely iTunes will get more revenue traction from rentals than from sales. Up to this point Apple movie sales have been pretty low, volume-wise.

Rentals are not only are cheaper, but are congruent. Most movies are not compelling enough to watch more than once, and owning makes most sense for movies one thinks one is going to watch several times or more.

So the issue everyone now will be watching is how revenue shares move around within the movie ecosystem. Studios wouldn't be taking this move unless they think they'll make more money from downloads and streaming than from selling discs.

Sure, downloads probably will negatively affect DVD rentals and sales. But the profit margins on downloads are much higher than for DVD sales or rentals. So if all downloads do is cannibalize DVD sales and rentals, the studios win.

Free Wi-Fi for All AT&T Wireless Customers?

AT&T hotspots have started providing iPhone users with free Wi-Fi access at Starbucks and other locations. AT&T Broadband customers also have free access. One wonders how long it will be before all AT&T Wireless customers will get access. AT&T has talked about that.

That's one advantage of customer and network scale. AT&T doesn't necessarily have to make much actual incremental revenue from the Wi-Fi service. What it does is make its wired and wireless service much more sticky.

And given its scale--100 million customers--AT&T is in position to create other "everybody is on network" services of various types, the same way Skype creates "free calling to all other Skype users."

The difference is that AT&T can mix and match services and features available on its in-region wired, national wireless and global network, including mobile and fixed broadband, mobile and fixed calling, messaging or other services with a "social" or "community" aspect.

Scale has many advantages.

T-Mobile Lighting 3G: Voice Only

T Mobile is lighting its 3G network in New York in voice-only mode, says Gizmodo. Don't ask me why. I cannot figure this out. Maybe the backhaul issues are serious enough that broadband really isn't available yet. If so, don't bother offering commercial service.

The voice network and EDGE data network already work. What conceivable value does a T-Mobile customer get from 3G speeds if all you can do is what you already are doing? Sure, it's just the first city of a national network.

But why not offer some new service that the network actually enables?

Mobile Sites Significantly Lift Site Usage

TotalWeb, the new company created by Nielsen Online, says mobile Web sites provide a significant increase in usage. Weather-based sites, for example, see an average 22 percent lift in usage, compared to sites that are designed for PC access alone.

So do entertainment sites, which get 22 percent more use when sites are rendered for mobile screens.

Game and music sites get 15 percent lift when authored for mobile use.

Nielsen says 87 million U.S. mobile users subscribe to mobile Internet services, and more than one in ten mobile subscribers (13.7 percent) actively uses mobile Internet each month.

iPhone Sales to Double?

Apple is going to sell lots more phones (no surprise there) if AT&T does subsidize the new 3G iPhones, says Bernstein Research analyst Toni Sacconaghi, reported by Eric Savitz, Barrons columnist.

If AT&T does provide a $200 subsidy for the3G iPhone, bringing the phone’s cost for consumers down to about $200, where current models are priced at $399 and $499, sales might double, based on past precedent.

Sacconaghi notes that that sales of the Motorola RAZR doubled when its price dropped from $500 to $150 and doubled again when the price went to $100.

If AT&T average revenue per subscriber from the iPhone is in the mid-$90 a month range, compared to less than $60 for the average post-paid user, then AT&T has an additional $720 in revenue over the course of a two-year plan to offset the subsidy.