$1.54 3G iPhone to be Sold

Deutsche Telekom's T-Mobile will sell Apple Inc's new iPhone for as little as 1 euro ($1.54) for the 8-gigabyte version together with a 69 euro monthly contract.

And you thought a 3G iPhone for $199 was a great deal.

More Handset Subsidies Because of New iPhone Pricing

Among the likely ramifications of the new 3G iPhone pricing are competitive responses from other carriers.

Wireless service providers are likely to increase their own mobile handset subsidies, boost marketing budgets, and reduce prices on some services, analysts and industry insiders say—all likely to mean slimmer margins, reports Olga Kharif at Business Week.

That would be a directional shift. In the past year, U.S. wireless carriers had scaled back on the subsidies that resulted in lower handset prices in exchange for long-term wireless service contracts. But now that AT&T is boosting its subsidy of the iPhone, chances are other operators will follow suit, especially on iPhone copycats.

680 Million Mobile Internet Subs in Brazil, Russia, India, China by 2012

Brazil, Russia, India and China—collectively known as BRIC—represent 43 percent of the world's population and will account for nearly 1.2 billion mobile phone subscribers this year, according to eMarketer.

"Mobile is not simply viewed as an extension of the Web in BRIC, as it is in the United States, Western Europe and parts of Asia-Pacific," says John du Pre Gauntt, eMarketer senior analyst.

"Mobile is the Internet," he says.

eMarketer projects that the BRIC countries will account for over 1.7 billion mobile phone subscribers by 2012. Of that amount, over 680 million subscribers will access the mobile Internet.

Over the Top or Walled Garden Video?

At the end of the day, we'll probably find that both linear multichannel video and "over the top" video will be part of the user experience on a regular basis, despite our discussions of which model is better.

In part that is because linear, walled garden TV experiences still are convenient, and because interactive features more common to Web experiences will gradually migrate into the TV experience as well.

People use multiple forms of voice and messaging products as well, for the same reason. Some formats are highly useful in some settings and for some reasons, while others retain an advantage in other settings. Most people use both tethered and mobile voice. More people are using both fixed and mobile broadband. More people also are using more over the top video. But linear subscriptions haven't dipped as the new habit takes hold.

That doesn't mean there won't be changes. There always are whenever a new medium arises. Old media are reshaped, at the very least. But it's hard to see over the top completely replacing traditional multi-channel video, any more than mobile voice completely displacing fixed, IM-based or portal-based communications.

People are going to use the tools in lots of different ways. Even in the "commodity" voice world, they already do.

More Mobile Broadband than Fixed Broadband Revenue in 2008?

The number of mobile subscriptions will increase from 3.3 billion in 2007 to 4.7 billion in 2012, representing more than two-thirds of the world’s population, say researchers at Pyramid Research.

And though voice continues to account for more than 80 percent of global mobile revenue,
revenue from global mobile data services, despite lower revenue per user, will surpass that of fixed Internet access services in 2008, Pyramid argues.

Voice Switchers or Wireless Substitution?

Wireless substitution is getting lots of attention as voice landline market share shifts and "wireless-only" households register in the low-double-digits in some surveys. Yankee Group surveys have suggested that 15 percent of respondents no longer have wireline phone service.

Indeed, switched access telephony in the United States has decreased by 17 million lines from 2005 to 2008 and is expected to continue to lose another 10 million by 2011, says Patrick Monaghan, Yankee Group senior analyst.

But Monaghan doesn't think wireless substitution explains much of the incumbent line loss. In fact, he says, residential home phone service has only experienced a two-percent year-over-year loss from 2005 to 2008.

That's something on the order of five million subscribers. His conclusion: Most consumers are not cutting the cord. They simply are choosing cable or other providers.

So what's more challenging: wireless substitution or landline market share losses?

Monaghan argues there's an opportunity for incumbent local exchange carriers to hold on to switched access lines. The issue is that customers are deserting to other providers, and ILECs have to decide how long to hold out before offering their own VoIP services, presumably at prices that match generally-prevailing prices.

To the extent that millions of consumers seem to be ditching traditional landlines for lower-cost residential phone services, the issue is how long to wait before responding.

One line of thought is to build broadband-based and wireless revenues and simply let the market share for traditional lines drift slowly lower, rather than triggering an across-the-board price cut.

The other line of thinking--more prevalent in Europe, where retail landline losses have been much more significant--is to get into the game.

So how close are we, in North American markets, to a strategic rethinking of VoIP or "digital phone" service, which seems to be gaining traction as the preferred nomenclature?

And what would drive telco executives to rethink their current positions, which generally is to hold the line on legacy voice pricing and packaging?

AT&T, Verizon and SureWest Communications now offer VoIP or digital voice. So how hard should they push it? For which customer segments?

If Monaghan is right, wireless substitution is less an issue than "cheaper digital voice." But then how to explain the 15 percent of consumers who say they have abandoned wireline?

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Are Devices Key to Engagement?

So why don't users "love" their communication service providers? At some level, you can blame the quality of customer service. In some cases you might blame the service itself. The answer is vitally important.

Businesses and products that customers "love"--are highly emotionally involved iwth--make more money than businesses and products that users are not emotionally bonded with.

So ask yourself: does anybody you know "love" their dial tone? Does anybody you know love their bitstream?

Ask yourself a different question, then. Do you know anybody who loves their car, loves a car, loves a perfume, a set of golf clubs or a recent movie featuring four Manhattan women?

You're getting different answers, aren't you? So here's the point: at a basic level, communication service providers will make higher margins, and more sales, if they somehow can create an experience so personal that users actually create emotional bonds of the sort they have with their favorite brands, activities and pursuits.

So here's why Apple's iPhone or RIM's BlackBerry are important. They are the closest thing the communications industry has found to a service attribute that does create an emotional bond.

So think about the video entertainment business. Do you know many people, aside from those using DirecTV, who actually "love" their video provider? To the extent the service does create emotional bonds, how are those bonds created? With the actual programming, not the packager.

Igt's sort of the same problem. People might love watching a favorite movie or TV series. They will be emotionally involved with the content. It is doubtful they are so involved with the retail packager of that programming.

So far, we know one new thing: you can get customers who are passionate about their devices. To the extent that those devices require communications, service providers benefit. So pay attention to devices. They are the "hot," affective parts of your relationship with customers. The quality and terms of service are the "cool" parts. You have to do those things right, but you won't gain much loyalty by doing so.

For that, you need the passion only a user experience empowered by a device can provide. At least so far. We've got a long ways to go before an application or service really is capable of creating the sort of emotional bond that does create higher margins.

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