Smart Phone OwnersUse Devices 2 Hours a Day, Talk only 12 Minutes, O2 Finds

On average, O2 smart phone owners now spend over two hours a day using their devices, but talk only 12 minutes, and text only 10 minutes.

Smartphone users spend more time browsing the internet (25 minutes a day), social networking (17 minutes a day), playing games (13 minutes a day) and listening to music (16 minutes a day) than they do making calls (12 minutes), O2 says.

That illustrates the multi-function nature of smart phones, as well as the key role smart phones now play in a full range of "Internet access" activities.

Checking or writing emails represents 11 minutes of activity a day. Watching video consumes 9.4 minutes a day, while reading books represents about 9.3 minutes a day.

People spend about 3.4 minutes a day tacking pictures, as well.

What Must Apple Do to Revolutionize the "TV"

Apple’s rumored interest in producing television sets might prove a bigger challenge than its efforts with other consumer devices. It isn’t so clear what about TVs actually is “broken” enough for Apple to revolutionize the category as it has transformed the “mobile phone.”

Based on that past experience, some significant breakthrough in ease of use, features and content would be necessary. The touch interface arguably was key, but most of us also would say it was the App Store, and apps (content) that really made the difference.

In the case of a TV, that presumably would mean Apple has to change the “content” part of the value proposition in some significant way, beyond integrating existing Web content, which has been the key feature of Apple TV so far, in its ancillary device implementation.

It seems unlikely that navigation and Web content integration alone will transform the experience. What would be revolutionary is some new way for consumers to buy and watch programs they want, including a relatively full range of TV shows normally shown on subscription video networks.

But that is not a technology problem, that is a licensing problem. And, so far, the networks have seemed unwilling to cooperate.

Perhaps Apple really can revolutionize the TV set. But it won’t be easy.

Mobile Signaling Growing 30% to 50% Faster than End User Traffic

While data traffic is growing, signaling traffic is outpacing actual mobile data traffic by 30 to 50 percent, if not higher, 4G Americas says. As another example, a web-based IM user may send a message but then wait a couple of seconds between messages. To preserve battery life, the smartphone moves into idle mode. When the user pushes another message seconds later, the device has to set up a signaling path again, 4G Americas notes in a new white paper.

For real-time Internet applications, the logical always-on connection between the
server and client is required, resulting in frequent or periodic small heartbeat packets to be sent as a keep-alive message to maintain the connection.

“Push” services and “always on” apps add more load. All of that is in addition to the “bearer” traffic. Heavy users of apps illustrate what could happen to network demand as “early adopter” or “heavy user” behaviors become more mainstream. Today, heavy video or audio streamers consume about 2 Gbytes a day worth of video, or 1 Gbyte each day for audio streaming.

In other words, optimizing a mobile network for bearer traffic is one issue, while optimizing for signaling traffic is a different problem.

General computing these days revolves around content consumption and sharing, and heavy users of social networks can consume 7.5 Gbytes a month up to about 14 Gbytes a month. Cloud storage, for early adopters, now ranges from less than a gigabyte a month, up to about 5.5 Gbytes a month.

Leading users of  gaming can consume gigabytes a day. The upshot is that total U.S. data traffic could grow 47 times over the next five years, unless wi-fi offload is available. If Wi-Fi offload is available, demand grows by “only” 24 times over the next five years.

The point, 4G Americas suggests, is that improvements to network, device platform, and application design can all help alleviate capacity issues, but there can be no lasting success without understanding end user behavior.

There is no question that end users are using more and more data every year. In 2011, 44 percent of mobile subscribers owned smartphones, which is more than double the market penetration of two years.

According to Nielsen, more than 50 percent of U.S. mobile phone users now use smart phones, in the first quarter of 2012.

Between 2010 and 2011, the numbers of smartphone subscribers engaged in various rich media
activities other than mobile video have all grown by 45 percent or more. Numbers of subscribers
performing game downloads and playing online games both increased more than 80 percent each in the same year, Nielsen also has reported.

It's Tough to be "10 Times Better" Than Everybody Else

One rule of thumb used by venture capital investors when assessing technology firms is to look for an order of magnitude better capabilities, when making decisions about whether to invest in a new start-up.


The reasons are many, but the assumption always is that, while a funded start-up is gearing up for its market challenge, market leaders will respond by closing the performance gap. By the time a challenger is ready to challenge the market leaders, the potential advantage will have been reduced.


Some might argue that technology performance is not the right way to measure order of magnitude advantages, though. What matters, some argue, is not technology performance but end user experience. At least in part, that is because most users don't buy "performance" so much as "experience."


That is particularly true for software products where the "experience" is the value, not the performance, as such.

A mobile payment capability, for example, has to offer an experience that is qualitatively and significantly better than paying with cash or a credit card. It can’t be a little better. It has to be a lot better. And that means it cannot be new experience that is just seconds faster.

Slight little improvements won’t motivate change, because the current process isn't really "broken."

You might argue that Square, and other merchant point of sale services offered by Intuit and PayPal have gotten such big traction because they were those sorts of “vastly better” experiences, allowing small retailers to take credit card and debit card payments where they never could do so before, on significantly better terms.

Small merchants might also value the faster time to see funds deposited into accounts, plus increased sales volume, without significant capital investment. All of that makes the payment experience better for a merchant. Technology advantages are of relatively small value. 


The point is that it is harder than it seems to offer a new product that is really 10 times better than what exists. When that happens, though, as with payment systems that turn a tablet or smart phone into a merchant point of sale terminal adoption can be rapid. 

Tablets Quickly Grabbing a Role in E-Commerce

Tablets quickly are establishing a role in e-commerce, passing smart phones after only a couple of years in existence. When tablets are used might have something to do with the growth. People often are "in transit" when using a smart phone, and more often are sitting on a couch when using a tablet. Also, tablets feature larger screens, and that means better display surfaces, better visuals and easier interaction than on a small screen.

Analysts Slash RIM's Equity Price Targets, Others Simply Say the Firm is Doomed

At least 10 firms have cut their stock price targets by as much as 50 percent, with analysts at Citi Investment Research and Jefferies pegging RIMs stock at $5.00 per share,  a 45 percent decrease from the closing bell yesterday.

Cannacord Genuity added that BlackBerry 10 will not save the company, and RIM needs to strongly consider selling the company in full as soon as possible. Some say nothing can save RIM.

Do Mobile Service Providers Benefit from Device Subsidies?

It is no secret that mobile service providers globally want to reduce the amount of money they spend to subsidize smart phones for their customers.

The problem is that the subsidies raise operating costs, and thus affect cash flow.

Of course, it can be argued that such subsidies also provide value, in part by reducing customer churn, as consumers often must sign contracts to qualify for the device subsidies.

Some would argue that although there is a positive churn reduction effect, the amount of reduced churn  is only 27 percent of incremental subsidy cost for AT&T and 45 percent for Verizon.

This means AT&T is actually losing more than $2 billion by providing iPhone subsidies, for example, while Verizon is losing nearly $1 billion. Verizon's "losses" are lower because it has sold fewer iPhones than AT&T. Over time, that gap should close.

Mobile service providers aren’t happy about the cost of device subsidies that cause a drag on earnings. For AT&T, the financial impact of iPhone subsidies is clear. AT&T profit margins had grown for five straight years beginning in 2005, but reversed in 2010, apparently related directly to iPhone 4 demand and subsidies, BTIG argues.

BTIG argues the iPhone subsidies have reduced AT&T margins by at least 10 percent in 2011, for example.

But the trick is how to wean customers off the subsidies without seriously slowing the smart phone adoption rate, since most smart phone customers, given a choice, buy subsidized devices, with a contract, rather than paying full retail price and buying service without a contract.

Up to this point, the decision hasn’t been terribly difficult. A Motorola Mobility Holdings Droid 4 costs $549.99 without a  contract and a 16-gigabyte Apple iPhone 4S, which runs only on 3G networks, is $649.99. Verizon Wireless offers both devices for $199.99 with a two-year data plan commitment.

It therefore comes as no surprise that nearly all customers choose to buy a subsidized device.

Up to this point, for example, Verizon has not charged a fee to its subscribers when customers decide to upgrade to a new device. But Verizon in April 2012 announced it would charge a $30 fee when that occurs. For Verizon Wireless, that could add up to $1 billion to Verizon’s annual earnings, and also boost profit margins, BTIG argues.

But that’s not all. Verizon Wireless now will provide incentives for users to pay full retail for their devices, using the bait of “unlimited” mobile data plans. That is likely to cause buyer sticker shock, though.

The new Verizon Wireless plan to end "unlimited" service and move users to capped plans primarily is aimed at matching end user data consumption to usage. But Verizon Wireless also appears to be using the opportunityto wean customers off device subsidies.

Verizon says "when we introduce our new shared data plans, unlimited data will no longer be available to customers when purchasing handsets at discounted pricing," Verizon says, unless of course the customer wants to pay full price for a device.

One might doubt the “full retail phone price, unlimited usage” plan will be chosen by many customers, though.

On the other hand, it is an interesting way of enticing some users to pay full retail for their devices. One wonders what Verizon might think of next, aside from simply raising the prices of devices sold with contracts. 


In the meantime, suppliers such as Virgin Mobile and Cricket Communications should provide an early real-world test of demand, as both those mobile service providers will sell iPhones at full retail.

Smart phones have been very helpful for mobile service providers, boosting average revenue per user by driving mobile broadband subscriptions. But the subsidies generally used to spur sales are bcoming a major drag on earnings, and change is coming. Basically, service providers will have to risk lower sales growth, and less mobile broadband revenue growth, to limit handset subsidies. It might be a Faustian bargain.

In fact, what seems to have happened is that user behavior has changed, with users upgrading those “expensive” smart phones faster than they had generally been upgrading their feature phones, analysts at BTIG say.

As a result, U.S. mobile service providers plan to take steps to reduce handset upgrades as a way of raising operating margins. That is likely to affect sales of Apple iPhones, generally considered the most-expensive device to support.

AT&T, Sprint, Deutsche Telekom, Vodafone, America Movil and Telefonica are among firms planning to take steps that will slow iPhone sales in the coming year.

In the United States, BTIG expects iPhone sales to decline four million sequentially to nine million with the largest impact coming from AT&T, Apple’s largest customer.

In fact, AT&T says it has built its business model for 2012 around the idea that it will sell no more smart phones, overall, than it did in 2011, about 25 million units.

BTIG analysis suggests something quite significant. Despite the importance of smart phone accounts for growth of key broadband revenue, AT&T has decided to essentially cap smart phone sales to preserve its profit margins.

The impact should be clear: fewer iPhones sold by AT&T, and possibly fewer iPhones sold by other mobile services providers. That could lead to market share gains by other smart phone makes and models, or could spur Apple to produce lower-cost iPhones.

What the carriers hope for is the ability to sustain average revenue per user growth, and higher profit margins.