Out of the Blue

3G iPhone -- Everything but a phone!

I’ve had my 3G iPhone for more than two weeks now, and I love it. It goes everywhere I go, and it does everything. Well, almost everything. Actually, everything but a phone! The sound quality for voice calls is appalling; the Bluetooth connection almost unusable because of the echo, and the dropped calls beyond maddening. After suffering through two weeks of poor call quality and more dropped calls than I’ve experienced in a decade, I wanted to know whether it was the network or the handset, so I ran the ultimate comparison between my Nokia N95 and the 3G iPhone, both on AT&T’s network. Not exactly scientific, but the best handset comparison I could conduct. 

The envelope, please? The results are in – it’s not the network but the handset. The Nokia N95 won hands down! No contest. To me (and when I checked, the person at the other end of the connection), the Nokia N95 has far superior sound quality, excellent Bluetooth sound with no echo, far better radio (with no dropped calls!), a fabulous speakerphone rivaling office Polycom systems, and beyond these critically important voice quality characteristics, an outstanding camera (Carl Zeiss lens, 5 MP) that could replace most Point & Shoot cameras. (Sadly, it just doesn’t have the Apple GUI.)

Testing the 3G iPhone — After pairing my iPhone with my Nissan Altima Hybrid’s hands-free phone system, I pulled out of my driveway and placed a call. By the time I got to the bottom of the hill (1.2 miles), the call had dropped three times. The sound quality was poor as well, with an annoying echo not experienced with my any other paired device.  (I live on a hilltop in Marin County, about a half-mile from Highway 101, the main North-South highway running the length of California. Not exactly the boonies!) After a few dropped call episodes, I stopped using the phone until I reached the flats. I still had dropped calls.

Testing the Nokia N95 — Same network, same car/hands-free system, different handset. And a different experience entirely. I initiated a call from my driveway, retracing my route down the hill, and in each of the three spots where my call dropped on the iPhone, the conversation continued uninterrupted. We talked for 20+ minutes, without a drop. I placed another call, to the recipient of the original 3–dropped calls conversation(s), who commented that the call quality was better this time on his end. And no drops so far.

Verdict — No one’s made the perfect handset yet. I’ve said what the iPhone isn’t — a decent device for voice calling — but it has the best mobile browser by a lot, an elegant interface, fun apps — my current fave, Guitar Toolkit, for tuning guitar, illustrating chords and keeping the beat — and then there’s the coolness factor. Forget about e-mail, for which the BlackBerry rules. I use the 8820 (at least until the Bold is available). With a keyboard and the BlackBerry software, it’s simply the best for e-mail and business. And my current voice handset — the Nokia N95. So for now, I’m carrying three mobile devices, one for e-mail, one for browsing and one for good ol’ fashioned voice calls. That doesn’t include my Sprint USB Novatel U727 modem. The iPhone has further complicated my life, and added a third device to carry. Maybe I’ll give it all up and get a Jitterbug phone, the simplest and most elegant handset (and GUI) out there.

NOTE: California has a new hands-free law which prohibits all drivers from using a handheld wireless telephone while operating a motor vehicle (except to make emergency calls to a law enforcement agency, a medical provider, the fire department, or other emergency services agency.) So how well the iPhone, N95 or other handset operates in hands-free mode is very important, if you want to make a call in a car.

Tags: iPhone, 3G, Apple, Nokia, N95, quality, handset, dropped, echo, speakerphone, camera, Bluetooth, hands-free, sound, Guitar+Toolkit, Novatel

Why MVNOs Aren't Working in America -- Another Opinion

I just read a thoughtful piece on why MVNOs aren’t working in America. I think it comes down to four issues:

1. Every US-based MVNO is struggling with the virtually impossible challenge of making money buying wholesale minutes while network operators are pushing unlimited plans in the market. There is always a time lag between what network operators offer their retail customers and when they make these features, services or pricing available to their wholesale customers. Trust me, this is the nature of the beast. However, what is happening in the US today is far more profound. We are in the middle of a sea change in mobile service pricing as we transition from usage sensitive pricing to flat rate, all-you-can-eat unlimited plans. While most postpaid subscribers still use retail “bucket plans”, e.g., $39.95 for a given number of minutes per month, and prepaid subscribers buy a given number of minutes for, say 15 or 20 cents per minute, a typical unlimited voice plan, introduced earlier this year by all the national operators, offers $99 unlimited voice, or in the case of Sprint’s Everything Plan, everything but the kitchen sink – voice, data, messaging, navigation – for that amount. Unlimited pricing is not just a postpaid phenomena. Sprint’s Boost unit offers its unlimited package, and both metroPCS and Cricket (Leap) offer similar hybrid unlimited plans where credit-challenged customers prepay a the beginning of the billing period rather than the end. Unfortunately, wholesale customers cannot purchase these unlimited plans at a discount (discounted buckets). Wholesale customers must still buy bulk minutes (and pay on a per minute basis). This forces them to either take an unacceptable risk by offering an unlimited plan while hoping they have more lower usage subs than high-usage customers, or not offer competitive plans with obvious consequences. Resellers are thus caught in the middle of what looks like a classic price squeeze but is actually something far bigger – the transition from the telecom service model to the Internet service model. Time may sort this out as some variant of unlimited pricing reaches the wholesale market, but there will be few if any survivors. To reiterate, every US-based MVNO is struggling with this challenge today.

2. Distribution has evolved, but not for the benefit of MVNOs/resellers. Network operators are increasingly reliant on their own stores, shelf space which is not available to MVNOs (except Virgin and Boost sold in Sprint stores, but these are affiliates and wholly-owned units, respectively.) At the same time, non-carrier retailers are not faring well, e.g., RadioShack, Circuit City, CompUSA and other wireless destinations, are struggling and don’t account for as many new subscribers as they used to. For these reasons, MVNOs can’t find the broad distribution needed to acquire new customers, or must pay much higher commissions to buy their way onto non-carrier shelves. Either way, this drives up acquisition costs. The original notion of MVNOs was they could leverage existing assets – a strong brand, distribution, existing customer relationships – to reduce acquisition cost. In most cases, MVNO acquisition costs are higher than operator costs. (Oh yes, as noted in the paragraph above, so are their airtime costs.)  

3. Content is simply not a compelling proposition for MVNOs, as many thought it would be. Disney, ESPN, Amp’d all failed to sign up significant (paying) customers based on content alone. And believe me, they spent a lot of money trying. Disney is thought to have spent more than $400 million, and shuttered their doors quickly. Amp’d spent hundreds of millions. And Helio’s investors, SK and Earthlink, have invested more than $400 million so far.

4. Cool handsets are now what network operators tout, and MVNOs have almost never been able to offer as cool of handsets as the operators. They don’t buy the volumes of handsets that get OEMs excited. They often must purchase handsets from the operators, who “push the fish.” (You’ll have to ask me to explain that one.)  The one possible exception to this has been Helio, at least until the iPhone was introduced.

Early successes by TracFone, Virgin and Boost were in the then-untapped prepaid market. Now the prepaid market has many providers, operators have come in with their own prepaid offerings, metroPCS and Cricket offer a compelling alternative to prepaid (and landline phone service), and unlimited plans are squeezing everyone. With penetration to a point where just about everyone who wants a cellphone has one, there just isn’t the white space (unserved markets/segments) there was before. Notwithstanding Movida (which was snapped up quickly), the one exception to this is the ethnic markets, where big operators have historically been ineffective. Nevertheless, there are still the issues of pricing and distribution described above, both of which are extremely challenging.

Historically, the most successful resellers I’ve seen, and a decade ago while at (pre-WCOM) MCI, we bought the then-largest reseller in the US, Nationwide Cellular, focused on the details. It wasn’t a glamorous business, with no fancy content or handsets. But the key then was watching pennies, aggressively managing carrier relationships, and focusing on details, not cool but not compelling content. It comes down to basics, and this is a far tougher business in the US today, for everybody.

It’s really time for a new model. I have a few ideas on this score. But that’s what my clients pay me for.

Tags: MVNO, Virgin, Helio, Amp'd, Sprint, TracFone

Helio and Wireless Retail Stores

Annual reports to the SEC have come out, and the Earthlink filing is insightful. They originally struck a 50:50 JV with SK Telecom to create the Helio MVNO, which launched a few years ago. You’d have to be living in a cave to not know Helio is hemorrhaging cash. Without going too deep into the numbers, Helio ended last year with slightly more than 180,000 subscribers. To date, Helio has posted total losses of $560 million in its three years of operations. That’s $3,111 in losses for every subscriber, which doesn’t sound like a business to me! The Earthlink filing notes they’ve already made $210 million in cash investment in Helio, and are getting diluted down from their original 50:50 JV with SK Telecom such that their Helio investment might not be successful.

Every time I see a Helio store, I stop and check it out. I’ve been to Helio stores in Palo Alto, San Diego and Santa Monica. They’re as big and flashy as Apple’s stores, with one big difference — there aren’t any customers! With $327 million in losses this year, one has to wonder why they keep these high-rent, low-traffic stores open. Based on my observations, they can’t be producing much in the way of subscribers.

This raises a larger issue for the entire industry. Helio is not alone. Why are providers building and operating fancy retail stores? Is this the most efficient way to sell wireless? Every time I stop in a carrier retail store, it seems that more customers trying to resolve handset and service problems than signing up for service. When traveling in Europe and Asia, I’m always amazed at the High Street wireless dealers, several on every block, most usually filled with customers. Then there are the great Carphone Warehouse stores, and other high-end retailers, always crowded. This seems to be a far better and more efficient way to sell subscribers than company stores, and market penetration numbers seem to confirm this. Maybe this works better in a GSM world than in the US market.

My new interest is on the viability and wisdom of mobile operators building and running retail stores. Your thoughts are always welcome!

Tags: Helio, Earthlink, SK+Telecom, Apple, Telephony, Carphone+Warehouse