Wednesday, July 21, 2010

Clearwire's Sweet Package

Engadget has published a story which has since traveled around the blogosphere, on the subject of Verizon introducing bandwidth caps on data usage.

There are two initial points to be made about this story:

No. 1. Verizon has already had a data cap for years. It's 5 gig per month, with overage charges.

AT&T recently lowered the cap for certain devices such as iPhone and iPad to 2 gig per month, but those devices are also charged less, typically $25 per month instead of $60 per month for the USB modems.

No. 2. Verizon started telegraphing this move already last December, and it is reasonably believed that this new pricing change will happen in time for the anticipated Nov. 15 launch of LTE.

Those two formalities aside, the main implication for investors from this anticipated move by Verizon is with respect to Clearwire. Clearwire is mostly associated with WiMax, a technology that has been losing momentum in the market for almost 18 months now, in favor of LTE. The main point I am making here is that it mostly doesn't matter for Clearwire whether it is offering service using LTE or WiMax.

Clearwire's main asset isn't WiMax technology per se. It's spectrum. Spectrum means capacity, the ability to offer service to more people doing more things, simultaneously.

Whether this is done using LTE or WiMax basically doesn't matter, at least for the time being given that these two technologies have similar performance.

Specifically, Clearwire has 120 MHz of spectrum on average across the major markets where it has launched, or will soon, be launching service. In comparison, Verizon has closer to 30 MHz worth of spectrum where it will be launching LTE.

In addition, Clearwire's spectrum is "un-paired" (referred to as TDD) whereas Verizon's is "paired" (referred to as FDD), which in practice means that Clearwire's spectrum can be utilized a lot more efficiently.

The bottom line on the spectrum is that Clearwire has approximately four times Verizon's spectrum, and it may be at least 50% more efficient, so that means six times. This makes all the difference in the world in terms of Clearwire's ability to compete and to do so with competitive pricing.

Practically speaking, the only thing you need to consider when judging Clearwire's ability to compete with Verizon, AT&T, T-Mobile and the others is: Can they offer more data for less money, or not? The answer to this question is very simple.

Clearwire is offering unlimited data for anywhere between $30 and $60 per month depending on the device you use. The competition is offering anywhere between 2 gig and 5 gig per month for $25 to $60 per month.

A laptop or iPad user doesn't care whether it's LTE or WiMax. The user only cares about getting the fastest amount of data, at the highest quantity, and at the lowest price. This isn't a close contest, folks. If I can get unlimited service for $30 or $60, instead of 2 gig or 5 gig for a similar price, why on Earth would I pick Verizon, AT&T or T-Mobile, instead of Clearwire?

If one brand of gas station offered you unlimited gasoline for $30 per month, would you shop there? Hmm, let me think.

Verizon will surely build the finest LTE network imaginable, given what's got in terms of limited spectrum. I have no doubt that it will perform as well as it as all possible. But if Verizon can't come close in terms of competing with Clearwire on a price-per-bit basis, I don't see why anyone would serve its laptop with a potentially much more expensive modem.

Nota Bene 1: Sprint owns approximately 55% of Clearwire.
Nota Bene 2: Clearwire offers service also under the Sprint, Comcast and Time Warner Cable brands.
Nota Bene 3: Google is an investor in Clearwire. Imagine what they have in mind.

Tuesday, July 13, 2010

iPhone 4 Recall: A Useless Idea

The rumors about an Apple iPhone 4 recall has to be one of the most useless ideas in recent technology memory. There is nothing about the design flaw that could be fixed in any recall, short of rebuilding the phone from scratch or redesigning a whole new phone, which would take one year or perhaps more. It would be totally counter-productive for Apple and its customers alike.

There is really only one solution which makes any remotest sense, and that's for each customer to do what each customer should ALWAYS do with ANY smartphone of value ANYWAY: Use it with a protective cover, such as Apple's own so-called bumper product, available at the Apple store for $30 apiece. Numerous other protective covers/sleeves should soon become available from many other companies, such as privately-held Otterbox, to pick the example of what's considered to be the best in the business.

So far, Apple has rejected the idea of giving away its $30 bumper for free, but with the journalistic drumbeat on high gear, free bumpers may just be inevitable. Interestingly, most consumers seem thrilled overall with the iPhone 4. Just ask any sample of your friends who are proud iPhone 4 owners. I can't find a single iPhone 4 owner with a serious complaint. They either avoid pressing the finger on the critical antenna spot, or they have a cover such as Apple's own bumper.

The people who had the phone from the very first moment it became available, before the widespread reports of the antenna issue never seemed to notice it until it became a big media story. Since then, it has become more of a party trick for those without a protective cover: "See, look at what happens if I put my finger right here."

It's something you would probably have seen in terms of a Hugh Hefner or Austin Powers party trick ca. 1967. In reality, it's simply not an issue for the way you're supposed to handle the product, and consumers are extremely happy with the product by all accounts.

Specifically, iPhone 4 consumers tend to report much better Internet speeds, particularly upload speeds. Let's say you take a photo or a video with the new high-resolution camera, and you want to upload it to some web site. This now goes much faster with the iPhone 4 than with the previous iPhone 3GS version, and for that matter many other smartphones. So much for an antenna reception problem!

Bottom line: Sensational journalism is often unfair. I feel for Apple. Let's all hope ambulance-chasing lawyers don't get their pound of flesh from this non-issue. We don't need another John Edwards.

Wednesday, July 7, 2010

RIM, BlackBerry: Pluses and Minuses

Research in Motion traded above $70 in early May; now it's below $50. This article seeks to accurately assess RIM's competitive position.

First, the pluses. As I see it, RIM has three primary pluses in the market today:

First, the vast majority of the world's handheld computer users do so on a pre-paid basis, unlike in the U.S. RIM offers its products on a pre-paid basis in many countries, unlike Apple and Google/Android. As long as the large majority of the world's consumers cannot buy iPhone or Android, RIM should do pretty well against its main competitor: Nokia. Once Google and Apple decide to attack this lion's share of the world-wide market, RIM becomes vulnerable.

Second, most U.S.-centric pundits and portfolio managers have spent the last couple of decades PC-savvy and web-centric. As a result, they believe that the average consumer primarily looks to the handheld computer purchase to replicate the PC desktop web experience. While this is true among one billion people, it's not true for another five billion people. For the majority of the world, there is no laptop or web browser as reference points, but rather a Nokia cell phone with SMS being the primary medium of communication.

In this context, the BlackBerry looks like the ideal step-up from that old-fashioned Nokia phone. It's the best SMS machine, available on a pre-paid basis, and in order to reduce SMS charges the BlackBerry offers its superior and proprietary BlackBerry Messenger app, which has proven to be very addictive around the world.

Third, RIM's focus on large enterprise and government is unlikely replicated by its less focused competitors, whether Google or Apple or any of the others. There is a reason RIM has a near-100% market share in government/military and nearly as large market share in the most demanding large enterprises such as the heavily regulated banks. It's almost as if RIM needs to be valued like two separate companies under one roof: One defense contractor, and one consumer-computer-mobile company.

While we can all agree that RIM has its competitive challenges in the consumer space, its superior focus on security should enable it to dominate the largest enterprises and the defense departments for years to come. Last time I checked, defense contractors tend to be very profitable businesses deserving of healthy valuations.

On the downside, RIM has three main things to worry about:

First, the operating system is far behind Apple and Google in terms of its fundamental elegance and capability. Just compare installing an app, and then view its richness, between these platforms. Installing an app on a BlackBerry often takes a long time and can be followed by all sorts of screens of approvals, agreements needed to be signed, after which it may crash and bring down the whole system.

Sometimes it works, sometimes it doesn't. For those of us who use multiple competing products based on different operating systems, these competitive discrepancies are obvious. Does anyone at RIM walk around comparing its products with iPhone and Android all day long? In a company such as RIM, literally thousands of employees should be forced to do this constantly.

Second, BlackBerries fail all the time, and they are a pain in the neck to restore. Half the time you need to do something, the device freezes or shows the horrific hour-glass for who-knows-how-long. This didn't use to be the case some 4-7 years ago, when most BlackBerries operated only the "core" apps such as email, but it has increasingly become a problem when consumers, despite the unfriendly app install process, start loading 30+ apps onto the devices.

In this process, every BlackBerry owner knows how to reboot the device, because you end up doing it almost every day -- which brings me to the next point: It's probably a sign of an unhealthy operating system if it takes 5 minutes to reboot, when an iPhone or even a Windows 7 laptop takes only 45 seconds.

Third, getting your BlackBerry to interact with the PC is a bureaucratic nightmare compared to an iPhone. The average consumer needs to run three separate processes: (1) Back-up, (2) Synchronize and (3) Media Sync (with iTunes). Due to its complexity and lack of intuition, most BlackBerry owners I know run only one of these three.

In contrast, getting "everything" done between your iPhone and iTunes requires only pressing a single button, once, upon which all backup, synchronization and media management occurs. Same thing for restoring your device -- one button click for iTunes/iPhone, whereas you need to take a day off from work, or sacrifice a weekend, in order to get your BlackBerry back into its original state with all the numerous apps you have downloaded and configured.

Conclusion: The tech support costs for BlackBerry are astronomical. Over the last eight years, I for one have spent on average two hours per week troubleshooting my BlackBerry for any of dozens of reasons, amounting to a small European vacation every year. Perhaps this is justified in The Department of Defense with its gigantic IT department, but the average consumer runs for the hills into the arms of the iPhone very quickly.

Bottom line: The sentiment surrounding RIM stock is as negative as I have ever seen it. This is part justified based on the problems resulting from the operating system and the various problems it causes. That said, RIM can thank the large pre-paid market consisting of people with no PC/browser experience, as well as its de-facto defense contractor status, for what will probably continue to be several prosperous quarters ahead. On balance, and in combination with the humble valuation and negative sentiment, this should prove for a strong rally in the stock as long as the new BlackBerry 6 operating system interface rolls out -- on time (by September), and assuming it's any good.