Thursday, January 6, 2011

RIM's PlayBook Checkmate

What will be the most powerful tablet advertisement this summer? It could very well be Sprint Nextel's promotions for the Research In Motion's BlackBerry PlayBook tablet running on Clearwire's 4G WiMax network. Why? Because Sprint is the only wireless broadband carrier offering unlimited 4G consumption for a fixed price.

Jim Cramer has correctly made the observation that TV/movie consumption is rapidly moving in the direction of watching Netflix on the Apple iPad. This is true, but unless you are on WiFi, watching Netflix on the iPad can also be a costly proposition. AT&T offers a 2 gig per month iPad 3G plan for $25, which is rapidly consumed if you use Netflix frequently. The real monthly cost could be a lot higher than $25, as you consume a lot more than 2 gig per month.

Here is where Research In Motion's pathbreaking deal with Sprint comes in: So far it looks to be the only iPad competitor offering unlimited 4G use for a reasonable fixed price. We don't have the pricing details yet, but all indications are that it will be very competitive with AT&T, Verizon and T-Mobile -- with one critical exception: unlimited use. This means you can watch as much Netflix as you want, without worrying about overages.

Obviously, it is eminently possible that Apple's and Google's hardware partners -- such as Samsung, LG, Motorola, HTC, Dell, Lenovo and others -- will copy this deal with Sprint, but until they do, it appears that RIM has taken this bull by the horns and launched the first strike. In fact, I wrote out on Nov. 4 that Apple should cut its next deal with Sprint/Clearwire.

Who are the other winners in this equation? Sprint owns approximately 50% of Clearwire, which has the WiMax network offering this unmatched 4G capacity and performance. No other operator has 120 MHz worth of 4G spectrum (Verizon has 30 MHz and AT&T perhaps even less). I wrote on Sept. 28, 2010, that it was most likely Texas Instruments that supplies RIM with the PlayBook's dual-core CPU.

Who makes the baseband radio chips for the RIM PlayBook? Clearly, the EVDO radio, to the extent that it contains one of those (most likely), is made by Qualcomm. The WiMax radio is most likely made by Broadcom. Why Broadcom? Broadcom has approximately 90% market share inside the end-user devices operating on the Sprint/Clearwire WiMax network, so that's a fair guess, although not totally without uncertainty.

Aside from the PlayBook's superior consumer proposition in terms of a fixed monthly price for unlimited consumption, what will be the PlayBook's major competitive advantage over devices such as the iPad and those based on Google Android? In a word, security. BlackBerry is the undisputed security leader with a dominant market share in sensitive government operations and many of the major banks and other high-profile institutions.

The recent WikiLeaks scandals have raised the awareness of government and corporate IT security to new highs. This plays right into BlackBerry's hands, with the launch of the PlayBook as the only security-focused tablet.

There are, however, three major questions RIM must answer with respect to its PlayBook transition. Fortunately, I believe I have the answers:

Will the PlayBook be available only on Sprint? What about Verizon, AT&T and T-Mobile? There is no reason it won't be available on those, too. The probability of announcing all of them on the same day is just tiny. It does not take a rocket scientist to figure out that RIM has LTE and HSPA+ versions available for the other non-WiMax carriers.

Will the QNX operating system powering the PlayBook be available also on future BlackBerry smartphones? Yes, of course. A reasonable development time-line would suggest that QNX BlackBerry devices could emerge around the end of September 2011. The smaller size means battery and heat issues would need to be worked out, but this development has likely been underway for more than six months already.

Does the PlayBook work only in conjunction with a BlackBerry? This is, for most relevant purposes, misinformation and propaganda spread by somebody in order to make BlackBerry look like a fool. It could also be RIM's fault for not explaining it very well. The PlayBook must tether to a BlackBerry via Bluetooth only if it is to operate behind RIM's corporate server firewall, the so-called BES (Blackberry Enterprise Server). This security requirement is simply not applicable to the regular consumer, who can disregard it. For the regular consumer, the initial PlayBook device in March will work just like an Apple iPad in the connectivity department: WiFi. Moreover, even for those particular corporate applications, it is only a requirement for the first six or so months of the initial noncellular (WiFi-only) version of the PlayBook. Once the 4G PlayBooks hit the market this summer, they will also be able to talk to the secure servers behind the corporate firewall directly, without the need to tether to another BlackBerry using Bluetooth. RIM needs to explain this a lot better, but in the meantime people need to understand that there is nothing to worry about here.

In summary, RIM is forging a partnership with Sprint/Clearwire that is a match made in heaven for the mobile Netflix consumer. With Texas Instruments, Qualcomm and Broadcom under the hood, the BlackBerry PlayBook could propel RIM and other stocks to new highs this spring in anticipation of this superior product hitting the market.