Google Phone At Hand. No Kindling.

mot-bile 2009 - Nexus One is all over the web. Unlocked, open, bare, the gPhone will probably be cheaper than an iPhone... MNO subsidies not included.

MNO subsidies ? As Big G eventually takes on Apple & co on their core business, it decides to redefine the whole handset ecosystem : direct sales, operator agnostic, Dell Computer style, without the intel inside jingle.

Imagine a small M-VNO proposing competitive rates for data. All of a sudden, a bunch of nerds subscribe for their brand new Nexus and bring the house down. Far-fetched ? 3% of iPhone users generate 40% of the data traffic on AT&T's network, to the point the operator confessed : "we've got to get to those customers and have them recognize that they need to change their patterns or have to face other things" (see "AT&T may penalize iPhone users who hog data"). In other words : be a good customer, but not too smart. or else... "face other things". Whatever that means. Maybe some big guy with a slight Italian accent will come with a baseball bat and redesign your knee caps, or upload a creative application on your face.

Nexus One makes a lot of people nervous. Some even consider lawsuits : if Google inaugurates itself the next version of Android, the newcomer may face charges of anticompetitive behavior, even if it only sells one device.

I'm looking forward to an interesting 2010 year : Apple facing full-fledged competition, Nokia going at Blackberry's throat... and Google releasing its Kindle.

Because that's basically the same story for Google and Amazon : beyond the device (the "Google outside", if you prefer), the aim is to understand the whole value chain and to secure future revenues in a field that's bound to represent a great chunk of the core business in a very near future.

The main difference : Google are not into distribution, IRL.

embedded 3G+ and better rates

Strategy Analytics expects a 60% boom for embedded 3G in 2007.
Wi-Fi has already found its slot on laptops*, WiMAX's democratization will take some time, and 3G offers the best bitrate / security / continuity of service mix around.
In the transitional period before the industry adopts embedded connectivity, PC cards will not be as trendy as they used to. USB modems are cool and more consumer-oriented. Less PC-oriented, too, since more devices are to become 3G enabled. SKT proved it last year (with T Login**), KTF a few days ago (with iPlug, a SBSM - Single Band Single Mode - W-CDMA service), and Verizon Wireless today (launching its EV-DO Revision A service with the Novatel USB720 modem announced last year).
Laptops are definitely ripe for embedded 3G and if possible, embedded HSDPA. W-CDMA was too light for many applications run on a laptop, and HSDPA keeps rocking and rolling across the globe. Even in Korea, the country formerly known as Qualcommland, where LGT will launch EV-DO Rev A during the second half : both SKT and KTF are dumping cdma2000 for the W-CDMA - HSDPA - HSUPA - HSOPA roadmap, both will enjoy a nationwide HSDPA coverage this year, and both mean business.
KTF, for example, did launch iPlug with a USB data card, but intends to HSDPA-enable 50% of its handset line-up this year and 90% next year. KTF will have migrated half of its customer base from CDMA to W-CDMA and beyond by 2008 and 100% by 2012.
There is already a fierce competition in subsidies, and data rates should follow soon. SK Telecom just decided to reduce the data fee ceiling (and the level from which benefits are given) from 200 to KRW 150,000, and to slash its "Ting Data Free" flat data rates for teenagers by 30%. Officially, heavy bills deter many customers giving it a try without a flat rate offer (a generally binding and expensive item). But if boosting new usages sounds a noble cause, defending leadership may be a more plausible motivation for Korea's leading MNO : KTF proved a better competitor last year and will strike very hard in 2007. A new marketing culture is being pumped into KT's bureaucracies at the best moment : after years of regulatory hurdles, IPTV and quadruple plays will at last blossom in the Land of Broadband.


* it should keep spreading though, as the extension of the fixed sphere it was meant to be, and often on voice-centric devices - as it does through quad play offers
** see "T Login for HSDPA, EV-DO, WiBro and YouNameIt" (20060920). But today, I would be surprised if SK Telecom and Samsung were not considering embedded 3G+ as a part of their recent international partnership.

Is SKT's MelOn-opoly MP3 game over ?

One day SK Telecom is fined 3.8 billion wons for illegal subsidies and the next 330 million for anticoncurrencial behavior in the mobile music field (these days KRW 1,000 = about EUR 0.827 or USD 1.090).
Even ten times lower, the second punition could be most bitter to swallow : if "subsidies" were a simple breach of clearly written rules (decision by Korea Communications Commission), market dominance demanded a much more complex analysis and reached a much higher level (decision by the Fair Trade Commission). In any case, two blows in a row cannot be considered good news.
The KCC gave SKT 60 days to allow the subscribers to his service to play MP3 files downloaded from other providers.
As seen earlier in these columns, MelOn is Korea's favorite flavor in the juicy market of mobile music, with millions of subscribers paying 5,000 wons a month to download from their mobile phone as well as from the web. Yet, it gives SKT the music major a 60.2% market share on the mobile music market which is only slightly over that of SKT the mobile operator. This isn't what I would call a MelOnopoly. But from the "customer share"'s point of view.
SKT appears to be eventually experiencing the drawbacks of its pervasive strategy, and may not remain free of entering any given market without assuming the burdens of his leadership in mobility. At home at least.
On the other hand, compelled to open up its entertainment / financial / you name it activities could lead it towards even higher ambitions.

T Login for HSDPA, EV-DO, WiBro and YouNameIt

SK Telecom having a knack for new brands and new technos, customers must be struggling to keep the pace with the operator's launching machine.
T Login isn't Deutsche Telekom's latest Business Unit but a key to all SKT wireless data accesses (3G EV-DO, HSDPA, WiBro... or why not TD-SCDMA tomorrow* ?) for all devices (laptops, PMPs, digital cameras, car navigators...).
And which common denominator connectivity do you think they picked up before embedded solutions - T Login inside - are available ? Neither Bluetooth nor a vulgar 802.1x wannabe, but Korea's ultimate entry point : the USB.
Yet another proof of SKT's priorities, the first T Login modems will start with HSDPA and add WiBro on time for Xmas and at full throttle 3 months later**. Thanks to KRW 190,000 subsidies, retail prices are slashed to KRW 50,000 or about $ 50, which reflects the importance of this new entry point. SKT decided to boost the buzz by recruiting 30 "quality reviewers" on the web besides the usual pilot testers. Service rates range from KRW 29,900 per month for 2GB (+ KRW 184 per additional MB) to KRW 45,000 for 3GB (+ KRW 123). To be compared to, say, a basic fee of KRW 33,000 for Hanaro Telecom's unlimited Fiber LAN access for cyber apartments.
Overall market is estimated at 2 million people, with the usual suspects mobile office workers and road warriors among core targets, but also students because the group intends to embed its major entertainment brands MelOn, cyworld & Co. too - hell, they even offer dodoris as prelaunch incentives ! In a country where PC cards failed, HSDPA does stand a chance and SKT can leverage on security advantages as well as roaming perspectives for business users.



* since the techno is about to enter Korea (see "TD-SCDMA in Korea" - 20060901)

** No S-DMB in sight and anyway TU media didn't communicate much after the launch of free T-DMB services while KTF claimed 164,000 customers end of May.

Subsidies - 2nd Korean Wave

KTF ignited Korea's second round of handset subsidies* and SKT followed yesterday. Consumers don't quite understand the sophisticated grids proposed by the operators but the message is clear : you'll get more if you're a loyal big spender.
For example, at SK Telecom, you're still offered 70,000 wons if you joined the company during the last three years and if you spend less than 30,000 wons per month... but if you've been a client for over 8 years and spend over 90,000 wons per month, subsidies reach 240,000 wons and that's a 26% increase since March the 27th.
People who joined the back-then-not-yet-broad-bandwagon in '96 and spend about 80 euros per month are either business users or deep pocket early adopters (if not both) : core targets for such expensive next gen devices as DMB handsets.
The thing is SKT badly need to boost subscriptions to TU media and its business flavor TU media Corp**. End of March, almost all SKT consumers had WAP enabled (99.5%) and color (92.8%) phones. And it looks as if not everybody will need 3G (unless the operator gives up 2G) : EV-DO penetration reaches 44.6% (of which 90% are June enabled), but the score was already 38.3% end of March last year and SKT started before Japan's KDDI, a 96% 3G cellco***. The same could be said about Nate - active users stuck around 55% of the customer base.
Actually, from a wireless ARPU point of view, I'm not sure TU is such a great booster. But far beyond, the transformation of the cellco into a powerful multimedia broadcaster and content provider remains impressive.
SKT's other growth engines require time : m-commerce becomes mainstream (and it shows in ARPU), but international operations remain quite small (of the 20 M global customer bases, 19.7 M live in Korea...). We'll see how Helio** performs in the US.
And we'll aslo see how KTF performs in Korea with W-CDMA and his new international partner NTT DoCoMo...


* see "Saving private Korea Inc - back to subsidies, but no way back" (20060326).
** see previous posts on SKT's S-DMB service (TU) and US M-VNO (Helio).
*** even if you cannot compare the circumstances : SKT a leader in a pure CDMA country, and KDDI a CDMA laggard in a PDC country (who became #2 thanks to an aggressive 3G strategy).

Saving private Korea Inc - back to subsidies, but no way back

Better late than sorry. The MIC eventually allowed cellcos to subsidize handsets. Korea Inc can now boost DMB, WiBro and W-CDMA technologies at home. Bad news for SK Telecom's competitors*, good news for Samsung, LG & Co, who would have preferred this help much earlier for their international competitiveness**. Yet, note that debitel's DMB trials in Germany*** have just been confirmed, along with a nationwide coverage in 2007 (8 cities for the World Cup, 12 by the end of 2006).
The MIC set a few rules for subsidies (only 62% of subscribers can enjoy them now, and 18 to 24 month will be required between each favor)... with the notable exception of next gen handsets (DMB, W-CDMA, WiBro...). To avoid a loss of face, the Government intends to monitor the process even more closely than it does with real estate, thanks to a weird kind of reverse auction.
This Monday morning, March the 27th, each MNO will give its subsidy grid to the regulator and no change will be allowed untill April 27. You can give more but can never lower your level of subsidy.
Analysts expect a reasonable start (around KRW 100 k per handset - about $100), but all gloves are off... which might help those who'll purchase the brand new ring / wrist phones recently announced by manufacturers.
But the device of the week was presented by Samsung at their Mobile Solution Forum in Taipei. It's not a handset but the World's first SSD (Solid-State Drive) laptop : the 32 Gigabyte flash-chip drive is four times lighter than a 30 Gigabyte HDD, and the manufacturer expects the technology to snatch 30% of the laptop market with a $200 unit price by 2008 (the price is set**** at $500 right now).



* even if KTF will turn a few heads with KTF Technologies Inc's ultra-slim phone (7.9 millimeters - MP3 player - 1.3-megapixel camera - electronic dictionary with over 300,000 English words...).
** see "Subsidies : boosting subscriptions of exports ?" (20051026).
*** see "CeBIT unnovations" (20060312)
**** I don't say "fixed" because Samsung joined Hynix in sending employees in jail for price-fixing in the semi-con sector (the $300M fine paid last year didn't protect the individuals working for the company).

Subsidies : boosting subscriptions or exports ?

Korea's MIC will reopen a door to hanset subsidies. Household consumption may be up, consumers cannot afford next gen devices and that's a blow to Korean industries : how to sell S-DMB abroad when only early adopters can buy it (see "handle with e-care - China-aware pro gaming") ? how could Korea join leading countries on the W-CDMA / HSDPA tracks (not to mention EV-DO Revision A and B for LG Telecom) and push Wibro standard at the same time ?
But the problem at the root of the law forbidding such subsidies remains. So the MIC decided to restrict subsidies to long time subscribers (3 years or more with the same MNO) : the acquisition war won't be reignited and leading operators will focus on loyalty. One can easily imagine SKT telling his customers : you know you have a right to churn, but think first about what you're about to lose.
Besides, LG the manufacturer can sacrifice LG Telecom the mobile network operator for the sake of Daehan Minguk. The "can do" times are over ; Korea discovers the duties of the "must do" era.

Slomo mobile TV

Sorry but I can't help following closely the evolution of S-DMB in Korea. Last week-end, TU Media's Heo Jae-Yeong revealed a significant rise in subscriptions (140,000 from last month's 75,000), but he also warned the 600,000 target wouldn't be met by the end of the year, blaming the regulation for preventing the dominant operator from subsidizing handsets. The fact is only early adopters can afford to pay $600 to 800 for these lilliputian TVs on the go.
The problem is this doesn't tell us how many would be converted in an aggressive scenario, how far the market can reach beyond early adopters and how quick.
And the problem goes beyond SK Telecom : the likes of Samsung also want to enjoy the dividends of being the firsts on the market, especially since the whole world is watching. Manufacturers may have to cut their margins to help boost the sales. A shot in the arm or a shot in the foot ?
Anyway, expect a strong lobbying and a fierce debate about competitive Korea : which is most important, the fairness of the local market or the nation's competitive edge ? Unfortunately for Lee Gun-Hee, the least one could say is neither the Government nor the public opinion seem in a mood to please him nowadays.

Neck plus ultra

Step by step, TU media is making DMB history :

• SK Telecom launched their satellite last march but it took them almost a year to launch a preservice for early adopters - but don't blame this master of TTM for the delay : regulatory hurdles were tough (actually, SKT literally had to build their own arena to make sure the race would start before competitors were born).
• for a week now, TU media preservice has been freely providing 3 video channels already familiar to June customers (Music with m-net, News with YTN and Drama with SBS Drama and MBC Drama) plus 6 audio channels. Ads have been running featuring a man pushing a shopping cart while his son's enjoying a show on the horizontally turned 5.5 cm screen of the Samsung SCH-B100 hanging from his father's neck. With mini mobile theaters, it's not about the audience doing some necking when the lights are out - it's about the theater itself ruining the owner's neck.
• That's a 622 euro (850,000 W) theater and batteries are supposed to run for 150 mn of intensive usage : forget a LOTR marathon or handset subsidies (the latter forbidden by the government). And Koreans also have to invest in digital TV : already 15% own it today for a projected 48% end 2007 according to the Electronic Industries Association of Korea...* More devices (including in-car sets) will be available by may, when overall 14 video and 24 audio channels are broadcasted (the first 3 data channels are scheduled for 2005).
• The access fees will then cost about 14.6 euros per month (20,000 wons) and SKT expects a 9.5 euro (13,000 wons) ARPU. Not too aggressive a business plan considering today's wireless internet ARPU for SKT's WI enabled handset owners (about 6 euros according to their monthly stats). SKT's partner in Japan MBCo launched their DMB service last october and claims a lousy 10,000 subscribers but they solely provided in-car devices and don't have the marketing power of Korea's leader. SKT expects 600,000 subscribers end 2005 and 5.6M end 2010. Not aggressive either : that's the equivalent of 3 and 30% of their customer base and it took much less time for them to equip 6M people with EVDO handsets.

How about cannibalization, then ? That's the big issue... but that's also the way this first mover is keeping its edge. Stephane MOT

* while we're at it : Korea remains at the top for broadband access among OECD members (24.08% equipment rate - to be compared to 15% for Canada, the distant runner-up). If you are to believe last NIDA poll, 69.3% of all Koreans already used the internet at home back in june 2003 (55% through xDSL and 9.5% through CATV), 46.3% managed more than one e-mail address (and 12.6% their own homepage - thank you Cyworld). Wireless internet usage reached 36.1% (over 83% for the 12-19 year olds), and among users 53.4% paid for premium sites and 21.2% did some m-shopping (74.5% for downloading stuff but already 14.3% for clothes, groceries or food).