Tuesday, 22 March 2011

DT exits US as Ofcom prepares for LTE

Two meaty telecoms stories circulating at the moment. First, AT&T's reported $39B deal for T-Mobile USA came out of the left field yesterday at a time when many observers (myself included) were wondering whether Sprint/ T-Mobile was a runner. Provided it gets SEC clearance, the deal is dynamite for AT&T, but the really interesting question is "what is DT going to do with $39B?" As with Vodafone's recent strategy of cashing in minority investments, I find myself rather stumped by the strategy in play. Should we expect a massive share buy back or a mad spending spree in emerging markets? Or is this the first move in a strategy of massive consolidation into global super-majors - could Teliasonera, KPN or Teliasonera find themselves the subject of merger talk? Looks like a fascinating year is in store for the mobile industry.

Nowhere more so than in the UK, where Ofcom has unveiled the rules for the forthcoming auction of 800 and 2600 spectrum, suitable for LTE. As ever with Ofcom, the process is complex and based on a curious view that consumer interest is best served by a larger number of crippled networks operating on barebones spectrum.

Personally, I believe that a better option would have been to offer three spectrum lots and enable the operators to fight it out. Four networks is too many for the UK and has led to irrational competition based on marketing and pricing, rather than network quality. Having recently come back from Norway, with its nice wide bands and low population density I now appreciate why some competition is good, but too much is terrible.

Oh, and while they were at it, Ofcom should have widened the amount of spectrum available by taking a couple of channels out of the UK's bloated DTT spectrum portfolio. Get them to switch to MPEG-4 on all multiplexes and the need for all those radio channels goes away. Or, if you want to be market led, get them to re-bid against the MNOs and see whether they're as keen on showing ITV2+1. Simples.

Innovation and necessity

Some colleagues asked for my thoughts on innovation strategies for "old media" companies in relation to a paper they're writing. Without stealing their thunder on the central topic, one thing that occured to me was about the potential disadvantages developed world businesses face in driving innovation through their businesses.

The core issue is that the pace at which "natural selection" of innovations occurs has accelerated. Increased availability of information for and frequency of communication to consumers (writ large, not just in B2C terms) coupled with much larger markets and therefore greater availability of products mean that successful innovations explode in popularity (iPad) and unsuccessful ones die very fast (Kin).

With that in mind, businesses of all kinds need to hedge their bets on innovation, which may mean involving more people in the process. This includes, I might add, innovation in the back office processes to improve efficiency and free resources up to be expended on new products and services.

I contend that businesses in the developed world are less able to innovate with the required frequency because years of security have removed the key motivator for innovation - survival. In earlier generations there was significant polarisation of life span and ability to procreate based on innovation. Those who made better tools or were more creative were at an evolutionary advantage.

Nowadays, however, survival is determined by income in the main, enabling sustenance and shelter to be provided without any innovation at all. Following a process is sufficient to enable survival and continuation of the species. Furthermore, social policy means that it is relatively hard to get rid of employees, reducing the imperative to improve through innovation still further.

The major challenge, therefore, is that enterprises must innovate to survive, but individuals feel no need to. Perhaps this is the core of Stephen Elop's impassioned (and possibly frustrated) "burning platform" memo to Nokia staff.

My colleagues believe that collaboration and mutual reinforcement is the way to break this cycle. I wonder whether the actual solution is more basic competition with visible goals for success and punishments for failure. Ruthless individualism is probably too destructive to be incented as a behaviour, however teaming offers advantages that some people will prefer to take up (as IDEO's "Faces of Innovation" demonstrate). I also believe that collaborative, process-based innovation is a myth and that in reality "cults of genius" around the most creative members of a team are the best way of progressing in leaps rather than steps.

Anyway, enough of that - just some random thoughts for the day!

Tuesday, 8 March 2011

WD buys Hitachi while Spotify makes its first million

Consolidation in spinning disks continues with Western Digital's $4.3B takeover of Hitachi's storage division. This is hardly surprising news as the industry reals with its loss of share in the consumer market to solid state technologies. While there's currently no substitute for hard disks in large capacity applications, I believe that an increasing proportion of computing devices will be non-PCs going forward, making use of a combination of low power, rapid response solid state memory locally and cloud-based disk or streamed content.

The disk isn't dead - for enterprises, infrastructure and for consumer "local cloud" devices like set-top boxes, media streamers and NAS its the only game in town. But the explosive growth in handheld and laptop devices seems likely to pass them by, leaving them slaves to the margin-crushing buying power of the big hosting providers and PC manufacturers. Consolidation, therefore, is the only option.

An associated point that I didn't call is Spotify passing 1M subscribers. In hindsight, with access to the search and discovery powers comes an appetite for new music that would cost a fortune to satiate if one were to buy everything one likes. For £10 a month you can have it all - now I understand.

Friday, 4 March 2011

Nielsen on smartphones in the US

Nielsen have just released this piece of analysis of smartphone ownership in the US, which shows Android pulling ahead of iOS and Blackberry. I've heard rumblings amongst commentators that this marks the point at which the open platform that is Android puts the software smackdown on evil closed ecosystems.

My view is a bit different. Certainly the PC market was created by multiple software and hardware vendors being able to offer their own distinct take on a universally compatible platform, however in my view times have changed.

For starters, globalisation has meant that proprietary platform providers can achieve sufficient volumes to create plenty of opportunity for developers on the platform, even if overall market share is relatively low.

Second, the PC has always been and remains a somewhat complex environment for the end user. Multiple combinations of hardware and software create choice, but they make for an inherently buggier experience than that which is available in a closed ecosystem. Google is already begining to fight against this fragmentation of their platform and the problem can only get worse. Consumers like simplicity - hence why Mac sales have quietly crept up on Windows PCs in the last 5 years.

Third, web and cloud applications and web browsers mean that closed platforms are really rather open. With arguments about payment, merchandising and advertising headline news it might seem crazy to say that, but in reality 99.9% of developers have no real issue using the closed platforms and benefit from a stable hardware environment.

The future for Apple and RIM on the handset is purely based on the attractiveness of their brands, their hardware and the user experience they offer. If they retain those unique selling points then people won't migrate to Android because it's "open", whatever the penguin-fanciers might think.

Tuesday, 1 March 2011

Sorrell on the Social Bubble

Nice interview with Martin Sorrell in the FT over the weekend where he argues that the valuations of online media companies defy economic sense. I heartily agree - Facebook in particularly seems to have attracted a "bubble mentality" amongst investors who should know better. The $50B valuation is ludicrous - my own estimates, based on past performance of the successful dotcoms, the addressable market for social media and what we know about Facebook's financial performance suggests an upper bound of $13B for the company.

Time will tell whether this is bourne out by the market when (or if) Facebook finally IPOs. I personally feel that comparing them to Google is folly because of the position they occupy in the value chain and the proven strength of the Google team both historically and at present. We shall see.