Jon3G
7th July 2005, 09:28 AM
By Andrew Orlowski in San Francisco
Published Wednesday 6th July 2005 09:25 GMT
Analysis And then there were three... Or at least, there may soon be only three nationwide mobile phone networks in the United States. The owner of T-Mobile, Deutsche Telekom is considering selling its US division.
But would a sale make sense, and who would want to step up as a T-Mobile buyer? Predictably, expert opinion has so far focussed on factors such as data rates - something of an irrelevance when no one uses mobile data on a phone - and ignored the endearing peculiarities that make the US market so, well ... distinctive. And when it comes to picking a winner, these are much more important than technology roadmaps or bit rates.
The US market has arranged itself into the familiar, oligopolistic pattern quite rapidly over the past year. And with stock prices rising, it's time to write down or cash in those reckless investments made at the height of the telecomms bubble. Over the past year, Cingular's purchase of AT&T Wireless and Sprint's purchase of Nextel has winnowed the field down considerably; a year ago six carriers were deploying three incompatible technologies, and after Nextel's expected migration to CDMA, we'll see four carriers using just two incompatible technologies. While T-Mobile's stateside operation has shown healthy subscriber growth - the fastest in the T-Mobile group - and those 18 million customers represent a quarter of the parent's global subscriber base, the carrier remains number four in the US market: and fourth is effectively last.
Let's examine the candidates. Vodafone is tied up with its Verizon investment which from a purely financial perspective, looks a sound bet. Hutchison Whampoa has the ambition to make such a move, but it prefers to blaze a trail before cashing in, as it did with Orange and hopes to do with 3. Its investment in Orange proved that it was happy to take a wager against the incumbents (in the UK, many doubted the prospects for this, the fourth operator) but what made sense in 1994 when GSM was new, and most people had no cellphone at all, doesn't necessarily make sense in 2005.
Which leaves Cingular: the only prospective homegrown buyer which operates the same GSM technology, with the same W-CDMA growth path, as T-Mobile. Thanks to its $41bn purchase of AT&T Wireless, Cingular has bought itself bragging rights to be the largest carrier in the US. But perhaps not for very long - Verizon is a percentage point behind and growing at a faster clip.
On its 2004 balance sheet, Cingular recorded $37bn worth of long term debt and loans, and around $8bn of liabilities - so it might be reluctant to add $30bn more red ink.
A Cingular acquisition would also face FTC approval and be met with particular dismay by GSM customers of both carriers. Amongst a small segment of the market, in fact one so small that it may only exist in the minds of Cingular executives, T-Mobile provides a particularly effective competition to Cingular customers who realize they can take their existing handsets - and of course their phone numbers - with them. Officially handsets are locked, but it's not hard to get them unlocked for a few dollars in any metropolitan area, or online.
In reality however the number of subscribers who are aware of this fact, and are willing enough to use it to their advantage, is miniscule. As a result the range of phones available from both T-Mobile and Cingular is pitiful compared to some of the poorest countries in the world, and the handsets are particularly expensive.
The US consumer pays dearly for a lack of interest in style. Because aesthetics isn't a factor in mobile purchases, carriers are simply cutting their cloth accordingly, and providing dreary utilitarian phones at market-tested price points. Data mavens in the US pay three times (or even more on eBay) as much for a high end smartphone such as a Sony Ericsson P910, typically a $600 purchase, than European punters, who can pick one up for $200. This isn't because so many more Europeans are using mobile data - it's as much of a flop on both sides of the Atlantic - but because the phone itself simply isn't seen as a factor.
Both T-Mobile and Cingular tout their investments in 3G data capabilities to match Verizon's headline grabbing EV-DO rollout, but outside the executive niche looking for embedded 3G PC adaptors, there is no market for such services. Last week T-Mobile Germany boasted that by breaking down the walled garden, ARPUs would blossom. But T-Mobile USA has touted budget, all-you-can eat GPRS for two years and it has few takers.
So, much-vaunted 'European thinking' has little relevance here, and the US carrier gravitates to a kind of cynical inertia. He knows, however, that it's all about plans. Mobile to mobile minutes, rollover minutes, and the belated introduction of prepay have been the biggest factors behind the uptake of mobiles here.
So what can a T-Mobile, under its current stewardship or under a new owner, introduce that leads to real growth? Well, Nextel showed that by making prepay easy, and adding very natural service features such as Push To Talk, that it's possible to innovate successfully. Nextel took the snobbery out of prepay (class snobbery manifests itself in strange ways in the classless USA) and boasted the highest ARPUs and customer satisfaction of any carrier.
Mobile operators face the very real prospect of becoming dumb bit pipes. But like rabbits caught in the headlights, they've become so mesmerized by the prospect of impending doom that they've forgotten where their real value lies. The cellphone is now entrenched in North American life, and most other industries would dearly love to be able to take $49 a month out of the typical household budget: in strictly monetary terms, the carriers dwarf Hollywood. With this predictable, and comfortable revenue stream, the networks also tend to forget that they're a service industry, with the attendant obligations of dependability - their strongest card against the treat of VoIP - and reliability. And with US banks and even oil companies being eyed for acquisition by state-owned Chinese companies, there remains a vacuum for a strong service provider.
The more technology we use, the less reliable and cohesive it seems to be. Only Verizon appears to have recognized that wireless, being a means to an end, really isn't very exciting - and struggling to make it work rather less so.
Whether Deutsche Telekom feels up to the task, or whether it simply thinks now is the time to recoup that $30bn it paid for VoiceStream, remains to be seen. ®
http://www.theregister.co.uk/2005/07/06/tmobile_analysis/
Published Wednesday 6th July 2005 09:25 GMT
Analysis And then there were three... Or at least, there may soon be only three nationwide mobile phone networks in the United States. The owner of T-Mobile, Deutsche Telekom is considering selling its US division.
But would a sale make sense, and who would want to step up as a T-Mobile buyer? Predictably, expert opinion has so far focussed on factors such as data rates - something of an irrelevance when no one uses mobile data on a phone - and ignored the endearing peculiarities that make the US market so, well ... distinctive. And when it comes to picking a winner, these are much more important than technology roadmaps or bit rates.
The US market has arranged itself into the familiar, oligopolistic pattern quite rapidly over the past year. And with stock prices rising, it's time to write down or cash in those reckless investments made at the height of the telecomms bubble. Over the past year, Cingular's purchase of AT&T Wireless and Sprint's purchase of Nextel has winnowed the field down considerably; a year ago six carriers were deploying three incompatible technologies, and after Nextel's expected migration to CDMA, we'll see four carriers using just two incompatible technologies. While T-Mobile's stateside operation has shown healthy subscriber growth - the fastest in the T-Mobile group - and those 18 million customers represent a quarter of the parent's global subscriber base, the carrier remains number four in the US market: and fourth is effectively last.
Let's examine the candidates. Vodafone is tied up with its Verizon investment which from a purely financial perspective, looks a sound bet. Hutchison Whampoa has the ambition to make such a move, but it prefers to blaze a trail before cashing in, as it did with Orange and hopes to do with 3. Its investment in Orange proved that it was happy to take a wager against the incumbents (in the UK, many doubted the prospects for this, the fourth operator) but what made sense in 1994 when GSM was new, and most people had no cellphone at all, doesn't necessarily make sense in 2005.
Which leaves Cingular: the only prospective homegrown buyer which operates the same GSM technology, with the same W-CDMA growth path, as T-Mobile. Thanks to its $41bn purchase of AT&T Wireless, Cingular has bought itself bragging rights to be the largest carrier in the US. But perhaps not for very long - Verizon is a percentage point behind and growing at a faster clip.
On its 2004 balance sheet, Cingular recorded $37bn worth of long term debt and loans, and around $8bn of liabilities - so it might be reluctant to add $30bn more red ink.
A Cingular acquisition would also face FTC approval and be met with particular dismay by GSM customers of both carriers. Amongst a small segment of the market, in fact one so small that it may only exist in the minds of Cingular executives, T-Mobile provides a particularly effective competition to Cingular customers who realize they can take their existing handsets - and of course their phone numbers - with them. Officially handsets are locked, but it's not hard to get them unlocked for a few dollars in any metropolitan area, or online.
In reality however the number of subscribers who are aware of this fact, and are willing enough to use it to their advantage, is miniscule. As a result the range of phones available from both T-Mobile and Cingular is pitiful compared to some of the poorest countries in the world, and the handsets are particularly expensive.
The US consumer pays dearly for a lack of interest in style. Because aesthetics isn't a factor in mobile purchases, carriers are simply cutting their cloth accordingly, and providing dreary utilitarian phones at market-tested price points. Data mavens in the US pay three times (or even more on eBay) as much for a high end smartphone such as a Sony Ericsson P910, typically a $600 purchase, than European punters, who can pick one up for $200. This isn't because so many more Europeans are using mobile data - it's as much of a flop on both sides of the Atlantic - but because the phone itself simply isn't seen as a factor.
Both T-Mobile and Cingular tout their investments in 3G data capabilities to match Verizon's headline grabbing EV-DO rollout, but outside the executive niche looking for embedded 3G PC adaptors, there is no market for such services. Last week T-Mobile Germany boasted that by breaking down the walled garden, ARPUs would blossom. But T-Mobile USA has touted budget, all-you-can eat GPRS for two years and it has few takers.
So, much-vaunted 'European thinking' has little relevance here, and the US carrier gravitates to a kind of cynical inertia. He knows, however, that it's all about plans. Mobile to mobile minutes, rollover minutes, and the belated introduction of prepay have been the biggest factors behind the uptake of mobiles here.
So what can a T-Mobile, under its current stewardship or under a new owner, introduce that leads to real growth? Well, Nextel showed that by making prepay easy, and adding very natural service features such as Push To Talk, that it's possible to innovate successfully. Nextel took the snobbery out of prepay (class snobbery manifests itself in strange ways in the classless USA) and boasted the highest ARPUs and customer satisfaction of any carrier.
Mobile operators face the very real prospect of becoming dumb bit pipes. But like rabbits caught in the headlights, they've become so mesmerized by the prospect of impending doom that they've forgotten where their real value lies. The cellphone is now entrenched in North American life, and most other industries would dearly love to be able to take $49 a month out of the typical household budget: in strictly monetary terms, the carriers dwarf Hollywood. With this predictable, and comfortable revenue stream, the networks also tend to forget that they're a service industry, with the attendant obligations of dependability - their strongest card against the treat of VoIP - and reliability. And with US banks and even oil companies being eyed for acquisition by state-owned Chinese companies, there remains a vacuum for a strong service provider.
The more technology we use, the less reliable and cohesive it seems to be. Only Verizon appears to have recognized that wireless, being a means to an end, really isn't very exciting - and struggling to make it work rather less so.
Whether Deutsche Telekom feels up to the task, or whether it simply thinks now is the time to recoup that $30bn it paid for VoiceStream, remains to be seen. ®
http://www.theregister.co.uk/2005/07/06/tmobile_analysis/