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By BRational
April 9, 2002

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1. I had a colleague who would never listen. In meetings, he would talk, and state his views, like they were the last word anybody needed to hear. When you responded to them, you would get the sense he was just not listening. Then came the response: exactly the same arguments he started with. You may have politely questioned three of the basic points, but no acknowledgment nor direct response would ever be articulated. It was always the same points, restated, over and over. He listened, but he refused to hear. Fortunately, this colleague is now retired. Needless to say his influence diminished over the years, as his inability to hear anything that disagreed with his views greatly reduced his ability to hold sway.

Healthy skepticism over technology and investments has its place. Taken to an extreme, it leads to sclerosis�a complete irrational inability to move forward, to accept new ideas, to innovate.

Guin36 made an interesting point about needs vs. wants. Ultimately, those are very relative concepts�culturally, socially and economically. What we take for granted as basics may be considered ultimate luxuries by those whose homes are being shelled daily, or who have to toil under the sun hour after hour to feed their families. My needs may well be luxuries to some, just as my wants may be considered frivolous by others. These are not precise concepts, and do not provide a sufficient basis for gauging consumer demand for new technologies and services in affluent societies.

This notion of "if ain't broke don't fix it" is often a panacea for those who lack vision, courage, or both. Many government bureaucracies operate in this manner. We've already hashed, re-hashed, and over-hashed this topic, so I will spare you all further torture.

There is though one final summary thought of this 3G demand issue�to the question of "what need does 3G wireless meet"?, there is in the final analysis a very simple and elegant answer. It lies in answering first the question "what does 3G wireless enable"? The answer to that is

To access anything, anywhere at any time. PERIOD.

If one cannot imagine anything that they would want to access at places other than sitting behind their desk, or by a wireline phone�then the answer is clear. For such people, the technology is perceived as adding nothing. Of course, for some of these people, chances are they couldn't have imagined anything that they would have wanted to access sitting at their desktop computer, either, but eventually they did. Marketing folks would not consider these early adopters, but followers. There is an adoption curve, and their turn will come later, rather than sooner. They are influenced by what co-workers, neighbors, kids, friends, might do.

Others who have already experienced connectivity, and who may be frustrated by the real difficulty of connecting seamlessly while on the road, in different cities and different countries, who feel that the virtual communities to which they belong are equally vital as those in the physical world, have a different perspective altogether. They are more likely to be early adopters because it is easier for them to imagine the wants that could be satisfied by these technologies, and furthermore are open to new experiences that may prove equally engaging as their early steps with the wireline internet.

Where is the mass market? After basic security, the mass market follows three things: socialization, sports and entertainment (including gaming and sex). Will these services become available wirelessly? They are already in certain places, and more will come. Why would people want them anywhere anytime? I said no over-hash, so I'll stop. If you really must, read previous posts here, and here.

2. I read an interesting statistic in a recent article about the telecom industry (sorry, no link, it was a printed magazine, not yet posted online). It indicated that only 9% of US households have a high-speed Internet connection. While this is still a small number, it is also fully double the number of households that were connected only the previous year, or 100% growth. The article claims that one of the main obstacles has been the local phone companies, that have controlled the proverbial "last mile". Seems like a ready-made opportunity for 1x EV-DO. Recent deal between KDDI and Samsung to deploy the technology in Japan is excellent news (kindly linked by Chulhee ) is a very promising development. While 1x still elicits comparisons to GPRS, EV-DO with high data rates upwards of 2MB is finally "true" broadband-like, as it beats what most cable modems actually deliver. With Korea launching widely by the World Cup, now Japan's KDDI could extend that kind of connectivity to all games activities. While the average fans may not be using these services, certainly the teams, support staff, and the international media will be major users.

With Verizon's tests in the DC area and San Diego now underway, and the rave reviews we've recently seen in the arstechnica write-up, the potential for EV-DO as a last mile access technology should not be minimized. The potential remains very large in the US (given the 9% number quoted above), and even higher throughout most of the world, especially in Europe and Japan. Note in this regard the recent decision by NTT in Japan to deploy Soma's CDMA-based technology for fixed high-speed access is another potentially significant step towards wireless solutions for the last mile access problem (as linked by Morgman .)


3. Rex asked about ASP's.

First, it is important to note that Average Selling Prices are entirely different from Average Retail Prices, that you and I pay for the handsets at Best Buy. The former are the agreed upon prices between the handset manufacturers and the carriers, while the latter reflect subsidies and special deal offerings by carriers to customers. Royalties are paid on ASP's, which are usually higher than ARP's.

For example, I understand that the high-end Sanyo SCP 5150 (with color screen, etc..) costs Sprint PCS about $600, but it is sold to customers at about $300. The ASP would be $600 for that model.

While cost cutting, commoditization, and competition tend to reduce the average selling prices of lower-end models, especially GSM phones, fancy new features on the higher end tend to push these prices back up. The cycle is a fairly classic one with silicon-based technologies, where prices are propped up by new functionalities.

I have not had a chance to do a full-blown search on that topic, but here are a few quick related items:

a. Qualcomm, in their earnings releases, typically include their assumptions about ASP's in their guidance. For example, in the latest release available [PDF file] (1st Quarter Fiscal 02), they state:

This estimate assumes growth of the CDMA2000 1X market in the second half of fiscal 2002, and is based on the sale of 80-90 million CDMA phones in calendar 2002 with a 0-10 percent annual decrease in average selling prices of CDMA phones, upon which royalties are calculated.

b. The quarter before, guidance included this statement:

...and a 10 percent annual decrease in average selling prices of CDMA phones, upon which royalties are calculated.

From 10% decrease to "from 0 to 10%" would suggest a firming up of ASP's.

c. Nokia had indicated as much:

Despite his assertions that "channel inventory is definitely healthier than a year ago," Ollila confirmed that in the fourth quarter there was slight build up of mobile phones in industry channels. Nokia was not forced to cut its average selling prices in the quarter, however, with ASPs down only slightly. Ollila believes ASPs will remain stable in 2002.

d. In an earlier research report, done in December 2000, I found the following useful prognostication:

For starters, even though the functionality of mass-market wireless phones didn't increase significantly over the past year, unlike the PC industry, average selling prices (ASPs) for handsets didn't see too much weakness. For example, it's quite possible that Nokia will actually see an increase in its 4th quarter handset ASPs as compared to the year-ago quarter. This bodes well for the future: as phones with far greater levels of data-related functionality when compared to today's models start hitting the market, it's quite possible that ASPs in developed markets may start taking off.

e. There are several sources for paid analyst research reports, e.g.:

Allied Business Intelligence

InStat-Cahners Research


BRational


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