For those in the US who oppose early-termination fees, I have two words: iPhone 2.0.

The retail price of the 3G version of the iPhone will start at $199 thanks to a subsidy of several hundred dollars by AT&T, which was not allowed by Apple to subsidize the first version of the device. The reason for the new subsidy: AT&T and Apple see this as a necessity to drive mass-market adoption of the device because US mobile customers have shown repeatedly that they would prefer to pay less for a device even if that means signing up for a two-year postpay contract with a costly fee for early cancellation.

Despite the obvious preference shown by mobile phone buyers for subsidized pricing, one aspect of the subsidization practice, early-termination fees, has repeatedly come under fire in class-action lawsuits and public laments by self-described consumer-advocacy groups. The FCC has received more than 3,700 complaints about the fees during the past two years. For that reason, the commission is now pondering taking action to regulate ETFs on a federal level.

During an FCC-sponsored public meeting on June 12, consumers, public-policy wonks, mobile operators and others were allowed to speak their peace regarding the application of ETFs to customers who break service contracts. ETFs go hand in hand with US mobile operators’ subsidization of handsets as an inducement to get customers to sign long-term contracts. Customers who break those contracts are charged ETFs of about $200, more or less,, though the two largest operators, AT&T Mobility and Verizon Wireless, now prorate their ETFs over the length of contract.

Alan Plutzik, attorney with Bransom, Plutzik, Mahler & Birkhaeuser, and counsel of record for the Wireless Consumers Alliance, testified that in a class-action lawsuit against Sprint Nextel, the numbers revealed that some 2 million Californian mobile customers have been charged ETFs, meaning by extrapolation that 40-50 million people nationwide have been charged ETFs.

Consumer advocate Pamela Gilbert, an attorney with Partner, Cuneo Gilbert & LaDuca, contended that ETFs “force consumers to choose between staying with a carrier that doesn’t meet their needs” or paying a penalty to end their existing contract in order to get service from another network that can meet their needs.

I agree that there were issues in the past when people signed up for mobile service only to find that it would not work in their neighborhood. I suffered that fate when I agreed to move from AT&T Wireless’ TDMA network to its GSM network, which was so full of coverage gaps and traffic issues that I hardly made a mobile phone call for a year (and I eventually switched operators because of the problems). But with major operators offering 30-day trial periods for new users, people who sign up for mobile service in the US these days should be able to get a pretty good idea of whether their mobile will work where and when they need it to before they commit to a long-term deal.

“I sincerely feel actually that we do not need early-termination fee contracts. As a country, these are not as common as the normal way of doing business. Normally you purchase a product and then you pay for service,” testified Anne Boyle, chair of the Nebraska Public Service Commission.

“What?” I said out loud when I heard Ms. Boyle’s comment (fortunately, I was watching the proceedings from my home via the Internet). Installment contracts and early-termination fee arrangements are rampant in US consumer-goods marketing. I have satellite TV service from DirecTV, and it has an early-termination fee attached to it. I think I’d have to cough up $200 if I were to cancel the service before I’ve used it for two years. Similarly, the health club contract that I signed up for a couple of years ago and, regrettably, never actually leveraged by working out, had an ETF attached to it. Even though I only worked out once in 12 months, I knew I’d be nailed with an ETF if I canceled the contract before a year was up (and I kept wishfully thinking that I’d actually make it to the gym sometime during those 365 days).

The Competitive Enterprise Institute, a non-partisan public policy group that backs free enterprise, has come up with more examples of ETF use in other industries, including apartment rentals and automobile leases. “In all of those cases, we expect consumers to figure out for themselves what is and what is not part of the contract they’re signing. As long as any potential fees are disclosed at the time of the agreement, they’re simply part of the deal,” said CEI in a press release.

So, it’s pretty clear that ETFs are not unique to the mobile industry. But that’s not to say that some of the industry’s related practices haven’t been downright sneaky. I had been off contract with my current mobile provider for a couple of years, when, in May 2007 I decided to alter my rate plan. I had the same old phone and same old phone number, I just wanted a different airtime package. Imagine my surprise when I discovered that simply changing the service plan resulted in me suddenly being on a new two-year contract. Had the salesperson at the store explained this to me? No. Not a peep was uttered. I didn’t bother to complain because I hadn’t planned on switching networks anyway, and because I had been on the network for so long, I qualified for a substantial subsidy on a new handset. So, I subsequently went ahead and bought a new subsidized handset since I’d already unknowingly locked myself into a two-year contract anyway.

However, operators are now starting to let customers change their rate plans without causing their contract terms to be extended. So, again, that problem appears to be resolved.

Speaking at the FCC meeting, Christopher Guttman-McCabe, vice president of Regulatory Affairs for mobile industry trade group CTIA, contended that removing ETFs from industry practice would also remove options for lower priced service and devices. In the absence of subsidies and related ETFs, “customers’ out-of-pocket costs are higher,” he said.

Similarly, CEI contends that long-term mobile contracts with cancellation fees “help more people afford a higher quality range of products.”

Yet Chris Murray, senior counsel, Consumers Union, argued that subsidies and ETFs don’t’ save consumer’s money. Instead, he said, they “rob consumers of the benefits” that an open marketplace would bring.

According to Murray, the average handset subsidy is only $14.33, but ETFs are more than 12 times that subsidy. Further, Murray termed the ETFs “junk penalties,” because operators bury expenses such as costs-of-acquisition, marketing costs and more in them, meaning the fees are not calculated based on the actual cost recovery related to a customer’s breach of contract.

On that note, I would argue that however ETFs are calculated or assessed, from a customer’s perspective, they’re usually cheaper than the full value of a service contract.

If ETFs are eliminated, then mobile operators in the US will probably reduce handset subsidization but continue to sign postpay customers to contracts. However, when a customer breaks such a contract, rather than making that person pay a $200 ETF, the operator would have to go after him or her for the value of the full remaining term of the contract. Let’s say Jane Doe decides to end her $50-per-month mobile service one year before her contract is up. That’s 12 times $50, or $600, that she owes the operator for the term of service. Hmmm…maybe a $200 ETF–or better yet, an even smaller prorated ETF–doesn’t look so bad after all.

Maybe it’s just me, but as a consumer, I’d rather pay $50 for a $400 handset and risk being charged a $200 ETF if I break my service contract than pay $400 for the same phone and then be hit with an even larger bill for the full term of my contract if I cancel it early.

 
 
 
 
The meaning of “open” is in the eye of the beholder. Clearly the mobile communications industry is opening up to new ideas, business models, device concepts and the like, but is it becoming truly open? With so many competing commercial interests, not to mention legal and regulatory issues, efforts to really change the business face numerous hurdles.

At Qualcomm’s BREW 2008 conference last month in San Diego, Qualcomm announced efforts to further open its highly successful BREW mobile platform. Openness appeared to be executives’ mantra as they discussed the integration of Adobe Flash into the BREW Mobile Platform and the introductions of Plaza - Qualcomm’s new platform-agnostic widget framework, based on open standards that use the BREW service-delivery ecosystem - and the year-old BrandXtend platform for off-deck content. “Opening up BREW helps us and you in the delivery of new services,” Andrew Gilbert, executive vice president and president of Qualcomm Internet Services, MediaFLO Technologies and Qualcomm Europe, told BREW developers.

But amid this spirit of openness were murmurs of discontent regarding the high level of scrutiny applied by Qualcomm to the demonstration devices, speaker presentations and marketing materials at BREW 2008. Qualcomm reportedly told BREW participants that the company had to be extra careful, because of the cease-and-desist order imposed by the US International Trade Commission on the marketing of devices that include Qualcomm chipsets deemed to infringe a Broadcom patent.

But some exhibitors told me that some handsets that had recently been shipped to the US and were being sold there - meaning the devices had ostensibly been allowed into the US because they did not conflict with any legal rulings - were not allowed to be used in demonstrations. They also said that every speaker’s presentation had to be approved, and sometimes edited, by Qualcomm before the event. Qualcomm even insisted on inspecting, and potentially rejecting, every piece of marketing material destined for booths on the show floor, the exhibitors said.

Such actions make one question Qualcomm’s interpretation of the word “open” as it relates to the free flow of ideas, particularly when exhibitors and speakers were whispering about the “Qualcomm police” and “censorship that was truly stunning.”

Qualcomm apparently felt that it had to make these moves to protect its interests, which is something every company in a free-market society must do to survive and compete. And Qualcomm’s not the only company that’s touting an open approach but leaving some to wonder just what the term is supposed to mean.

Take Google. Its Linux-based Android operating system and the company’s backing of the Open Handset Alliance to help push Android and its own vision of mobile industry openness have been part of a full-scale campaign to turn Google into the poster child for all things open, including open-source platforms and open access.

But is Google really interested in altruistically opening the industry to all, or is it merely staking out its own beachhead?

Arun Sarin, former chairman of Vodafone, has said that the Android OS is “open for Google” only. He has also expressed concerns regarding plans Google might have for the user data that it could amass via Android-powered handsets.

At the BREW show, an executive with a white-label-search-engine company told me that Sarin has been trying to warn the industry after learning from his mistake in choosing Google as the search engine for Vodafone Live users with 3G handsets. When the deal was announced in February 2006, Vodafone basically gave away its brand and valuable handset-screen real estate to the largest Internet search engine, a mistake guaranteed to haunt Vodafone’s branding efforts for years to come and help Google continue to build a mobile user base that it can profit from.

And Google is still signing favored-partner deals with mobile operators, which is hardly an open approach to business. For a US$500 million investment, Google earned the opportunity to become the official search provider and a preferred provider of other apps for the new Clearwire - the WiMAX joint venture of Sprint Nextel and Clearwire - which will also support Android in its retail voice and data products. Google has also been named the default provider of web- and local-search services for Sprint’s CDMA network.

Obviously, most companies want an “open” environment that suits their needs but not necessarily other firms’. In addition, there are numerous challenges - technical, legal and political - in creating a fully open mobile communications environment. Many are talking the talk, but we have yet to see whether any will walk the walk when it comes to throwing open the doors to their end of the mobile business.

 
 
 
 
Will the sophomore version of Apple’s iPhone turn around softening demand for the iconic device?

The iPhone is now about 10 months old. The handset grabbed an impressive 17.4 per cent market share in the US during its first six months of existence and has so far sold 5.4 million units. But during the first three months of 2008, Apple sold only 1.7 million iPhones, a drop from the 2.3 million units sold in the last quarter of the 2007 calendar year. Yet the vendor still expects to sell at least 4.6 million iPhones over the next three quarters in order to meet its stated goal of selling 10 million total units by the end of calendar year 2008.

For a year, I’ve held onto a column by PC industry pundit John C. Dvorak that was dated March 28, 2007, three months before the iPhone’s introduction. At that time, he wrote, “There is no likelihood” that Apple could be successful in a business as competitive as the mobile phone industry. Dvorak suggested that if Apple were “smart it will call the iPhone a ‘reference design’ and pass it to some suckers to build with someone else’s marketing budget.”

Those were harsh words indeed, and they failed to sway Apple, which is now working to extend the reach of its fabled iPhone worldwide. Rumors are that the device will be introduced during coming months in countries as varied as Italy, Belgium, Australia, India, Singapore and perhaps even China. Many of those countries already have iPhones, albeit units that were bought in the US and illegally unlocked to run elsewhere. “Our view continues to be that this is a proxy for the worldwide demand of the iPhone,” said Apple COO Tim Cook, during an earnings conference call with analysts.

Nonetheless, iPhone sales outside of the US have so far failed to generate massive excitement, with some saying legal European sales have amounted to only 300,000-350,000 in each of the past two quarters. And demand is reportedly softening. The iPhone still has a tiny global footprint at around .06 per cent. In the UK, O2 and Carphone Warehouse recently tried to stimulate sales by reducing the price of the standard 8GB iPhone by £100 ($199) to £169 ($337), though they maintained the price of the 16GB model at £329. T-Mobile in Germany earlier cut the 8GB model’s price from Eur399 ($625) to as little as Eur99 with a two-year data plan.

Such price reductions play into Dvorak’s prediction, where he wrote that Apple would learn that good margins “cannot exist in the mobile handset business for more than 15 minutes.”

But falling prices may just reflect the fact that many potential iPhone buyers are holding back on making purchases as they await the arrival of the 3G version, which is expected to be released in the US on June 27, the anniversary of the iPhone’s initial introduction. Word of ongoing iPhone shortages in the US, Germany and the UK lend credence to the idea that the 2G version is on its way out. But will the 3G iPhone arrive with high-tier pricing (and high margins) as well as the same kind of buyer frenzy that accompanied the device’s introduction last year?

Though the iPhone is certainly a curiosity worldwide, legal international sales of the device have paled in comparison to sales in the US. At the recent CTIA Wireless 2008 convention, I had a prominent top executive of a well-known European firm ask me if I perceived a nationalistic bias on the part of US consumers who gave the Apple iPhone almost a hero’s welcome when it was unveiled last year.

Indeed, Apple has an almost cult-like following in the US, but its following elsewhere in the world is far less worshipful. So, it’s no surprise that iPhone sales in the US have been dramatically higher than in other parts of the world. What did surprise me about initial iPhone sales is how many US consumers were suddenly willing to buy an unsubsidized handset.

It will be interesting to see if US consumers, in particular, will jump as quickly for the new breed of touch-screen iPhone-wannabe devices hitting the market. The Samsung Instinct, unveiled by Sprint Nextel, will arrive in June at a less expensive price than the iPhone, and it already features 3G access over Sprint’s EV-DO Rev. A network.

Further, Nokia is developing its first touch-screen handset, codenamed Tube. Though Nokia has struggled to compete in the US, the firm’s strong positioning in Europe means the Tube could significantly outpace a 3G iPhone there.

Nonetheless, the iPhone appears to have a strong outlook, at least for the short term in its US stronghold. In the 15th semi-annual Taking Stock With Teens research survey, recently published by Piper Jaffray, 6 per cent of the US students surveyed reported that they own an Apple iPhone. That’s double the market share conveyed in Piper Jaffray’s fall 2007 survey. In addition, 9 per cent of the students said they intend to buy an iPhone in the next six months.

 
 
 
 
It was easy to predict the technology and business paths that would be taken by several winners of the US 700MHz auction, but silence from some means that major surprises may yet be in store.

Auction 73 wrapped up on March 18 grossing $19.1 billion and garnering winning bids from 101 bidders.

Late on April 3, the Federal Communications Commission’s anti-collusion gag rule on the auction’s winners was lifted, meaning they could discuss plans for their newly won spectrum for the first time. The 700MHz spectrum is slated to be cleared of analog TV transmissions during February 2009 when broadcasters are mandated to shift to digital, thus enabling the winning 700MHz bidders to start deploying and activating their networks.

Though numerous 700MHz license winners announced plans for the spectrum they won in Auction 73 as soon as they legally could, notably keeping mum about its 700MHz intentions is Dish Network. The company, the second-largest US satellite TV provider behind DirecTV, was the auction’s third-highest bidder via its affiliate Frontier Wireless. Frontier offered $711 million for a nearly nationwide footprint of unpaired E-block licenses. It did not win a handful of E-block licenses that Qualcomm acquired in order to boost in MediaFLO mobile TV service in top metro areas.

Qualcomm, the auction’s fourth-highest bidder, bid $554.6 million for eight unpaired, 6 MHz E-block licenses that will be used to enhance its MediaFLO TV service in Boston, Los Angeles, New York City, Philadelphia and San Francisco. The company also bid $3.5 million to acquire three B-block licenses for 12 MHz of paired 700MHz spectrum near key Qualcomm offices, which will use the spectrum for R&D purposes.

Unlike Qualcomm, Dish did not announce its 700MHz plans on April 3, leading to lots of speculation about its motives for winning the spectrum. “The two most likely Dish uses are (1) for improved internal operations for existing services, for example as a return path or to increase capability for high-definition local-into-local video service or (2) to provide a new mobile video service, a la Qualcomm’s MediaFLO operating out of the adjacent D-Block spectrum, which could be bundled with its at-home service,” said financial analysts at Stifel Nicolaus.

Dish was formerly part of EchoStar Communications before that company split into two publicly traded companies in January, The other half of the former EchoStar, still using the EchoStar moniker, runs a satellite equipment business. It owns SlingMedia, maker of the Slingbox place-shifting set-top box. It also recently invested $150 million in satellite Internet startup TerreStar, which was formerly called Motient. TerreStar is developing a hybrid satellite/terrestrial wireless network, leading to suggestions that Dish and EchoStar may be planning to develop a mobile TV service, perhaps incorporating satellite technology such as DVB-SH. If so, they would not be the first to enter that arena in the US. At the CTIA Wireless 2008 trade show in Las Vegas in early April, Craig McCaw’s ICO Global Communications satellite company announced plans for a DVB-SH network using equipment from Alcatel-Lucent.

If Dish opts to offer a mobile TV service, it might do so in conjunction with AT&T Mobility, which is slated to offer mobile TV services via Qualcomm’s MediaFLO network starting in May. However, rumors have circulated about AT&T’s interest in running its own mobile TV service, and it has strong ties to Dish. Most recently, AT&T announced that it would sell Dish’s satellite TV service through an exclusive partnership covering nine southeastern states.

AT&T and Dish have been rumored to be in merger talks for months. Though some analysts say Dish’s winning bids in the 700MHz auction decrease the chance of a takeover by AT&T, there may still be a possibility of merger talks given that overall M&A activity could pick up before year’s end. “The urgency in the markets to consummate another round of consolidation by December is motivated by an overall fear that merger approvals will come to a grinding halt if a Democrat wins [the US presidency] in November. We think the regulatory environment may not be as dire as industry stakeholders suggest, but it will certainly be more rigorous,” said a note from Medley Global Advisors.

Another big 700MHz winner was cable TV operator Cox Communications, which bid $304 million for 700MHz spectrum in the southwest and southeast US. The company might use the spectrum to enter the wireless broadband technology in markets where it already provides cable TV service.

Winning bids from TV-based interests are reminiscent of 2006’s Advanced Wireless Services auction, in which SpectrumCo, a cable TV joint venture dominated by Comcast, took a significant share of 1.7-2.1GHz licenses. Sprint Nextel was a member of that group but subsequently dropped out. The cable JV was the third-largest bidder in the AWS auction, spending nearly $2.4 billion on 137 licenses that cover some 270 million potential customers. While the recently auctioned 700MHz spectrum has stringent buildout rules, the AWS spectrum did not, meaning SpectrumCo can basically sit on its spectrum holdings as long as it wants without launching any services over it.

Meanwhile, another top 700MHz player, CenturyTel, announced that its winning bid of $148.9 million for 69 A- and B-block licenses is aimed at a wireless broadband play. “It provides CenturyTel the opportunity to deliver wireless voice and broadband data to a significant percentage of our current customer base, making CenturyTel the only on-net provider of both fixed and wireless broadband in many of our markets,” said the company.

CenturyTel noted that its new spectrum licenses will provide a wireless overlap to about 53 per cent of its local exchange areas and “creates a highly contiguous footprint that closely overlaps CenturyTel’s existing local exchange and long-haul fiber networks.” The company expects to provide additional information in late 2008 and early 2009 about its 700MHz deployment plans.

The 700MHz auction’s top two bidders also released their plans, and to no one’s great surprise, both Verizon Wireless and AT&T Mobility intend to deploy Long-Term Evolution (LTE) technology at 700MHz. The two companies accounted for 84 per cent of the 700MHz auction’s winning bids, providing a strong base for the introduction of LTE in the US.

Verizon is reportedly already in lab trials with pre-standard LTE technology. The operator is aiming to initiate an LTE field trial during 1Q09, reportedly using non-700MHz spectrum, and launch LTE services, using 700MHz spectrum, reportedly by late 2009, with a wider rollout planned for 2010.

Verizon Wireless, which bid the most in the auction, paid $9.36 billion for 25 A-block licenses, 75 B- block licenses as well as C-block licenses that cover the entire US save for Alaska. The operator said its 700MHz spectrum gain will increase its average spectrum holdings per market to 82MHz from 52MHz.

However, Verizon’s C-block licenses are encumbered by tricky open-access conditions. Though the mobile operator has voluntarily put into motion a strategy to expose its cellular network to more devices and apps via its Open Development Initiative, the company will be required by mandated open-access provisions to open its C-block network to all compatible applications and devices. That will put Verizon under intense regulatory scrutiny, particularly if open-access advocates such as Google-which pushed for the application of open-access conditions on the C-block but did not itself win any spectrum-find fault with Verizon’s conduct in allowing third-party access to its C-block network.

Verizon has defended its C-block win. Combining its national, contiguous, same-frequency C-Block footprint with its planned transition from CDMA to LTE “will make Verizon the preferred partner for developers of a new wave of consumer electronics and applications using this next generation technology,” said Lowell McAdam, Verizon Wireless president and CEO.

AT&T, the largest US mobile operator, was the second-highest bidder in Auction 73, pledging $6.6 billion for 227 B-block licenses. AT&T is adding its new licenses to the existing cache of 700MHz licenses that it bought in 2007 for $2.5 billion from Aloha Partners. AT&T earlier paid $1.3 billion for Advanced Wireless Services licenses in the 2006 auction. AT&T says its broad holdings in the AWS and 700MHz bands cover 95 per cent of the US population. “In the future, AT&T’s 700MHz spectrum holdings will provide the foundation for deployment of next-generation wireless broadband platforms such as HSPA+ and LTE,” the operator said in a statement.

AT&T, which has long contended that its ongoing rollout of HSPA will satisfy end-users for years to come, indicated it might not deploy LTE till 2012-2013. “AT&T will use the 700MHz spectrum, as well as the AWS spectrum we acquired in the 2006 auction, for our 4G LTE transition,” said AT&T CTO John Donovan.

Not even Telus knows for sure…

Rumors have been circulating for months that Canadian iDEN and CDMA network operator Telus is pondering the buildout of an overlay GSM network as well as a migration to LTE. It’s clear that the operator is giving the idea some thought, but no decisions have yet been made.

Rogers is currently the only Canadian operator using GSM, allowing it to get its hands on a lot of trendy devices that hit the GSM market before the CDMA market. That, in turn, is helping Rogers maintain its dominant market share. According to Informa Telecoms & Media, Rogers had 36.65 per cent market share at end-2007, while the Bell Wireless Affiliates had 31.05 per cent and Telus 27.81 per cent. In addition, Rogers is banking nearly US$500 million in GSM roaming fees each year.

One suggestion, which might be considered crazy by some or innovative by others, has been for Telus to get in on the roaming action by whipping up a single-event GSM network that would operate in Vancouver during the 2010 Winter Olympics, giving the operator some quick incoming roaming revenues that it could use to fund a further GSM buildout in major markets nationwide.

Telus’ management has been refreshingly candid about the choices before it. During the company’s 4Q07 earnings conference call, President and CEO Darren Entwistle addressed the speculation regarding GSM.

“Clearly, it’s always incumbent upon us, whether it’s our wireless business or wireline, to stay abreast of the developing ecosystems from a technology perspective in the telecoms world,” he said.

Entwistle discussed the philosophy behind Telus’ technology decision making. He noted that, on the one hand, a company must be wary of squandering its previous technology investments by moving prematurely toward a new technology, but, on the other hand, a company must also ensure it doesn’t become uncompetitive by waiting too long to undertake a necessary switch.

Citing Telus’ deployments of EV-DO Revision A, “I think it’s incumbent upon us right now to say we have technology leadership from a bandwidth perspective within the wireless world that’s good for consumer data applications and good for business data applications. And we need to sweat the heck out of this technology stage to get the ROI that we want on the EV-DO and EV-DO Rev. A investment in the first place,” said Entwistle. “It’s interesting to note that right now, if you compare us to alternative technologies in Canada, we do have a leadership position. From a speed perspective, we have the fastest network both on the downlink and on the uplink paths, and we should be exploiting that.”

In late February at the CIBC World Markets Institutional Investor Conference, Bob McFarlane, Telus’ CFO, also gave kudos to the operator’s CDMA network though he noted its broadband superiority will be fleeting as Rogers expands deployment of HSPA across Canada. “We certainly have been advantaged to date on CDMA in terms of capacity, efficiency, ROI, EVDO, Rev-A, data speeds, all that sort of thing. I think it’s also fair to say, through HSPA, that advantage is going to be negated or offset.”

McFarlane noted that the idea of a single operator building a new 1900MHz GSM network across 29 million Canadian POPs, many of which are in rural areas, is farfetched. However, he indicated that Telus might be open to a GSM overlay if it gets a partner to help. That partner would likely be Bell Canada, with which Telus already shares a number of cell sites. But Bell is in the midst of a leveraged buyout by private equity interests and not in a position at present to be making radical technology shifts.

If Telus opts to join the GSM camp, it, as well as any partner operator, will need to consider whether to also migrate to WCDMA/ HSPA, which in turn raises questions about potential deployments of HSPA+ and LTE.

Even if Telus doesn’t make the switch to GSM, that doesn’t rule out an eventual migration to LTE rather than the CDMA camp’s UMB technology. In fact, Telus appears to be leaning in the direction of US CDMA operator Verizon Wireless, whose parents, Verizon Communications and Vodafone Group, have committed it to LTE. “It’s no longer the case that if you’re on CDMA or on GSM, you’re going to permanently end up on a different upgrade path. OK, they’re eventually going to converge,” said McFarlane.

He noted that if LTE is not available till 2011, or more likely 2012, operators will need to consider what to do in the interim in order to stay competitive. Apparently Telus does not see WiMAX as an option. “Our view is that WiMAX in the Western countries, where you’ve got cellular deployed, etc., … is not going to be 4G in a substantive sense,” said McFarlane.

 
 
 
 
HelloMoto may morph into Goodbye Moto if Motorola’s investors have their way. Nonetheless, the beleaguered business’ legacy could help its purchaser become a pioneer in next iteration of the mobile devices industry.

From its original “brick” handsets to the iconic StarTac, which drove consumers’ love affair with the clamshell form factor, to the wildly popular RAZR, Motorola has been a trendsetter in mobile handsets. But investors and potential buyers are interested in the future, not the past, which raises questions regarding the marketability of Motorola’s anemic handset unit.

Motorola’s investors are pushing for the firm to divest its floundering Mobile Devices business, which saw 4Q07 sales slide 38 per cent, leading to a quarterly operating loss of $388 m, compared with operating earnings of $341m one year earlier. The handset unit has now posted losses for the past four quarters.

Corporate raider Carl Icahn now holds a 6.3 per cent stake in Motorola and is pushing to get his people on the company’s board in order to force it to dump the cell phone biz, which analysts have said could fetch up to $20bn.

If a buyer for the devices business cannot be found, Motorola might opt to spin off the division into a legal entity with its own publically traded shares.

But there may be buyers, or possibly joint-venture partners, waiting in the wings. According to reports, Asian handset makers are potentially interested in buddying up to Motorola’s handset division, if not buying it outright. One recurring name has been China’s ZTE, which I found curious to begin with because ZTE is known as a price leader, not a style leader, particularly in emerging markets where it marches in with guerilla pricing designed to attract new mobile customers.

But just as the rumors started to take off, ZTE’s management sought to quash them by saying that the company hopes to expand via internal growth rather than through acquisitions.

Nonetheless, I’m now starting to warm up to the idea of a ZTE-Motorola hookup. Like ZTE, Motorola has been a price-leader of sorts, via its participation in the GSM Association’s Emerging Markets Handset initiative. Further, ZTE wants to make a dent in North America, where it sells a single handset model to US operator MetroPCS Communications, and Motorola is still strong in the US market, much to the chagrin of Nokia, which just can’t seem to make sense of Yankee product preferences. Huawei Technologies might also seek to elevate its status via a buyout of Motorola’s cell phone biz. For that matter, I would suggest that Nokia could benefit greatly from the innovations and sense of style that Motorola handsets have exhibited over the years.

Thinking outside the box, however, Motorola’s handset unit could be a strategic investment for an Internet player such as Google or maybe even Amazon, whose unique Kindle wireless book reader has shown that the Internet retailer is willing to take some daring steps technology-wise.

Motorola still holds third place in terms of global mobile handset market share, and it shipped 40.9 m handsets during 4Q07. Mobile phones and related devices will be key to future Internet access models, particularly in emerging markets that don’t have a lot of computers. Mobile will help drive future consumption of digital content in various forms, including entertainment, location-based services and, of course, advertising. Any technology company looking for a quick opening into the wireless future might consider whether Motorola’s handset unit could help it make that entry.

Navigation companies that hope to enter the cell phone business are also possible acquirers. On Jan. 30, Olathe, KS-based Garmin announced the nuvifone, a combo cellular handset and personal GPS navigator that is slated for sale in 3Q08. Netherlands-based TomTom also is said to be developing a GPS-enabled handset. Another GPS device maker, Taiwan’s Mio Technology, announced on Jan. 30 that it is working with Qualcomm to develop a line of connected PNDs that will leverage Qualcomm’s QST1100 chipset. Meanwhile, Motorola recently announced its DH01n device, which combines a personal media player with navigation capabilities.

Motorola’s devices unit might also be acquisition bait for a private-equity company, but with the credit markets drying up, investors are less likely to want to take on such a major and potentially risky purchase.

Buyout firms Blackstone Group, Carlyle Group, TPG Capital and Permira are already struggling with their decision to pay $17.6 billion in December 2006 for Freescale Semiconductor, which was formerly owned by Motorola. Freescale is now heading toward a financial morass, in part because a quarter of its business comes from the flailing Motorola, and the chipmaker is high on many financial pundits’ lists as a prime candidate for bankruptcy.