Wireless Industry Analyst

• The device promises direct music transfer from the internet to the mobile, a no-no with iPhone.
• It is likely to have 3G versions during release. Whether it promises higher data-rates or not, at least there is a perceptual advantage with the 3G tag.
• Nokia has 1/3rd of the hand-set market share in the world. So even in places where the carrier lines up phones (eg. U.S.A as against in India), they should have negotiating power to leverage unprecedented deals with respect to retaining their own services etc.
• Nokia certainly has the brand-name to compete with Apple. The snob-value associated with an iPhone may not be there, but people will definitely trust a Nokia device enough to buy it.
• Nokia phones are not likely to be locked to carriers. This means more customers all around the world. They are gunning for instant pervasiveness as against the exclusiveness tag from Apple. They will have to price it below the iPhone or at least competitively to gain with this strategy.
• Though it is a brazen copy, Nokia is likely to learn from iPhone mistakes and present a better product. They will directly be competing with iPhone V2 when that comes up.

• The carriers are yet to monetize on the infra-structure they have built so far. So, even if they attempt to vigorously promote 4G, the investors are unlikely to authorize another 50 billion dollars for new OFDMA based infra-structure.
• 3G is just getting popular, especially in the U.S. For example, AT&T (T) is slowly adding cities to its WCDMA roll-out. 4G will have to wait since a lot of these carriers are thus committed to 3G.
• New carriers need to pick from the available candidates for core technology. Each is plagued by unique issues and the choice is thus not obvious. WiMax has mobility issues, UMB is solely QualComm's technology and the wireless value chain will be vary of this and infact want to avoid it.
• LTE has just been completed as a standard and there are reports that most stumbling blocks of the Physical layer have been ironed out. QualComm (QCOM) and Ericsson are the only companies developing prototypes. All others are either struggling with their HSDPA or HSUPA solutions and are not even close to HSPA+, leave alone LTE. Not many have the deep pockets to run parallel tracks like these two giants can afford to.
• Extensive field-testing has not been done with any of these technologies. Field testing, as many will agree, can spawn its own cycle of debug and development. And this will affect the availability of the devices even if the 700MHz spectrum and its winners are waiting with open hands.

Nokia (NOK) announced recently that India has surpassed U.S. as its second largest market next to China. This is largely due to its unique manufacturing plant set-up in Chennai. The investment, much against the common thinking (India is not for manufacturing), seems to have paid off with 50% of those phones (60 million in the last 18 months) being consumed internally.

Another staggering piece of statistics is that 46% of an estimated 118 million Indian mobile subscribers use Nokia phones. To cap it, the Telecom Regulatory Authority of India (TRAI) has annouced 7.3 million additional mobile subscribers in June alone. So, if Nokia can sustain this market share, which they hope to based on their infrastructure investment and their long-standing brand-name in India, it will be a happy story to the coffers.

On the other hand, I do want to signal some caution -
. The demographic of Indian mobile subscribers is slowly morphing. When the mobile revolution started, it was either the executive or the jazzy college-going kid. Later, it was in the hands of every other college kid, meaning that the middle-class Indian was coming around to the fact that the mobile is after all not a spoiling influence on the kid but more a utility. Now, more and more people are realizing this. Moreover, the introduction and popularization of the ultra-low cost phones has gotten more of the working class and the rural India, traditionally conservative and very utilitarian spenders, to start using mobile phones. This trend is likely to continue. My take is that while there will always be a market for the higher-segment phones, the ultra-low cost phone market will play a key role and that section of the paying public is likely to dominate the mobile subscribers in the near future.
. On the higher-end, the paying customer wants the latest. India is no longer two or three years behind in technology. People want and get the latest and are willing to pay up.

These two factors will be important in defining the future of Nokia or any company for that matter in India. Any company that wishes to break into this market will have to strike a nice balance. All it takes is a RAZR or iPhone type technology-hype to tilt the market balance. Nokia may be up to this challenge given that they have set-up local design centers to read the pulse of Indians and give them the phones they need. But the Finnish company better be on their toes or they could be left high and dry.

On the other hand, the growing ultra-low segment typically operates on low margins. I am not sure how Nokia wishes to address this segment considering that Indian manufacturing plants may not be able to compete with their Chinese counter-parts. The 'Classic' from Reliance is a classic example of cheap and good-looking phones.

Thus with pressure from even carriers such as Reliance, Nokia has its task cut out here and faces an uphill battle to sustain the market share. It may however be helped by its well-built brand image and its pioneer status.

Boy, I am looking at the attention the article in Business Standard and Rediff is getting and I should say that the web-site has succeeded in yet another of its publicity stunts. And of course, it has also helped build the gPhone aura. No wonder Google backed off from any comments.

This being said, let me re-iterate that a gPhone in its full glory in a fort-night is either a figment of imagination by a couple of fertile minds or is just wrongly processed information. I can see some kind of a service agreement in the cards between the carriers and google and this may have been mistaken for a gPhone launch.

Another possibility that a friend pointed out is an announcement in a couple of weeks about the gPhone availability. As he said, and I will readily agree, if google wants to go the apple route, then the first thing it should learn from the 'fruit company' is the market intelligence and the creation of the hype. They have the brand, they need a product to pitch it in the mobile space. They definitely need hype and fever around such a product. Well Google, here you go! You have a good start, even it was not entirely intentional.

Treat yourself with this laugh riot on gPhone -

http://www.business-standard.com/common/storypage.php?autono=295658&leftnm=1&subLeft=0&chkFlg=

It is probably the case of an overzealous reporter with a key-board in hand. The article talks about gPhone heading for a world-wide launch in a fortnight. Improbable! And here are some of the reasons -

- Prototype to Product: This is a long process. Any prototype that is OKed by the carriers will have to go through rigorous test procedures not just to pass regulation but also to meet performance metrics defined by standards. The product cycles are definitely not a fort-night long.

- GPS and other features: The gPhone is likely to be a model that thrives on GPS and Wi-Fi. These features present additional issues that need to be tested. Not trivial!

- Technology: GSM or CDMA? 2G or 3G? The article talks about a lot of carriers and to suggest that a phone will be out for each of them in 15 days is outrageous. Apple is not stepping beyond GSM for the moment. Why would Google gamble on fairly new mobile concepts for various technologies simultaneously?

I could enumerate a 101 more reasons. But it would sound silly. I do wish though that journalists are more responsible and apply a little more logic rather than going for a few additional hits to their sites.

• As market leaders in the 3GPP space, they cannot handle QualComm as a chip-set supplier unless the latter's position is toned down. Nokia's getting out of the chip-set business means that QualComm is a potential supplier of 3G chips to them. From Nokia's perspective, they would want to reduce the cost of even the most competitive chip-sets to improve their margins. This would require reduction of QualComm's bargaining power and that comes implicitly by devaluing their IP position.
• It will be sweet revenge for Nokia considering they were literally pushed out of the CDMA business not long ago. This is unlikely to be the determinant or root motivation for the ITC ban request or the slew of suits. I just want to illustrate the bad-blood that flows here.
• Nokia will want to assert its position as a phone vendor as opposed to chip-set manufacturers to establish superiority in the industry and in the value chain.

Oh, and I forgot to mention something I read attributed to Nokia's head of communications, the link for which can be found here -

http://www.pcworld.com/article/id,135658-c,chipsets/article.html

So here goes..

"It's also unclear whether Nokia's chipset development changes will mean cheaper phones. The chipset is just one component in a mobile phone and among several factors that influence pricing, Suominen said."

The way I read this ...

"Hey QualComm, know your place. We, the phone-makers, control your fortunes."

So, what would the chip-set makers say in response to this statement that is laden with an assumption of supremacy?

• efficient use of its own engineering resources in developing its platform and the modem rather than fighting it out with the likes of QualComm (QCOM) who demonstrate engineering market leadership time and again.
• being able to pick from a consolidated pool of suppliers thereby getting a better pricing that would enable them to compete more effectively on hand-set pricing.
• the further snubbing of QualComm and potentially weakening the chip-maker's position.
• lesser involvement in the standardization activities since they will be a level removed from the core technology.

• reduced profit margins for QualComm due to more competition.
• a new player in the 3G space, namely ST Microelectronics, which has its first design win with Nokia.
• a further enhancement to BroadCom's position as an emerging mobile wireless chip-set leader with the EDGE design win.
• a jolt to TI who were hoping that STM was more a threat by Nokia than a reality but have instead landed in an unenviable situation fighting competition to get to Nokia.
• a re-alignment on the cards in 3G standardization activities with Nokia shedding its dual interests.
• a potential for future design wins for the likes of Interdigital who are developing GSM/WCDMA chip-sets.

As if all the talk and the attention that QualComm has been getting from the ITC ban is not enough, a federal judge in San Diego ruled that QualComm intentionally with-held disclosure of inventions during a discovery. Further, it ruled that the company also intentially hid a couple of patents from the video compression standards. This action implies that QualComm was precluded from enforcing these patents and seeking royalty.

Now, tell me something.
. Have other companies become smarter and are they hiring smarter lawyers these days?
. Has QualComm's legal team gotten too tired enforcing patents and litigating all these years?
. Or is QualComm really unethical and hence is paying for it dearly now? If unethical, is it any different from the others and is just paying the price for being smart and for leading the pack?

I would be delighted to get a few opinions on this.

The denial of Presidential Veto as I had mentioned was quite expected. This is definitely not an extra-ordinary circumstance for the President to have exercised his power. The next natural question is the impact of the ban of QualComm, BroadCom and the others.

QualComm

1. Its business as usual in its offices. The engineers had their tasks cut out the day the ruling was made. They had to present a quick work-around which was acceptable to the customers. And if QualComm's engineering and legal teams are to be trusted, they must have done a fairly good job in packaging the solution in a manner that BroadCom can no longer litigate against.
2. The business model will be heavily challenged in the days to come. More litigations and counter-suits are on their way with Nokia lining up for the battles as well.
3. It will likely have a lesser negotiating power when it comes to the cross-licensing tables. So, my suspicion is that apart from part of the Verizon bill that it will likely foot, there will likely be a loss of revenue from its patent portfolio. So watch out for its patent portfolio growth and track the corresponding revenue from the IP and they will have a story to tell.

BroadCom

1. It has risen to the status of the industry Robin Hood and has perhaps led by example that the QualComm model can be broken if this onslaught can be sustained.
2. It has gained traction with the service provider community (with new friendship with Verizon and something similar perhaps on the cards with Sprint). This community was understood well only by QualComm for a long time and the San Diego company played its cards very well with them. The complete packages that were offered with QualComm products and the extra-mile it went to keep the carriers happy afforded the company its superior position in the industry. Perhaps, with this situation, that equation hs been slightly altered.
3. Converse to the QualComm case, BroadCom will have higher leverage at the cross-licensing tables that will help it obtain cheaper deals with QualComm for the 3G solutions out of its stables. This will reflect in higher profits if it succeeds in making its 3G chipset pervasive.

The others
1. Verizon and the carriers are in a win-win situation. Now, they have QualComm on its toes while there are other companies eager to get closer to them. The carriers can now demand better modems, more features and get better pricing. More suppliers, lesser price, better products - the common economic mantra works here.
2. Nokia and anyone other than QualComm are likely to take this as a precedent and step up the ante. Lets move aside to let street-smart lawyers rule the roost.
3. Phone manufacturers are likely to both benefit and suffer. They may not have any problem getting current phones in if Sprint also strikes a deal similar to Verizon's. But, in the future, unless this issue is resolved, they may have to go for non-QualComm chipsets knowing fully well that they may get a raw deal with costlier yet poorer performing and poorer serviced products. Of course, this assumes that the other chipset providers cannot product competitive wireless chips. But unless these companies can prove otherwise, that would be my instinctive guess. On the other hand, if QualComm works around this issue, then the same manufacturers can get cheaper chipsets from QualComm citing comparable prices from competitors. So they can eat into QualComm's profits further.

In summary, I don't believe that QualComm's business model is completely unharmed. The process is already underway and the other components of the wireless industry have positioned themselves to chip away from the company's profits. So though it may appear that the model remains intact, the impact is nonetheless likely to be felt.

The talk of the industry yesterday was the Bush denial to veto the ITC ban on QualComm chips entering US market. It hardly surprises me, and it should not surprise anyone including QualComm. My reasons -

1. The President is unlikely to set a bad precedent trying to encourage practices that can be perceived as monopoly. A veto would have made QualComm more brazen. In fact, I would argue further that it may have been detrimental to QualComm itself. This would have given other companies to then flagrantly violate patents with impunity. And this has the potential of breaking the very business model that QualComm thrives on.

2. Verizon, one of the biggest backers safely navigated itself out with a pact with BroadCom. This would give the big V an advantage over its CDMA competitor, Sprint and an army of phones to put up at least a semblance of fight against the iPhone.

3. It is clearly a fight between two industry heavy-weights which does not assume any national level importance. The government clearly did not buy the arguments regarding emergency calls. And the Verizon move served as enough precedence that a work-around was possible if the parties involved negotiate fair. It is not a Greek mythological war for the Gods to take sides.

The sequel talks about the implications for both parties.

In my previous article, I had mentioned that Sirf will have to re-invent itself and align with a cellular or WLAN chipmaker to have a more secure future. I had, however, missed this press-release on that same day.

http://www.sirf.com/PressRoom/Press.aspx?PressId=132

Sirf has inked a deal with Intel to license and co-develop GPS solutions for "Intel-inside" laptops. This is significant for the same reasons I had enlisted in my previous article. Bundling with a WLAN solution would help the marketability of Sirf's products. Besides, most laptops coming out today have WLAN in them and are likely to have mobile-chips in the future (dual-mode 3G/WLAN card and the likes). If Sirf can get something similar inked on the mobile-side, then it would be a more interesting future for them.

From Intel's perspective, this is almost a no-brainer. BroadCom purchased Global Locate and is sure to look at bundling the GPS receiver with their WLAN offerings for laptops and mobiles. Though the two companies' products don't compete directly in the WLAN market, any non-Intel laptop with an additional feature can be a market-grabbing product. Besides, QualComm is definitely targetting the data-card market for laptops. So, Intel had to fill in that feature deficiency.

Intel's move now adds pressure on other WLAN providers to deliver on the GPS front. It remains to be seen if these other WLAN providers will be pro-active and find a way to support GPS in their future products.