Archive for February, 2009

T-Mobile’s G1 Android and Apple iPhone: market power or just marketing?

Friday, February 13th, 2009

T-Mobile recently introduced its G1 mobile phone in Germany, the first to use the open Android platform. The G1 joins the more proprietary iPhone which T-Mobile has sold in Germany under an exclusive agreement with Apple. The G1 is manufactured for T-Mobile by HTC in Taiwan and the Android platform is an open standards effort of the Open Handset Alliance – a consortium comprised of Google and several mobile phone manufacturers and networks. By contrast, the iPhone is a more closed platform where modifications may result in it being rendered inoperable. Given that T-Mobile is embracing open and proprietary strategies for the operating systems, begs questions on the efficacy a hybrid business strategy and whether this is unfair competition.

Both the Apple and Android approaches have had to grapple with the optimal level of openness. No pure strategy is viable: too restrictive, and the phone is of minimal value; too open, and it becomes unprofitable. Originally, the iPhone’s operating system was derided as being overly restrictive. Apple tried to harness the energy of individuals trying to improve the iPhone by launching the App Store in July 2008. It now boasts 15,000 third party applications for sale. At the same time, the Android platform is an open standard, not full open source. The source code carries an Apache license, so some extensions to the code may be proprietary. Further, Android’s Software Development Kit might allow Google to control an Android Market in a way which resembles the App Store.

Insight: It is not necessarily unfair competition for T-Mobile to be the exclusive source for both the G1 and the iPhone in Germany. Despite the 200 patents filed for the iPhone, it is not inherently irreproducible – save its cachet as a technocrati status symbol. Both Samsung’s Instinct and the RIM’s Blackberry Storm have already been launched to compete with the iPhone. Similarly, any other network could market a phone employing the Android platform. Whether these devices are better or worse is a matter of consumer preference. The fact that T-Mobile is now marketing phones based on both open and proprietary software suggests that neither approach is the Holy Grail of business models. T-Mobile initially launched the G1 in the US in order to compete with AT&T which is the exclusive sources for the iPhone there. The decision to sell the G1 in Germany probably embraces economies of scope and scale, more then the question of openness.

A German language version of this note, authored with Christian Wernick, will be published in Wirtschaftsdienst, available at: www.wirtschaftsdienst.eu.

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Some Thumbnail Economics on the DTV Transition

Sunday, February 1st, 2009

Source: New York Times, Robert LeSieur/Reuters

Source: New York Times, Robert LeSieur/Reuters

Last week the Senate unanimously voted to delay the up coming US transition to digital television by 4 months. Two days later, the House blocked the measure.

The debate over whether to delay the transition stems from the fact that a certain number of households are not able yet to receive digital broadcast television.  According to a report in the New York Times, the Nielsen Company estimates that more than 6.5 million homes are not able to receive digital broadcasts, down from 8 million, the previous month.

Let’s consider that number in light of some others.  To speed the transition, Congress authorized the National Telecommunications Infrastructure Administration to give out $40 coupons to purchase, or defray the cost of, digital converter boxes which would let analogue TVs receive digital signals.  To date, this TV Converter Box Coupon Program has already reached its $1.34 billion ceiling.  At $40 a pop, the NTIA has given out some 33.5 million coupons.  (Granted, not all of the coupons have been used).  According the FCC’s most recent data, there are 109.6 million TV households in the US (in June 2005, I said most recent).  Then as many as 30.6% of TV households have gotten coupons (as little as 15.3% if each household took the two coupons they are entitled to).  However, the FCC statistics show that 85.98% were MVPD households (those that subscribe to cable or satellite).  That means that only 14.02% of households get their TV over the air.

So how can there be 6.5 million households not ready?  Well, I am using two different data sets, one of which is 4 years out of date and some MVPD households must have taken a coupon for the old TV in the guestroom.  So, the two numbers are not likely line up.  I can accept that there are a significant number of households which are not ready for the transition, but I find the 6.5 million figure to be high.  The FCC did not do a great job of informing the public of the transition.  The previous FCC Chairman spent $350,000 to sponsor a NASCAR to promote awareness of the digital TV transition.  The car crashed twice. FN1

Consequently, the poor and the elderly are not ready for the transition.  The New York Times also has a lovely piece about Ms. Vesta Clemmons, 77, of Houston, TX who is not ready for DTV.  (I am sure Ms. Clemmons has never seen NASCAR).  Ms. Clemmons has been unable to get a coupon from the NTIA’s program.

Insight:  Delaying this transition which has already dragged out for years will have a significant cost.  It would be cold and heartless to want to deprive the elderly and lower income families of over the air television.  But we have to consider just what the cost of “free TV” is.  As I have said in a previous Cool Stuff, the cost of delaying the digital TV transition is opportunity cost which the minority impose on the rest of us.  These opportunity costs include the majority of us not being able to use the spectrum for higher value uses.  There’s no question that the transition to digital television is going to be messy.  But, that is all the more reason to go and get it over with.

FN1 To the seasoned Washington insider, the choice of NASCAR makes perfect sense because just like an FCC proceeding.  In both events, everyone goes around and around at high speed until someone hits the wall.

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