bizzXceleration: Performance, Value and Profit

Telecom

BlackBerry’s Quest: Fend Off the iPhone R.I.M. is the North American leader in building smartphones, those versatile handsets that operate more like computers than phones. But R.I.M. may have trouble dominating the market’s next phase. Once the exclusive domain of e-mail-obsessed professionals, smartphones are now prized by consumers who want easy access to the Web, digital music and video even more than an omnipresent connection to their in-boxes.
Since the iPhone went on sale last summer, amid long lines of shoppers and media adulation, the contours of the smartphone market have begun to shift rapidly toward consumers. An industry once characterized by brain-numbing acronyms and droning discussions about enterprise security is now defined by buzz around handset design, video games and mobile social networks. That means R.I.M., which has historically viewed big corporations and wireless carriers as its bedrock customers, needs to alter its DNA in a hurry. While business is booming in Waterloo, analysts are raising an important question about R.I.M.’s future: Can a company that defined mobile e-mail for a generation of thumb-jockeys with bad posture also dominate the new consumer market for smartphones? Market Share Graphic

AT&T to cut the price of Apple’s new iPhone AT&T (T) is planning to put some extra shine on the even sleeker new Apple (AAPL) iPhone. When the 3G iPhone is introduced this summer, AT&T, the exclusive U.S. iPhone sales partner with Apple, will cut the price by as much as $200, according to a person familiar with the strategy. AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts, the source says. Apple is expected to have two versions of the new iPhone, an 8-gigabyte-memory and a 16-gigabyte-memory model with price tags widely expected to be $399 and $499. AT&T and Apple declined to comment. At $200, the iPhone would be within reach of a much wider consumer market and give AT&T a strong magnet to pull lucrative customers away from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT). The $200 rebate or subsidy would be limited to AT&T customers and not available through Apple’s stores. The new iPhone sold by AT&T will likely be locked or programmed so buyers can’t take the cheaper iPhone to another phone service.

AT&T's new operator AT&T has started deploying television services, mostly to compete with cable-TV companies that now offer phone calling; it already sells broadband connections and, of course, wireless services. Stephenson's goal is to tie all those services together using Internet technology, allowing consumers to access their content seamlessly, from work files to home movies, through any device, anywhere they happen to be. Stephenson, for now, doesn't seem to have any big purchases in his sights, not that there are many phone properties in the U.S. left to gobble up. (Verizon, No. 17 on the Fortune 500, has bought up most of the other prime telecom assets.) Instead he'll have to find ways to grow AT&T (ATT) organically, no easy feat for a mature company of its size. Meanwhile, what was once AT&T's main business, local phone service, is shrinking as cable operators continue to grab customers and people ditch landlines altogether. Investors, worried about the economy and a ruinous wireless price war among AT&T, Verizon, and Sprint, have kept the stock down all year. Then there's the specter of Google, which has dabbled in telecom networks and is now spearheading technology that threatens to disrupt AT&T's wildly profitable wireless business. There's another doomsday scenario out there, one in which AT&T and Verizon do keep up with broadband demands, only to have consumers bypass their new cablelike TV offerings in favor of getting their entertainment directly from the Web, simply by going to sites such as ABC.com. AT&T could end up a pure commodity player, supplying the pipes through which others run far more profitable businesses. Already, in telecom circles, Google is referred to as a "bandwidth parasite" - a super-profitable business that rides on the backs of the telcos' networks. ATT sidesteps the soft spots , AT&T launches TV service on new phones, rivaling Verizon

Sprint

Sprint's Wake-Up Call When Daniel R. Hesse was named chief executive of Sprint Nextel in December, he figured that customer service was going to be one of his biggest challenges, given how poorly the wireless service provider had performed on that count in recent years. He quickly found out precisely how big. The lanky 54-year-old walked into his first operations meeting at Sprint headquarters in Overland Park, Kan., and found that customer service wasn't on the agenda at all. He changed course right away. Customer service is now the first item discussed at every one of the weekly meetings. "We weren't talking about the customer when I first joined," says Hesse. Employees like Paula Pryor saw the merger's impact firsthand. The 38-year-old, who worked in a call center in Temple, Tex., says the numbers-driven management approach implemented after the combination led to poor morale and deteriorating customer service. Even bathroom trips were monitored. The toll on Sprint's reputation has been dear. The company has ranked last among the country's five major wireless carriers in customer service every year since the merger in 2005

• Why Deutsche Telekom Wants Sprint Nextel Although a combined T-Mobile and Sprint Nextel would have the largest number of mobile subscribers, it could still struggle against Verizon and AT&T because they are able to offer so-called quadruple play bundles that include voice, data, TV, and wireless services, which neither Sprint nor T-Mobile currently can. That's why Berge Ayvazian, chief strategy officer at technology consultancy Yankee Group, isn't ruling out yet another game-changing scenario: that T-Mobile would join with cable companies and Clearwire to absorb both Sprint Nextel's cellular holdings and its Xohm WiMAX businesses. The combined entity would create a new U.S. giant that would be in a better position to compete against Verizon and AT&T. The latter are promoting their new FiOS and U-Verse services as alternatives to traditional cable-TV and Internet offerings. "This is a moment of change in the U.S. market," says Ayvazian. "The question for T-Mobile is whether they want to remain a fourth-place operator or make a play to become a more significant competitor."

• Sprint Loses Huge Customer Qwest Communications is ditching Sprint as the provider of its cellular service and switching its mobile-phone customers over to Verizon Wireless' network, striking another sharp blow to Sprint's distressed business. The announcement on May 5 came the same day as unconfirmed reports that the German owner of T-Mobile is mulling a takeover bid for Sprint Nextel (S) and that Sprint itself is considering plans to sell off the Nextel business it acquired for $35 billion in 2005. Since taking over Nextel, which was once the toast of the cellular industry with the highest paying customers, the acquired business has shed millions of subscribers who grew frustrated with clogged networks and other service problems. The situation has grown so dire that new Sprint CEO Dan Hesse conceded in February that, "This turnaround will not happen for many quarters."

 Time Warner Profit Falls 35% on AOL Decline; Cable Systems to Be Split Off Time Warner Inc., the world's largest media company, reported first-quarter profit fell 36 percent on declines at the AOL Internet-access business and said it will separate its cable-systems unit. AOL's profit declined, while earnings at Time Warner's cable-systems, publishing and TV networks units increased. By getting rid of Time Warner Cable Inc., Chief Executive Officer Jeffrey Bewkes is responding to pressure from investors to focus on the company's entertainment businesses. ``If you separate out cable, the content business is cheap,'' said Paul Greene, media analyst at T. Rowe Price Associates Inc. in Baltimore, which owns more than 59 million Time Warner shares among its $400 billion in assets. ``If they get cash from cable and use that to buy back shares of the parent company, that's very accretive.''

Cable Industry

Time Warner Refocusing With Move to Spin Off Cable In another era at Time Warner, before a star-crossed Internet merger, the hard-held belief of Gerald M. Levin, then the chief executive, was that “content is and will remain king, but distribution is the power behind the throne.” These days the king seems to be losing his throne. On Wednesday, Jeffrey L. Bewkes, who became chief executive in January, succeeding Richard D. Parsons, said that Time Warner would completely spin off its cable company, essentially shedding the pipes that have underpinned much of the company’s fortune. Although the announcement was largely anticipated by Wall Street — it had earlier spun off a 16 percent stake to shareholders — it still underscored a profound philosophical shift. For years, it was a widely held belief within Time Warner and the media business that there were real financial advantages to owning both the content — television shows and films — and the means of distributing it to people’s homes. But Wednesday’s cable announcement, which came as Time Warner reported first-quarter earnings, spotlighted the company’s future as a pure content provider. From now on the media company will revolve around two core content businesses that have been out of the limelight in recent years: the Warner Brothers movie studio and Turner Networks, which includes the television channels TNT, TBS, HBO and CNN.

HD enthusiasts crying foul over cable TV's crunched signals As cable TV companies pack ever more HD channels into limited bandwidth, some owners of pricey plasma, projector and LCD TVs are complaining that they're not getting the high-def quality they paid for. They blame the increased signal compression being used to squeeze three digital HD signals into the bandwidth of one analog station. The problem is viewers want more HD channels at a time when many cable and satellite providers are at the limits of their capacity, said Jim Willcox, a technology editor for Consumer Reports magazine. While information is nearly always lost when signals are compressed and then uncompressed, the process can theoretically be made unnoticeable to eyes and ears — and Comcast says it should be. But some viewers say they can see it. Willcox said complaints about compression have been showing up on Web forums, including the AV Science Forum, a site for serious audio visual enthusiasts. In a posting on the AV Science Forum, Ken Fowler of Arlington, Va., compared Comcast signals with those on Verizon Communications Inc.'s all-fiber-optic network, which doesn't have the same capacity limitations. Fowler found the higher-compressed HD stations, including Sci Fi, Animal Planet, the Discovery Channel, the Food Network and A&E, fared particularly poorly. He analyzed the signals by recording them on a digital recorder, then transferring them to a personal computer for analysis. He found there was much less data, measured in bit rates, flowing to some channels than others. For example, Discovery's bit rate was 14.16 megabits per second on Verizon's FiOS system but only 10.43 Mbps on Comcast; A&E HD was 18.66 Mbps on FiOS compared with 14.48 Mbps on Comcast. The FiOS system didn't offer Sci Fi HD, which Fowler's testing showed at 12.59 Mbps on Comcast. He found the signals from the major networks and ESPN weren't getting the increased compression.

Comcast pins hopes on mobile As the bloody battle over subscribers between Comcast and its phone and satellite rivals continues at a virtual draw, the cable giant is looking ahead to a new wireless broadband arena: WiMax. The Philadelphia cable shop posted in-line earnings, and once again lost basic video customers - 57,000 in the first quarter. The slide in Comcast's core business however was offset by gains in its phone and Internet subscribers. Comcast added 592,000 new phone users and 492,000 more cable modem subscribers. Cable companies like Comcast and Time Warner Cable are locked in a brutal war over customers with phone companies like AT&T and Verizon as well as satellite broadcasters and DirecTV . As the cable and satellite TV players bulk up their phone service, the telecoms are trying to get subscribers to switch to their new TV services. All of them have the same goal: To become a one-stop shop for cable, phone, TV, wireless and Internet access. Now Comcast is plotting a bold move into wireless broadband via WiMax. Comcast and Time Warner Cable have been negotiating with Sprint, Clearwire, Intel,and Google over the fate of a proposed joint WiMax venture for several months. The plan is to combine Sprint's wireless spectrum and WiMax unit with Clearwire' WiMax network and build a nationwide mobile broadband network -- to be shared by Time Warner Cable, Clearwire, Comcast and Sprint. Intel and Google want to invest in a new generation of wireless devices that use their chips and Net applications. Comcast and Time Warner Cable see the fast wireless network as a key part of their product lineups.