DvDand Solutions, LLC

This week at CTIA, Verizon announced plans to provide mobile payment options for enterprise customers in partnership with  Charge Anywhere, LLC. This by itself is not big news. After all, mobile carriers in Asia and Europe have been providing this service for years now. AT&T too has similar options available.

There are scores of startups that are addressing this space including Obopay, mFoundry, MPayment, to name a few. Even established companies like PayPal, Sybase and Google have ventured into this arena. But where are the banks? Why aren’t any of them providing these options or partnering with the carriers to provide this service.

There is a common belief that carriers and banks are at loggerheads about mobile payments. There is a reason for that. Banks and carriers cannot agree on who owns the transaction. Carriers say they own the transaction as it happens on their network and they bill the customers. But the bank say they own the customers as the banks have the customers’ money and they provide the secure transaction processing. Neither wants to encroach on the other’s turf especially since regulatory oversight for carriers and technology investments for the banks would be killer. So, they are at an impasse and until it is resolved, banks will be shut out of a market that is forecasted to be worth $25.2 billion in 2013 by Research & Markets.

Banks  are not giving up easy. They are introducing m-wallets and other options to garner a share of this market. But those efforts are not going to take off in the face of a simple solution like charging to the cell phone. Clearly, banks need to change their tactics in order to get a larger piece of the pie. They need to take a back seat to the carriers by letting them own the customers and bill them, while the banks provide solutions to process the transaction and get a cut. Banks will have to think “Powered by Intel” model for them to be successful otherwise they are going to miss the boat.

Citi today announced that it has partnered with Firethorn Holding, LLC, a Qualcomm company to provide a mobile application for its Card holders to access their account information on their cell phones. This rollout is to be on the AT&T and Verizon Wireless networks. The application will allow card holders to check balances in real time, review their transaction history and rewards points on their cell phone via a secured and encrypted connection. You can read the press release from Verizon Wireless here.

Verizon Wireless and Walt Disney Parks and Resorts today announced a multi-year agreement where in Verizon Wireless will provide wide-ranging mobile services to Walt Disney Park and Resorts visitors. Starting next year, visitors to Disney who use Verizon Wireless phones will be able to download an application to their phones that will give them up-to-minute information on shows, restaurants, Disney characters inside both Disney World and Disneyland parks. At the Epcot center, visitors in early in 2009 will experience the Kim Possible World Showcase Adventure, an ultra-interactive show using wireless device from Verizon Wireless called the “Kimmunicator”.

Verizon will make some basic services available to all the 90% of visitors of the park who bring cell phones with them while the enhanced services will be available only on the Verizon phones.

Yesterday, AT&T announced some stellar performance numbers for the 3rd quarter 2008 led by growth in Apple’s iPhone 3G products. AT&T activiated 2.4 million iPhones during the quarter and their wireless data revenue grew to $2.7 billion. More recently, Apple also announced a great quarter with record sales of 6.9 million iPhones during the quarter. However, the future is very uncertain.

The end of last quarter saw the beginning of the economic downturn. We have already seen the effects of the downturn on Nokia which said its Q3 revenue fell by 7% from previous quarter. Sony Ericsson has also been affected by the downturn with their sales down 10% over previous quarter and profits down 1% over last quarter. No one knows how long it is going to last. As such all three companies mentioned above have lowered their forecast for the next quarter and the new year. That was expected, that is not the big story.  

The bigger story is the profit squeeze that the Mobile sector is facing. Take for example AT&T which is considered the bellweather for this sector. As I mentioned earlier, its revenue grew impressively. However, it had to subsidize the iPhones heavily, to the tune of $900 million in the quarter which amounts to a 10¢ reduction in its earnings per share. Clearly, AT&T has to subsidize the iPhones to stay competitive with RIM Blackberry, T-Mobile’s G1 and Microsoft Windows Mobile based phones with various carriers including AT&T. However, it is going to get worse going forward as consumers reduce their spending and shun expensive plans. There is a danger that consumers might shun smartphones all together. As Sanford C. Bernstein analyst Craig Moffett said to BusinessWeek:

you wonder whether the iPhone runs any risk of tilting from being the next cool gadget to suddenly being a symbol of excess.

I have a feeling that not just iPhones, but other smartphones will end up looking like “symbol of excess”. If that happens, RIM will probably be affected the most. Unfortunately for RIM, its Blackberry Storm and Blackberry Bold launches are coming in the first quarter after the major financial crisis and as US heads into a recession. Whether RIM will see the same bounce in sales as Apple did, remains to be seen.

All carriers will see further worsening of their ARPU during Q4 2008, according to the IE Market Research Corp.’s 4Q 2008 United States Mobile Operator Forecast, 2008 – 2010 report. In Q208, the ARPU declined by 1.7% across all carriers. However, Sprint and T-Mobile will be more adversely affected as it takes them longer to get a return on their their investments in WiMax and 3G respectively.

Verizon Wireless announced that starting November 1st, it will begin charging bulk message senders 3 cents per transaction for messages sent to its subscribers, according to Mickey Alam Khan at Mobile Marketing Daily. This increases the cost from typical 2.5 cents transaction cost to 5.5 cents. Now, if you are a consumer or not involved in this directly, you might think that is pittance. However, when you consider that mobile marketers send several thousands of message and the whole business model is based on the message costing next to nothing like the email messages, suddenly the numbers no longer add up. Given the current economic situation, Verizon’s move, which has yet to be matched by other carriers, certainly sounds heavy-handed and could put a damper on the mobile marketing industry when you take into consideration that with 67 million subscribers, it is the second largest carrier in US.

US currently has four major mobile phone operators: AT&T, Verizon, T-Mobile USA and Sprint. Clearly, AT&T and Verizon have built up a huge lead over the other two competitors. And with Sprint leaking customers, consolidation in MVNOs (Virgin Mobile merging with Helio) and resellers switching operators, a la Qwest, it is anybody’s guess how long Sprint will survive as an independent company.

On the other hand, T-Mobile International certainly has a strong presence in Europe and is doing well there, thanks to its Duetche Telekom parent. However, in the US market, it is a different story. T-Mobile USA just passed 30 million customers in first quarter of this year. And this quarter, it has made an aggressive move to get additional revenue from its existing customer base by introducing the $9.99 home phone line. It remains to be seen how it affects it bottom line.

So, is the US market headed to be a duopoly with a distant 3rd operator? I certainly think so. It make take a few years to get there, but certainly expect this scenario to play out. I expect Sprint to be acquired by an international operator like SK Telecom or some other and it will focus its efforts on infrastructure and depend on the MVNOs and smaller players to provide the revenue. I don’t expect Sprint to be acquired by either AT&T or Verizon due to regulatory obstacles. A potential scenario could be that T-Mobile & Sprint merge. That could be interesting, however, the operate on two different platforms, GSM and CDMA respectively. That could pose some challenging integration issues. Another scenario that could happen should Sprint not be acquired, would be either Verizon or AT&T propping it up with some sort of investment, similar to Microsoft’s bailout of Apple. This could provide sufficient competition in the marketplace to keep the regulators and Congress pacified.