Flight of the Concordes

By The Informer

Before it was taken out of service, the Franco-British aerospace marvel Concorde was the only civil aircraft that pretty much everybody could name on seeing it in the skies. Its iconic form factor and record-breaking performance made it the world’s most famous plane.

It was also a legendary money pit; a triumph of ambition over economics, costing an enormous and irretrievable sum to develop and build and requiring that the French and British governments cough up heavy subsidies in order that their flag carriers could actually afford to buy the thing. Neither airline ever revealed details of Concorde’s operational profitability.

So what’s all this got to do with mobile telecoms? Well, the Informer couldn’t help but be reminded of Concorde when he saw AT&T’s results this week. Famously it was the first carrier in the world to introduce Apple’s iPhone – amid levels of fanfare more often associated with significant national triumphs – which is probably the only handset in the world that pretty much everybody in the street could name on sight.

And it turns out that, as with Concorde, there is a hefty cost of provision associated with the Apple handset. AT&T revealed this week that the popularity of the iPhone would dent its full year margins because it’s had to swallow $900m in iPhone 3G subsidies for the third quarter alone. $900m! This works out to $375 for each of the 2.4 million units the carrier shifted during the period, 40 per cent of which were gobbled up by newcomers to the AT&T fold.

This at least helped boost net post-paid subscriber additions to 1.7 million, the highest quarterly haul the carrier has ever reported. And the firm also attributed a doubling of wireless data revenues to $2.7bn (mobile internet access revenues also doubled) partly to the iPhone. So – unlike Concorde – the iPhone probably does make a degree of economic sense for the carriers. $900m, though, that’s a lot to swallow.

Certainly the handset makes economic sense for Apple, which generated $3.5bn in revenue by moving 6.9 million 3G units in Q3 this year (the first quarter the WCDMA version has been available). That’s more than the 6.1 million first generation iPhones sold for previous five quarters combined, a fact which inspired Apple chief Steve Jobs to a spot of braggadocio, as he boasted that: “Apple just reported one of the best quarters in its history, with a spectacular performance by the iPhone – we sold more phones than RIM [Research in Motion; manufacturer of the Blackberry].”

With no bushel under which to hide his light available, Jobs continued: “We don’t yet know how this economic downturn will affect Apple. But we’re armed with the strongest product line in our history, the most talented employees and the best customers in our industry. And $25 billion of cash safely in the bank with zero debt.”

“See ya, wouldn’t wanna be ya,” he added.

Anyway, what is it about those brash Americans always having to poke fun at their Canadian cousins, just because they’re quieter, less guileful, a little more reserved, a little less inclined to abuse their right to bear arms? Actually, RIM probably hasn’t helped its case by nicking a key Apple strategy and launching its own version of the Californian firm’s App Store.

What RIM’s done, though, is called it the Blackberry Application Storefront. Guileless, see? The Application Storefront – or App Store, for short – will open its virtual doors in March 2009, connecting application developers with the millions of Blackberry users worldwide. They’ll be able to set prices for applications themselves, with the RIM heavies taking 20 per cent, so that no nasty accidents happen. Apple, for its troubles, takes 30 per cent.

Enterprises, one of the biggest BlackBerry user bases, can also use the applications centre to retain control of what can be downloaded to devices within their corporate deployments. BlackBerry developers can begin submitting their applications and content for inclusion in the storefront in December. The company has not revealed whether it will have any policies for vetting applications prior to making them available in the storefront.

And with all this handset hoo-ha it would be churlish not to give some space to the latest Motorola creation. The Informer’s heard it said that there’s a certain aura about Motorola’s handset unit at the moment, but he must have misinterpreted the comment. As you can probably divine from the nomenclature, Moto’s new phone, the Aura, is one of those stellar-priced handsets made from all sorts of fancy-dan materials that are traditionally only bought by Sheiks and the wives of Russian oil billionaires.

And, in keeping with this particular end of the handset market, the phone’s launch was accompanied by some high-end PR tosh. Moto claimed that the Aura marks a “return to the golden age of hand crafted design”. It occurs to the Informer that a return to the golden age of the StarTac might be better. At least they sold.

It’s also supposed to be the first device to feature a circular display, although 20-plus years’ of rectangular displays suggests there’s a reason why circular ones never took off. That same display also boasts a Grade 1, 62 carat sapphire crystal lens, housed in stainless steel and supported by a Swiss-made main bearing to produce a sliding ‘blade’ mechanism, which is “more like opening the door on a luxury car versus accessing a mobile phone”. $2,000 is what it will set you back if you’re silly enough to buy one.

On the component side, US chip shop Texas Instruments is looking to find savings in its cellular baseband operations by flogging off its merchant market business. This week TI reported a 26 per cent drop in third quarter income, from $758m last year to $563m this year, while revenues dived eight per cent year on year to $3.4bn.

Reductions in the company’s cellular baseband operations will begin immediately and are expected to be complete by June 2009. TI anticipates annual savings of more than $200m once these reductions are complete, although the firm expects to take restructuring charges of approximately $110m across the next three quarters.

The vendor is ultimately looking to offload its baseband business altogether as it switches its focus to application processors – but in doing this it’s taking a big gamble against market trends. While the baseband chip deals with radio communications, the application processor runs higher level software such as music players and cameras. So TI’s new strategy banks on the fact that the applications processor and the baseband will remain isolated components, despite a clear industry trend to the contrary.

It’s not without irony that Nomura’s Richard Windsor noted that the best performing 3G chipset going into almost all of the non-Nokia high end handsets is Qualcomm’s 72** series fully integrated dual core solution. And TI has actually spent a lot of time and money developing its OMAP Vox range of products which integrate the baseband and applications processor on the same piece of silicon.

Right, it’s credit crunch-O’clock and time for word of cautious behaviour from Hutchison Whampoa, the Hong Kong conglomerate that owns the 3 group of carriers. Hutch announced today that it’s putting a freeze on all new investments and plans to take a long, hard look existing operations as it tightens its belt against the global financial crisis. This is probably not great news for the firms’ latest telecoms foray, the new handset production outfit that’s just been launched; INQ.

Swedish vendor Ericsson, meanwhile, turned in its Q3 results this week and they were better than expected. Net income for the period was SEK2.8bn (E283m), 28 per cent down year on year. Sales were up 13 per cent to SEK49.2bn, with only Western Europe turning in a weak performance. Revenues from kit sales grew 16 per cent with help from growth in India, Indonesia, Russia and Brazil, while Professional Services revenues grew seven per cent.

ZTE, one of the Chinese firms currently making life more difficult for Western vendors like Ericsson, and which is running its business from Telenor’s naughty step for six months, toasted the credit crunch with Q3 revenues of $4.43bn, a 29.3 per cent increase on the same period for 2007. Once all of the firm’s, ahem, ‘costs’ were deducted this was whittled down to a net profit of $119.2m, a 35 per cent improvement year on year.

Also seemingly undaunted by world fiscal turmoil are France Telecom and KPN. The French incumbent announced further expansion in Africa this week, marching the Orange banner into Uganda. FT is taking majority ownership (55 per cent) of new entrant Hits Telecom’s Ugandan operation. Hits won a GSM licence there last year with backing from a UAE investment firm called International Investment House. The company’s business model includes proposals for cellular, WIMAX, international gateway, MVNO and data transmission services.

FT’s Dutch counterpart, meanwhile, has inked a deal with German firm Debitel that will see it acquire the German’s Dutch MVNO operation Debitel Nederland. The financials were not disclosed.

And that’s about all we have to tell you this week here at Informa Towers, where the credit crunch has made itself most plainly visible through the cutting of our traditional ‘And finally’ light-hearted, vaguely amusing, telecoms-related story.

Take care

The Informer.