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Monday, February 2, 2015

Podcast transcript: O2 counts on 3, Microsoft counts to 10 and Apple counts its profits

Here’s an edited transcript of our new monthly podcast, broadcast on 30th January 2015.

[Iain Graham]: Hello, it's Friday 30th January 2015. Welcome to this month's edition of The Fonecast. That’s right, you heard correctly: we’ve temporarily moved to a monthly format. If you’d like to join 51Degrees in sponsoring the podcast and returning us to weekly programmes, please get in touch via our website. Now, on with the show.

[IG]: My name is Iain Graham, I'm your host and with us of course is James Rosewell, the owner of mobile technology business 51Degrees, and Mark Bridge who's a technology writer. Good morning and a belated but a happy new year to you both.

[James Rosewell]: Yes, good morning and happy new year to our listeners.

[Mark Bridge]: Indeed, good morning.

[IG]: In today's program we'll be talking about potential takeovers, updated operating systems, new handsets and some impressive sales figures. In fact, it's one of those takeovers that we're starting with, and James, you have the story.

[JR]: This has been around for a couple of weeks now, but of course we're talking about Hutchison and the rumour that they will be taking over O2, which has turned into more than a rumour. So of course, Telefonica, the parent company of O2, have entered into exclusive talks with Hutchison Whampoa about the potential takeover of O2 UK, and has proposed a deal worth around £10.25 billion in cash, with most of the money paid when the transaction is concluded. £ billion would be deferred until cash flow reached an agreed figure. So substantial cash in the bank for Telefonica, should a deal of that structure go through. Now the exclusive period is due to last several weeks. Hutchison Whampoa, of course, currently operates the Three UK network, so combining the two companies would give it a customer base of around 35 million, making it the country's largest network operator.

[IG]: James, the obvious question to ask here is, is there a regulatory issue here in terms of monopolies etc?

[JR]: Yes. [chuckle] Yes, absolutely.

[IG]: I knew the answer was going to be yes, I was looking for something a little bit more, James!

[JR]: Indeed, I personally think that Ofcom will let it go through with conditions around spectrum and limits on certain things that the combined group might be able to do. But I don't think Ofcom could legitimately stop it from happening completely.

[MB]: And of course, we have to bear in mind this is happening alongside BT and EE as well.

[IG]: Yeah.

[MB]: So Ofcom have to look at both and make sure that whatever they do is equitable. What's happened previously, certainly in Ireland if I remember correctly, is the regulator has mandated that MVNOs have to be set up. The operators are allowed to merge, but the resulting company has to offer spectrum, has to offer the ability to buy MVNO service from them at an agreed, wholesale rate in order to keep competition going.

[JR]: Well that's right, there'll be those sorts of conditions placed on it. I think what it also means though, ultimately for consumers and businesses, is that prices are going to go up. We're going to see a situation where we've got three operators, effectively, of the infrastructure – and therefore there's going to be less price competition at that level and I think inevitably, and certainly if you look at cases around the world of consolidation where you end up with three players, then you see prices creeping up. What I would also say is this is probably the last year we'll be talking about consolidation in the UK mobile network industry. We might talk about existing players being bought and merged with international operators, but I don't think anyone wants to see less than three operators.

[IG]: So what we're saying is, in effect, this is actually probably in the long run or even the midterm run, quite bad for the consumer.

[JR]: I think ‘bad’ is too strong a word, I think there's going to be less competition and therefore prices are going to remain reasonably static, they're not going to be particularly dynamic or exciting, certainly the rates that you get from networks or even the MVNO rates, although Mark makes a good point about regulation. But what it really says is that 30 years after the UK mobile industry started, we’ve reached maturity. Because when you get to three players in a particular market, that's a sign of maturity.

[IG]: Hmm. It’s exactly 30 years, isn't it?

[JR]: You remember it well, weren't you there, Ian?

[IG]: I certainly was, James. I certainly was. [chuckle] Yes. That makes me feel terribly old, I have to say. But very excited as well, it's been a cracking industry, still is a cracking industry. Right, still carrying on with a takeover in the theme, is Samsung and BlackBerry. And Mark, you’re going to tell us about that?

[MB]: I am indeed, yes. Rumours about a possible takeover deal led BlackBerry to issue a formal denial earlier this month.

[IG]: Ah, it's going to happen then, isn't it?

[MB]: Well, in a statement, Blackberry said it had “not engaged in discussions with Samsung with respect to any possible offer to purchase BlackBerry." Mind you, it also said its policy was not to comment on rumours or speculation, and it certainly did that. Samsung meanwhile said it wanted to work with BlackBerry but not acquire the company. Now, this all started, these rumours of Samsung being interested in taking over Blackberry, when the Reuters news agency claimed that Samsung had offered up to $7.5 billion for Blackberry. Meanwhile, Canadian newspaper Globe and Mail said Blackberry had turned down a number of other takeover proposals in recent months.

[IG]: There have been so many rumours about BlackBerry and so many revivals and not-revivals, this would probably be a good thing, wouldn't it?

[JR]: Well, I think we've heavily tipped that BlackBerry will be sold this year. [chuckle]

[IG]: Yes.

[JR]: That's the view of us, I think. So yes, this is good news early on in the year, that there's lots of talk about that as far as our predictions are concerned! [chuckle]

[MB]: Yeah, certainly it sounds very much as though BlackBerry thinks it has a better future as an independent company or, at the very least, can get more than $7.5 billion which, incidentally if I'm right, is well above market price at the moment.

[JR]: I think they will hold out for a little bit more. But I think the companies that aren't being talked about are going to be the organisations that provide enterprise services, the IBMs, Hewlett Packard, Cisco. Those sorts of companies might be kind-of a logical better acquirer, particularly when you consider within the BlackBerry portfolio is QNX, that amazing operating system used in many of the world's network routers.

[MB]: And also worth bearing in mind: when there was talk of a Chinese company getting involved with Blackberry, the response was quite negative in terms of it actually being allowed potentially to go ahead. A South Korean company, I don't think would be as big a deal for the Canadian government and Canadian regulators. However, I'm sure that if a North American company came along, everyone would be very much happier.

[JR]: Indeed, one to watch and I'm sure we will know once various suitors want to tip their hand and let it be known that they're in a more advanced stage of negotiation.

[IG]: Okay, thank you gentlemen. Moving away from takeovers and moving on to something new – and Microsoft has been talking about Windows 10. Microsoft has revealed more details about its next generation of Windows, which was first unveiled last September. Windows 10 will be installed on new devices, it will be available to buy and it will also be available as a free upgrade to customers who move from Windows 7, Windows 8.1 or Windows Phone 8.1, within the first year. This means the same operating system will be available on PCs, tablets and mobiles. New features on Windows 10 will include the Cortana personal digital assistant for PCs and tablets, a new web browser, Xbox live gaming integration, and a new version of Office. Microsoft also talked about plans for an augmented reality system called Microsoft HoloLens. A new technical preview for Windows 10 is already available for PCs, with a phone version due in February. A release date hasn't been announced but many commentators are suggesting that October seems likely.

So a few months to wait, gentlemen, but what happened to Windows 9, did I miss something?

[JR]: Didn't sound very good, they wanted to go to double digits. [chuckle]

[IG]: Do we know anymore details on this, what's...

[JR]: Oh, there's been technical previews out last year as well.

[IG]: Right, yes.

[JR]: So developers have had quite some time already to start to become familiar with the new features and design. I think the key problem Microsoft are wrestling with here is how to bring people back into the Windows fold, get them to ‘fall in love’ with Windows again, I suppose would be the marketing spiel. So a really bold pricing decision here, they're basically writing off any revenue from upgrades.

[IG]: Yes.

[JR]: I'm sure they're going to be doing incentives for the OEMs who bundle Windows, and I expect them to be exceptionally generous, because Microsoft have to get people migrating up, and of course it's easy to go, "Well, actually I'm gonna go and buy a new PC, I'll buy an Apple product. They're sexy, yeah they're more expensive, but hey I'll go and buy an Apple product”. That's not good for their OEMs and it's not good for Microsoft, so I think the pricing strategy, the upgrade strategy, actually makes a lot of sense. It's a bold move. I also think the user interface design; they were a bit too radical I think with Windows 8, and they've been burned a little bit by that. ‘Tablet’ features too heavily - and actually, to my mind, a lot of the features just don't work that well if you're not using a touch-screen interface. So I think they've got to recognise that as well.

[IG]: Do you think Windows 10 does do that? Do you think it will fix those ‘glitches’, I suppose you'd call them? Because I have heard a lot of people commenting on them.

[JR]: 'Fix' is probably the wrong word, because 'fix' implies something's broken and therefore it's a black-and-white situation. This isn't fixing, this isn't bugs or defects.

[IG]: No, no.

[JR]: This is design choices that people don't like.

[IG]: Yes, okay.

[JR]: It's like a car company releasing the next version of a car and people just going, "I just don't like it. It doesn't look very nice”.

[IG]: Yeah.

[JR]: "It may go faster, it may be more fuel efficient, it's just I don't like it." And that's exactly the problem Microsoft have been wrestling with. So I think what we're going to see in revenue terms is - and Microsoft have stated their results and I don't think we're going into them in too much detail in this show - but we have seen a drop off in revenue from this particular area of the business, and I suspect that's going to continue. Microsoft are going to see this as a loss-leader to get people back into the Windows fold. But I think the thing that really stands out for me is the effort Microsoft are now finally going to, to break down the divisions within the company and produce an integrated experience. So you go back two or three years, could you have imagined a press release from Microsoft talking about phones, Xbox and Windows all at the same time, and Microsoft Office? This was a company where these were separate divisions and departments and they really didn't work that well together. So it shows you how those changes that Microsoft have been working on for many, many years are now starting to bear fruit, as far as an integrated product experience is concerned.

[MB]: Yes, absolutely James. I don't think you can reiterate too strongly that point that it is the same operating system; we're not going to hear about Windows Phone anymore. As of Windows 10, it is ‘Windows 10’, there isn't a separate version for your tablet, there's not a separate version for your smart phone. This is it, it's Windows 10.

[IG]: And could one of you two gentlemen just give a couple of words on ‘augmented reality system’?

[MB]: This is something that certainly a lot of newspapers really jumped on. Microsoft were talking about HoloLens as being a hologram system. It's not a hologram system. A hologram is effectively projecting an image. Think of R2-D2 in Star Wars, the little Princess Leia, "Help me Obi-Wan Kenobi, you're my only hope". That's a hologram. Microsoft can't do that with Windows 10. HoloLens is augmented reality, you pop your goggles on and it lets you see things that aren't really there, which is brilliant in many cases for design, brilliant in many cases for entertainment. And they're talking about HoloLens being a stand-alone computer, so this isn't something that you need to plug into something else. However, it's also a little way off.

[IG]: Right, okay. So, I needn't worry my pretty little head about that yet.

[JR]: Yes, but the press did and they got lots of column inches for it. So… clever old Microsoft.


[IG]: You're listening to The Fonecast, sponsored by 51Degrees, a business that provides device data and device detection for thousands of companies online. And with us, of course, is James, co-founder and managing director of 51Degrees. James, it's a new year, a new start. Lots of things coming up. Haven't spoken to you for a bit, what's on your horizons?

[JR]: Well, we've obviously got Mobile World Congress just around the corner, just over a month away. So we're preparing to head out to Barcelona and enjoy the week of fun and excitement that is the annual get-together in this industry. And you know, a little early for us to be explaining publicly what we're going to be demonstrating, but we've got some pretty exciting new products and product enhancements that we'll be showing out there. So, it's never too early to get in touch and arrange a time to come and see us.

[IG]: Are you going to drip-feed us with anything on the run into it, James?

[JR]: Not at the moment. I will look back over last year though, and we've been talking to some of our customers who have contacted us about the successes that they've had with 51Degrees. We've seen companies getting 40% revenue increase from advertising on tablets, for example, by optimising the layout of their content for tablet screen sizes - as opposed to having a one-size-fits-all responsive design approach. It just goes to justify the message that we've been saying, which is if you look at measuring website success by revenue or customer engagement factors, then the approach that we advocate and support is definitely the one to go for, for any meaningful website.


[IG]: We've looked forward to Mobile World Congress. Well, let's look back at CES, and Mark you're going to take us through that.

[MB]: I will, yes. So, at least a couple of things that stuck out for me. So this is, as you say, CES, the consumer electronics trade show in Las Vegas. That took place at the beginning of the year with most of the major mobile companies exhibiting. One of the biggest announcements was from LG, who announced a second curved smartphone. This is a follow up to the LG Flex, from 2013. The new phone is called the LG Flex 2. It's actually a little bit smaller, but the display is sharper and it's running Qualcomm's new octa-core chip. The LG Flex 2 runs Android version 5 on a 5.5-inch full HD screen, and has a 13 megapixel camera with laser auto-focus on the back. Also on the back as before, are some of the controls for the phone. And it's in a self-healing case that causes some scratches to disappear.

[IG]: What? [chuckle]

[MB]: Absolutely, we had the holodeck, didn't we, earlier. And now we've got this self-healing mobile phone.

[JR]: Is it liquid metal, Mark? [chuckle]

[MB]: That's Terminator, James. UK availability is due in February. And there are quite a few people out there who were talking about smart watches as well, LG included. Although one of the products that struck me as worth mentioning was the Alcatel OneTouch Watch. It is yes, just called ‘Watch’ and it runs on Alcatel's own operating system. It's compatible with Android and iOS. The Alcatel Watch has got a circular face and can take care of call notifications, social media updates, fitness monitoring, and it'll warn you if you move too far from your phone, as well. Availability for that is expected in the next month or two. Pricing is promised, according to Alcatel, to be “very accessible”.

[IG]: That's just a couple of things, I suppose, that are there. But I'm very interested in this self-healing case. What on earth is that?

[MB]: It's quite hard to describe. If you look at it, it's a kind-of ‘rubbery’ substance. But if a minor scratch like a finger nail, or if a little piece of grit potentially damages it, then assuming the room isn't freezing cold because this thing does depend on temperature, the scratch just kind of moves back together again.

[JR]: It's not actually solid, it's a liquid. But it's so almost-solid that it appears solid.

[IG]: Wow.

[MB]: Nicely put. Thank you, James, yes. And it's apparently a whole lot better than the previous one. The previous one would take several minutes to heal scratches, this is more like seconds.

[JR]: Ooh. I'm going to take a big metal brush with me to Mobile World Congress when I play with this phone.

[laughter]

[IG]: Sounds quite scary to me. And what about this smart watch, is that a ‘moving on’ from what we've got, is that offering something different?

[MB]: I don't it's offering anything different, except that price point. And particularly when you consider that we've got the Apple Watch, more of which later, coming up later this year, then the Alcatel OneTouch Watch taking pricing down can only potentially be a good thing if that also encourages other manufacturers to drive prices down. And let's face it, depending on what you want prices can be very low. I spotted on eBay earlier this week a Bluetooth watch that was selling for £19.99.

[JR]: Does it use the Bluetooth in order to get the time from the phone, and then display the time? [chuckle]

[MB]: Apparently, there's an Android app with it. And you can use it as fitness tracking, you can use it as a hands-free device for making calls. Hands free, but obviously not wrist-free.

[JR]: So what we're seeing here is a big divergence. You've got very little middle ground in the watch space. We're going to see the very high-end products trying to compete with Apple unsuccessfully, because it's all about brand rather than functionality. And others, particularly Alcatel, known for being the budget end in the consumer electronic products, going the other way. And all these fitness trackers, all in this sort of sub-£50 mark.

[IG]: Wow. Excellent. I'm moving on now. My mind's been blown by that last self-healing case really. This is about Apple, of course. And Apple reveals record quarterly results… and that really doesn't cover it: ‘record quarterly results’. Apple has announced financial results for what’s effectively the final quarter of last year. The company says quarterly revenue reached a new record of £49 billion and quarterly net profit hit a new high of £11.9 billion. During the announcement, CEO Tim Cook revealed that the forthcoming Apple watch is due to be released in April 2015. Almost 74.5 million iPhones were sold during that quarter. That's up 46% year on year, although iPad sales were down 18% to 21.4 million. Figures from eMarketer show that 42.3% of all smartphone users in the USA have an iPhone. In the UK, it's lower: 30.5%. When it comes to tablets, 51.8% of all US tablet users and 53% of UK tablets owners had an iPad last year, although, those figures are down-slightly from 2013.

[IG]: Well, that's quite something, those figures. I mean, they're just mind-boggling. Who would have thought four or five years ago?

[MB]: Well, I think some people would say, "We did think four or five years ago, maybe 10 years ago, though absolutely not."

[JR]: Well, you can't argue with those numbers, can you?

[IG]: You can't. No.

[JR]: Done and continues to do a phenomenal job.

[IG]: The only negative thing there is the drop in iPad sales. But, I think that's because the big new iPhone 6 is taking some of those iPad sales.

[JR]: I also think there's an element of market saturation and perhaps the refresh cycle's not as great now, particularly tablets are more powerful and... it's all about the apps.

[MB]: Yes, absolutely. In the mobile industry, we’ve kind-of trained consumers to want to upgrade at the end of the minimum term of their contract, which generally speaking now, is two years, 24 months. There isn't that same upgrade cycle with iPads, not unless you're buying it with a mobile data contract, which most people aren't. And contrast those figures. I mean, James mentioned Microsoft earlier. We've got Samsung figures this week: their profits are down, mobile revenue down for the year. The only other company that's kind-of seen a dramatic boost recently in mobile terms, I would say was Facebook. In yesterday’s announcement, their profits were up and 70% of their add revenue is now mobile. But nothing to touch this. This, as far as I understand, is a record for any company.

[IG]: Any company anywhere in the world, I believe, yes.

[JR]: It shows what happens when you get it right.

[IG]: Yes. Yes, indeed. James, TCL… you're a great fan of the Palm brand I think, aren't you? And TCL is taking it over.

[JR]: We’ll talk about Palm and also Tizen as well, the little-known mobile phone operating systems these days. But, let's start with Palm. So, it's not every week that we're going to mention Alcatel in the podcast and certainly not twice, but we will do so this time. TCL Communication, which is the company behind the Alcatel OneTouch brand, has confirmed that it's taking control of the Palm brand. It says it's going to create a new US-based Palm company, however the exact timing of the Palm project hasn't been confirmed. In the statement, TCL said it “has set the direction to rebuild the brand involving Palm's very own community, making it the largest scale crowd-sourced project ever seen in the industry”.

[JR]: That remains to be seen. Just a bit of history: HP bought Palm in 2010, later turning Palm's WebOS operating system into an open source project. And then LG subsequently adopted WebOS for its Smart TVs. But it hasn't really enjoyed much attention since then.

[MB]: No. Although I seem to remember that LG was touting a WebOS smart watch at CES as well.

[JR]: Yes. So again, it's there in the background, but Alcatel, when I also mentioned earlier, they tend to run their feature phones on a mixture of Android or kind-of basic embedded operating systems. Perhaps they see WebOS as something that they can use on watches, low power devices where you need a slightly better basic operating system with a good user interface or, again, in their low-end smart phones.

[MB]: And, you mentioned Tizen there as well, James. What's on your mind about that?

[JR]: Well, Samsung have been doing things with Tizen. They have released a series of phones targeting India that runs the Tizen operating system. They also use it in their watches as well for similar reasons to those that I mentioned earlier. Should they start to see some success with those phones, they're sort of more ‘feature phones’ - do feature phones really exist anymore? I suppose they do… low-end smartphones - running Tizen, then perhaps there'd be an argument for them to move those phones into other markets.

[MB]: Yeah, but I would also point out that Samsung's done quite a big change of direction with their Tizen phones, because last year we were talking about this Tizen high-end device. It was effectively a ‘Samsung Galaxy Tizen’ that the company was planning. That never happened and now, rather than that, they've gone for much lower spec, much cheaper priced. I mean sub-£100 equivalent devices for India with these other Tizen phones. So yes, pleasing for Samsung, pleasing for everyone involved in the Tizen community that there is actually a Tizen smartphone out there. But this isn't the device that Samsung was initially talking about or hoping for.

[JR]: No, but the first device was a negotiating chip with Google. The second device is targeting people who are buying a phone for the first time and who are less concerned about apps. So the fact that there are few apps available for a Tizen handset, same issue for Alcatel with WebOS, is not so much of a problem for those people. They care about price. They want nice functionality. Apps are less important. And apps, as we know, are king. Certainly BlackBerry have struggled with this, again we've not got time with the new format to go into all the details of Blackberry's letter to the US government about regulating apps, but do have a look on the website if you want to find out more about that story. But apps are absolutely crucial and these new operating systems, or these operating systems that are old but have fallen out of favour, will come back when there are apps available for them.

[JR]: And the key change that's happening now is that applications, native sort-of performance applications, the kind that require high-end graphics, access to all the features of the phone, the accelerometer, the camera etc, can now be delivered in a web browser. And these phones can support that web browser technology, and app vendors can suddenly say, "Well I'll just write it once and it'll run on Android, it'll run on iOS, it'll run on Tizen, it'll run on WebOS." And this whole concept and dominance of the app over the next few years is going to diminish, and that's the factor in the market that will really impact and make WebOS and Tizen... Give them the opportunity to become more successful. The same for Sailfish from Jolla and all the other niche operating systems that are out there.

[MB]: Well it would certainly be a good thing if apps were more readily available across operating systems so that you didn't just have specific apps that were only available on iOS or Android, for example. That would certainly be good in terms of adoption of the smaller operating systems. Whether or not it's going to happen, of course, is a whole other matter isn't it?

[JR]: Well, as I say, I think the signs are there now that it will start to happen and app vendors will benefit from not having to produce 270 different versions of the same app.

[IG]: That certainly seems to make sense.

[JR]: Yeah, everyone benefits. But the key factor is it will help these niche operating systems grow.

[IG]: Okay thank you. Mark, you have our first ‘and finally…’ story of the year.

[MB]: I do and it's a sad tale, Iain. It's a sad tale because it's the end for Google Glass. Or at least for the £1,000 Google Glass Explorer edition, which was removed from sale earlier this month. Google announced the wearable device in 2012 with US availability from 2013 and a UK launch last year. There'll also be a change to the company's structure with the Google Glass team moving away from the Google X research division to become a separate business unit. However, a new version of Google Glass is still planned, the company says.

[IG]: Hmm. Well, should we hold our breath on that one?

[MB]: I think we should hold our breath to an extent. There were some figures from ABI Research where they were saying they expected shipments of this kind of wearable technology to be up 150% in 2015. However, what they reckoned was that the vast majority of these were going to be enterprise sales. So I think almost Google Glass Explorer has done its job. It's kind-of got people interested, but more to the point it's got companies seeing the possibility.

[JR]: You don't need a fetching little Geordi La Forge headband thing to do that. As far as increases of 150% are concerned, I think you only have to sell 3,000 don't you? [chuckle] It's not huge. And as far as holding your breath's concerned. I think you'll be purple by the time you can release your breath.

[MB]: Well, perhaps for a consumer product, yes.

[JR]: And I think where this story relates to something earlier on in this edition is the HoloLens from Microsoft. They see this kind of technology as something that's similar to the smartwatch. It's a slave device. It's not a standalone device in quite the same way. It's not something you wear all the time to augment your life. It's something you dip in and out of. I think that's the realisation Google have reached. They've done consumer testing. Yes, they've learnt a lot. They've got an excellent patent portfolio around the project, which is going to make it very hard for others to overcome. They're going to have to work with Google in some way or other around this. But it's that sort-of slave device, the Oculus Rift type device with Facebook, or the HoloLens we talked about earlier, that's really to my mind, what's going to happen sooner both for business and for consumers.

[IG]: Well, thank you. Those are all the major mobile industry headlines, and thank you very much for listening. We’ll be back with more news headlines next month, just ahead of Mobile World Congress. And if you’d like to join 51Degrees in sponsoring the podcast and returning us to weekly programmes, please get in touch via our website. Until next time, bye for now.

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