AT&T Mobility Maps New Biz Models To Support Expanded Device Ecosystem

June 10, 2009 – AT&T Mobility has embarked on an ambitious initiative aimed at driving wireless into every device imaginable in conjunction with a forthcoming doubling of 3G bandwidth and ongoing explorations into new approaches to service pricing and retail distribution of devices.

The new vision, inspired by the success of the iPhone, was laid out by Glenn Lurie, president of emerging devices and resale for AT&T Mobility and Consumer Markets, at the recent Connections conference in Santa Clara. With mobile penetration now at 87 percent in the U.S., the industry’s future growth will depend on “embedding everything with wireless,” Lurie said.

Noting his emerging devices unit is just six months old, Lurie said uncertainties as to just what his mandate would be at the outset have quickly given way to a clear understanding that there is a tremendous revenue opportunity associated with connecting everything from e-books and netbooks to automobiles and freight containers to the mobile network. He cited one study from StrategyAnalytics that forecasts there will be an installed base of 100 million connected consumer electronics devices beyond traditional handsets by 2014 and another study from Rethink Wireless that forecasts operator revenues from such “non-handset” devices will hit $90 billion in 2013.

“There’s not a single OEM (original equipment manufacturer) or chip manufacturer or software manufacturer who’s not all over this right now,” Lurie said.

The spark to innovation in this arena has been the success of the iPhone, he said, noting there have been 5.9 million iPhone 3G devices activated and over one billion applications from the Apple app store downloaded during the past three quarters. “Two years ago there wasn’t a device with an open browser,” he said. “Now they all have open browsers. There were no app stores. Now there are 70.”

As a proponent of and a lead negotiator in AT&T’s exclusive iPhone deal with Apple, Lurie has won his company’s confidence in the idea that building ecosystems that can leverage connectivity to enhance consumer demand for devices is key to driving new business. For example, he said, AT&T is working with various manufacturers to transform e-books into “e-readers” that will expand on what Amazon has done with its Kindle.

“There are going to be plenty of OEMs out there who want to take them on,” Lurie said, in reference to the Kindle and Amazon’s “Whispernet” affiliation with Sprint’s EVDO network. “We’re talking to lots of folks who want to go into that space.”

Thin, flexible e-reader screens now in prototype stages with Bluetooth connectivity to keyboards will deliver magazines and newspapers and could even serve as users’ primary computing devices, he suggested. There will be a “giant ecosystem” behind the emerging e-reader phenomenon, he predicted, adding that AT&T’s opening play in this space will come in the “short term.”

Netbooks, the nine- to ten-inch screen minicomputers, together with the five-inch screen MIDs with touchscreen keypads represent another important arena for embedding wireless connectivity, Lurie said. Netbooks, the only computer category showing year-to-year sales growth this year, are projected by Gartner to hit 7.8 million unit sales by year’s end. Unit sales of mobile connected MIDs – “smartphones on steroids,” as Lurie called them – will hit 1.6 million by 2011, according to Parks Associates.

While traditional computer manufacturers are bringing mobile-enabled netbooks and MIDs to market, there’s also significant momentum for such devices coming from the mobile handset manufacturing side, Lurie noted. “They’re coming at it from a different angle” where designs are built around the wireless functionality, he added.

The growing phenomenon of cloud computing will contribute to the appeal and to the usefulness of mobile connectivity where these devices are concerned, he said. By offloading storage and processing requirements the devices save on power consumption, even to the point of not requiring fans, thereby extending battery life and their applicability as mobile devices, he noted.

“The cloud is going to play a huge role,” he said. “It involves everything from security to how data is stored to how it’s downloaded.”

AT&T’s embedded device push is also targeting navigation, multimedia connectivity and other functionalities built into new cars, Lurie said. “The connected car may be one of the biggest things we talk about,” he added.

Lurie noted the embedded device ecosystem initiative goes hand in hand with the company’s commitment to doubling its 3G bandwidth starting with deployments later this year as the next step in the evolution to 4G. This so-called “3 1/2 G” capability employing High Speed Packet Access (HSPA) 7.2 technology supports peak download speeds of 7.2 megabits per second compared to 3.6 mbps over the current HSPA implementation, with actual speeds typically below peak based on local traffic volume and other factors.

AT%26T has also announced it will nearly double its 3G wireless spectrum in conjunction with expanding 3G availability to another 20 metro areas, bringing the total to nearly 370 by year’s end. The company is also adding 2,100 cell sites and expanding backhaul capacity to accommodate anticipated surges in traffic as HSPA 7.2 and 4G LTE (Long Term Evolution) capabilities come on line.

The implications of expanded network capacity and device connectivity have stirred AT&T to rethink its business models and retail distribution strategies, Lurie said. “We have to start with a clean sheet of paper with business models,” he asserted, noting the emerging strategy is to embrace an open approach that includes retail and wholesale models and a much more flexible pricing strategy.

For example, given that the connected device lineup will include cameras that allow users to immediately transmit photos to their own or others’ libraries,”How much do you pay for sending a picture to Grandma?” Lurie asked. Paying per picture rather than having to subscribe to a monthly service might be the right approach, he said.

Similarly, it might make sense to sell day passes to allow computer users to access the network when they’re on the road even if they may not be regular AT&T mobile subscribers. “We don’t do that now,” Lurie said. “We have to change our pricing strategies. The whole way we do service around these devices has to change.”

Where device sales are concerned AT&T has already experimented in a 16-store trial with distribution of netbooks along with the usual handsets. “What if at the AT&T Mobility store you could get all types of devices? That’s the way it should be,” Lurie suggested. But he acknowledged that one of the lessons learned with the netbook trial is that selling computers “isn’t as simple as selling RIMs (Research in Motion handsets).”

Much remains to be accomplished, including creating what the company calls “unconscious connectivity” that allows users to make use of device connections and to be billed in accord with the device and subscription profiles without any sign-up or log-in requirements. “We’re not there yet,” Lurie acknowledged.

In fact, the company wasn’t ready to implement two new features – tethering and multimedia messaging – recently introduced by Apple for its next model of the iPhone, presumably because they involve changes in pricing and provisioning strategies along the lines outlined by Lurie.

Tethering, allowing the iPhone to connect as a wireless modem to computers, and multimedia messaging, which supports transferring media over the mobile network, are in the offing, AT&T said. A spokesman told the New York Times the delay on these features was not network related.

The exploding bandwidth and functionalities surrounding wireless also pose a problem for AT&T strategically where it’s wireline business is concerned, Lurie noted. “With everything going wireless, are you innovating on a wireline network or on wireless?” he asked. “That’s one of our biggest concerns.”

The role of voice in an increasingly all-data world is especially troublesome, he added, noting that none of the devices he discussed at the Connections conference were equipped with voice capabilities. “The emerging device space will change everything you do,” he said.