iPads and Other Tablets Set to Shake Up Telecom

Georges Laplanche, SVP, Connect Division, Technicolor

Georges Laplanche, SVP, Connect Division, Technicolor

June 4, 2010 – With more than two million iPads sold in the product’s first 60 days, it’s already a given of the telecom landscape that tablets are going to play a major and potentially disruptive role in the electronic services marketplace.

Worldwide sales of iPads and other brands of tablets should hit 7.6 million by the end of this year and top 46 million annually by 2014, predicts IDC, a research firm. This comes on top of this year’s projected sales of 58 million netbooks, which tablets aim to displace or supplement, depending on which vendor is talking.

Of course, Netbooks and tablets combined are small potatoes compared to cell phones and smartphones, which sold a combined 300 million plus units in just the first quarter of 2010. But even if tablets are a relatively niche play at this point, their compelling advantages as entertainment platforms are prompting service providers to build new applications and services without waiting for large-scale penetration.

“If I’m not on that screen, some competitor will meet my customers there, and I’ve lost the opportunity to make the money I was planning to make,” says Joe Ambeault, Verizon Communications’ director of product development for video services.

AT%26T Not the Only Beneficiary

Apple announced the iPad on Jan. 27. By the time it went on sale on April 3, dozens of companies – from Netflix to Wi-Fi hotspot operator Boingo Wireless – had announced plans to develop applications and services for it.

Was that a risky move? Not necessarily. For one, many of those companies already had apps and services for the iPhone and iPod Touch, which use the same operating system as the iPad, so they could port to the new device quickly and at little or no incremental cost.

If consumers flocked to the iPad, those companies then could make a business case for developing versions of their apps and services that take advantage of hardware features not found on the iPhone or iPod. So far, there are more than 5,000 iPad-exclusive apps on top of the 200,000-plus ported from the iPhone and iPod.

At the same time, a growing number of rival tablets run the Android operating system (OS), which also powers many smartphones. That common foundation means that like their iPad counterparts, Android tablet owners can tap into an existing base of more than 50,000, Android apps as well as whatever other apps might be associated with the manufacturer’s smartphone brand.

For service providers, a tablet’s app selection matters because the more things people can do with the device, the more likely they are to need a broadband connection. As is the case with the iPhone and the Wi-Fi connections it supports, AT%26T, with the exclusive mobile contract on the iPad, isn’t the only beneficiary when it comes to people connecting to iPads. For example, four days after it went on sale, the iPad was already accounting for 5.4 percent of all connections to Boingo’s Wi-Fi network, more than any other non-laptop device except for the iPhone.

Apple didn’t start selling 3G-equipped iPads until April 30, leaving Wi-Fi hotspots as the only way for most early adopters to get connected. AT%26T has eliminated a $29.99 unlimited-usage plan for 3G iPads sold after June 7, so the prospect of a big bill for out-of-home usage could steer even more iPad traffic toward Wi-Fi networks such as Boingo’s.

But to some extent, the iPad also is driving traffic to cellular networks other than AT%26T’s. Sprint, for example, is targeting the iPad with products such as Overdrive, which is a handheld Wi-Fi router that backhauls traffic over the carrier’s CDMA and WiMAX networks. Sprint’s new EVO smartphone also can target the iPad, because, for an extra monthly fee, customers can turn on a feature that lets the EVO double as a Wi-Fi router for up to eight devices simultaneously.

“For $29, I can turn my EVO into an Overdrive and power my iPad, my laptop and [other] people’s laptops,” says David Owens, Sprint’s vice president of consumer marketing.

Big Bandwidth Needs

So how many people will choose the Wi-Fi-only version of the iPad and get broadband from another wireless carrier or a hotspot provider? AT%26T’s new tiered pricing tops out at $25 per month for up to 2 gigabytes, plus another $10 for each gigabyte over that amount. That’s the same pricing as the iPhone, yet the iPad likely will use more data simply because it’s more practical for bandwidth-intensive tasks such as streaming video.

“It’s a fair expectation that it will create even more traffic than a phone,” says Lars Johnsson, vice president of marketing at Beceem Communications, which makes LTE and WiMAX chipsets.

By comparison, Sprint’s Overdrive costs $60 per month and caps usage at 5 GB when the device is connected to 3G, with no cap when it’s connected to WiMAX.

To use Sprint’s EVO as a hotspot, the iPad owner would have to pay an extra $29.99 on top of the EVO’s base $79.99 plan, with no bandwidth cap on 3G or WiMAX. Or an iPad owner could opt for Verizon Wireless, whose Palm Pre Plus can double as a hotspot at no additional cost beyond the smartphone’s base $44.99 data plan, all with a 5 GB monthly cap.

Ultimately the decision comes down to how many gigs of data they expect to use in a month, where they have WiMAX coverage in their area, their willingness to comparison shop and whether rival carriers’ marketing does the math for them – to name just a few factors. But one thing is clear: There are plenty of operators vying to sell them service.

Some vendors believe that most people will forego iPads and other tablets that support only Wi-Fi, just as many iPod Touch owners upgraded to iPhones rather than hunt for a hotspot.

“I think initially you’ll see more devices that don’t have 3G or 4G built in,” Johnsson says. “But they’ll very quickly realize that I’m wireless but I’m still tethered because I can’t go more than 100 feet out of Starbucks or whatever.”

If tablet buyers start to show a preference for models with built-in 3G or WiMAX, expect wireless carriers to scramble to cut deals with tablet vendors to get a piece of that market. Verizon Wireless, for example, already has said it’s working with Google on tablets, although it won’t divulge details.

The Fourth Screen

Many MSOs and telcos are targeting tablets. Comcast, for example, has demoed an iPad app – Xfinity Remote – for searching for movies and other video content, and announced Tunerfish, which will include an iPad app that combines social networking and TV.

“They all are currently building plans for tablets,” says Georges Laplanche, senior vice president of Technicolor’s Connect Division, which supplies its own branded tablets to IPTV operators such as Hong Kong’s PCCW. “Everyone considers the tablet now the fourth screen as a critical element in a triple- or quadruple-play offering.”

There are myriad strategies for leveraging the tablet as a service provider asset while neutralizing or fending off its threat as a driver to over-the-top market penetration.
At the very least, a big installed base of tablets could get operators out of having to subsidize sophisticated, expensive remote controls to enable a wider range of services.

Verizon is one example. Two years ago, FiOS added the ability to have each viewer’s settings – such as channel favorites and parental controls – created and stored on smartphones and other mobile devices. When they sit down to watch TV, those settings automatically are sent to the set-top box (STB). Later Verizon added the ability to push content such as photos from those devices to the TV.

“The next turn of the crank is going the other direction: having things coming from the TV experience to the mobile device,” Ambeault says. “Mobile devices, tablets and laptops are the ultimate way for a consumer to have a personalized TV experience without having to log into their TV.”

Here’s one possible scenario: Two people are watching a football game, each a fan of a different team. By getting their preferences stored on their tablets, the set-top could push out different, relevant content to them, such as stats on their history of scoring from that field position, or a video of their team’s huddle.

For Verizon and other operators, that scenario could be a new revenue opportunity if they charge extra for tablet-delivered content. Even if it’s free, it could be a way to attract and retain consumers who value such extras. Either way, by leveraging the customer’s existing tablet, the operator can minimize the cost, risk and time to market of getting into those new services.

The living room isn’t the only place where these strategies could work. For example, in the kitchen, a tablet could enable services that otherwise would require a specialized device, such as Verizon’s short-lived Hub, AT%26T’s HomeManager and – from the 1980s – KeyFax Teletext.

Tablets also could enable wider use of e-commerce, such as being able to buy a song heard during a TV show, or the DVD set for that season.

“You can do that through your TV or your remote control,” says Jim McGregor, chief technology strategist at In-Stat, an analyst firm. “It’s just that it hasn’t been usable.”

That problem is partly why multichannel operators have been latching on to other devices: initially smartphones and now tablets.

“One of the reasons why we’ve gone so aggressive on the mobile apps is, for instance, solving the text-entry problem,” says Verizon’s Ambeault. “I could produce an expensive remote control with a [QWERTY] keyboard, or I could take advantage of a very expensive remote control you already have in your pocket.”

Turf Wars

Tablets also create opportunities for displacement. For example, the more consumers who opt for cellular or WiMAX models, the more likely wireless carriers are to look for ways to monetize the TV beyond what they already make from text messages sent as votes for shows such as “American Idol.”

“In many ways, the mobile guys are encroaching into the living room,” McGregor says. “The cable TV guys have in many cases resisted new technologies. A lot of the STBs out there have Ethernet and Wi-Fi built in, but they’re not enabled just because the cable TV operator doesn’t want to get involved with supporting those features. This is forcing them to relook at this.”

It’s here that wireless carriers’ bandwidth caps could benefit MSOs, telco TV providers and cable operators. Because virtually all tablets will have at least Wi-Fi, multichannel operators could use Wi-Fi routers – including those built into STBs – to provide a free connection and thus try to cut wireless carriers out of the equation.

Of course, Wi-Fi also is a viable option for the growing number of multichannel operators that own or are building 3G, LTE or WiMAX networks, including AT%26T, Cox and Clearwire’s cable partners. For example, they could use Wi-Fi to offload bandwidth-intensive services, such as video, when their customers are at home, then switch to cellular or WiMAX to continue serving those customers when they’re out of the home. Either way, the tablet becomes another way to wring more revenue and loyalty from each customer.

Apple vs. Google

The tablet’s OS also affects control over the customer. For example, the iPad OS is tightly linked to iTunes, and both are tightly controlled by Apple. So regardless of whether video and other content is delivered over AT%26T’s cellular network or over a cable broadband customer’s Wi-Fi network, Apple has a major say over who has access to iPad owners, and it can demand a royalty for content and advertising.

Apple also holds a couple of wild cards. An obvious one is Apple TV, which could be upgraded to work with the iPad in order to deliver more video services – potentially at the expense of companies such as Netflix and cable operators. Apple TV also could be paired with Lala, the music streaming-and-download service that Apple acquired in late 2009, perhaps to support linear and on-demand video for iPads.

“We think Apple has a play to make with cloud-based services,” says Susan Kevorkian, IDC’s program director for mobile media and entertainment. “It’s time to give iTunes a refresh in terms of the content-acquisition model, which is pretty much exclusively focused around individual device downloads.”

A rapidly growing number of tablets run the Android OS, which Google dominates but with nowhere near the iron hand that Apple has over the iPad OS. Even so, with Android already moving into TV sets and STBs, and with both companies targeting the advertising market, a face-off is inevitable. How that will shake out is anyone’s guess.

“The market is still young,” says In-Stat’s McGregor. “Nobody knows who’s going to win, what’s going to win or what format is going to take off.”

But if ease-of-use is a major reason why consumers flocked to iTunes and why they’re snapping up iPads, then Apple could have an edge over other devices and services that give consumers a bigger selection or leave them to seek out content on their own.

“One thing I’ve learned over the years is you can never count out Apple,” McGregor says. “They are better than anybody at providing a complete, simple-to-use solution for consumers. Even if it is a walled garden, it’s attractive to a significant portion of the market.”

Unless Apple or Google gives up – highly unlikely for either – that leaves wireless carriers and multichannel operators to support multiple OSs. That fragmentation means no single company can dominate the ecosystem, but it also means more costs for operators because they have to support multiple platforms. Some are philosophical about that prospect.

“I have to find the consumer on every device they may be on,” says Verizon’s Ambeault. “They’re on all sorts of devices that may or may not be provided by some line of business from Verizon.”

Others believe that something or someone needs to knit together disparate devices and OSs. That could be the Digital Living Network Alliance (DLNA) standard in the case of content that’s shared across a home network. Or it could be the multichannel operator that masks those differences from customers and companies, adding value in the process and thus positioning itself to monetize that traffic.

“When the tablets start to communicate with a STB or a gateway in the home, it requires other software elements, like DLNA or Universal Plug and Play (UPnP),” says Technicolor’s Laplanche. “The OS will be important, but what’s going to be below the OS in terms of security, connectivity and home networking is going to be critical.”