AT&T Without T-Mobile: Whither Wireless?

We now know what the U.S. wireless landscape will not look like in a couple of years. The filing of U.S. v. AT&T effectively ends AT&T’s dream, tacitly shared by Verizon Wireless, of a wireless duopoly with a troubled Sprint maybe hanging on.

Title page of US v. AT&TOf course, AT&T made the obligatory noises about fighting on to win approval of its acquisition of T-Mobile USA, but this deal is as good as dead. It is possible for an acquisition to go through over government objections–Oracle-PeopleSoft is an example, but it is very rare. The deal has to be kept on ice for months or years while the legal battles are fought out. The Justice Dept. complaint makes it clear that it would be very difficult to modify the deal in a way that made it acceptable to the government. And even if it were to prevail over the Justice Dept., AT&T would still have to win approval, on the basis of different laws and criteria, from a very skeptical Federal Communications Commission.

That leaves us with the status quo: Two national mega-carriers in Verizon and AT&T, two much smaller national carriers in T-Mobile and Sprint, and an assortment of much, much smaller regional wireless companies.

T-Mobile and Sprint, however, have exactly the same problems that threatened their viability before the AT&T deal was announced. T-Mobile has been a feisty competitor, a fact that helped persuade Justice to move to block the merger. But T-Mo’s coverage is spotty in many parts of the country, it’s 3G service is incompatible with anyone else’s (that why an unlocked iPhone can only get EDGE service on the T-Mo network), and it lacks any clear path to 4G.

Sprint has big problems of its own. After six years, it still hasn’t fully digested the purchase of Nextel and faces challenges in migrating the remaining Nextel iDEN customers to CDMA/EV-DO technology. Sprint’s 4G strategy is also murky. It owns a majority interest in Clearwire, which owns a big swath of national 4G spectrum, but which made a bad technology bet on WiMax. Sprint currently provides 4G service over the Clearwire network and is expected announce its strategy at an event in early October. The government move against AT&T probably makes it more likely that Sprint will buy the rest of Clearwire and accelerate its migration of 4G technology from WiMax to the LTE standard used by Verizon and AT&T (and most other carriers in the industrialized world.)

Would a combination of Sprint and T-Mobile be better equipped to challenge Verizon and AT&T than two relatively weak competitors? Superficially, this makes sense, but there are tremendous difficulties in the way of such a deal happening, or succeeding if it were to happen. Sprint has relatively little cash, a lot of debt, and is deeply entangled in Clearwire.

Sprint would probably have to raise the financing to buy T-Mobile outright. Because it is a subsidiary of Deutsche Telekom, there is no possibility of a merger of equals. In theory, a merged company could be operated as a partnership between Sprint Nextel and DT (as Verizon Wireless is a partnership between Verizon Communications and Vodafone) but T-Mo’s German parent has shown no interest in doubling down in the U.S. market.

A T-mo-Sprint combination would also be a technological nightmare. Sprint operates a CDMA network with EV-DO 3G data, all at 1900 MHz and Clearwire 4G at 2500 MHz. T-Mo provides GSM and EDGE service at 1900 Mhz and 3G UMTS at 1700 and 2100 MHz. There’s no compatibility anywhere and no existing devices that will run properly on both networks. Given its painful technology integration experience with Nextel, Sprint may be particularly reluctant to wade into another swamp.

So it looks like the status quo will be with us for a while. Let’s hope that the Justice Dept.’s belief that this competitive landscape will be better for consumers than a T-Mobile-AT&T merger turns out to be correct.

HP Executive Drama Drags On

After Wall Street Journal columnist Al Lewis’s scathing and all-too-true assessment of Hewlett-Packard’s year-long campaign of self-destruction gained wide attention, you’d think the company’s executives might just go to ground for a while. That doesn’t seem to be happening.

Todd Bradley photo
Todd Bradley (HP)

Todd Bradley, executive vice present in charge of HP’s soon to be spun off, sold, or dismembered Personal Systems Group, currently traveling in China,  gave an interview to Reuters that only adds to the sense of confusion and drift surrounding HP.

The interview makes it sound like Bradley, not surprisingly, is campaigning for a spinoff of PSG as an independent company headed by Todd Bradley. And that might very well be the best outcome for all concerned. But in the absence of any clear direction from CEO Lèo Apotheker or other top corporate officials, it sounds very much like Bradley is freelancing.

Even odder was his hint that a free-standing PSG might revive webOS and the abandoned TouchPad slate.  Quoting from the Reuters interview, by Terril Yue Jones:

Bradley said the company could resurrect HP’s short-lived TouchPad tablet computer, which was introduced on July 1 before being terminated only about six weeks later.

“Tablet computing is a segment of the market that’s relevant, absolutely,” Bradley said.

A standalone incarnation of HP’s PC business would be a full-line computer maker including ultrathin and all-in-one PCs.

My guess, based on nothing but some knowledge of the players and their public statements, is that Bradley was blindsided by Apotheker’s decision to unload PSG and particularly by the abrupt axing of webOS. Bradley and his top lieutenants had said repeatedly that they expected the fight to establish webOS was going to be a long slog and given that attitude, he would not have acquiesced killing the TouchPad just six weeks after it was launched.

Furthermore, the purchase of Palm barely 16 months ago was a strategic move designed in considerable part to give PSG, which has long existed primarily as a maker of hardware to run Microsoft software, some control over its own destiny. The strategy might not have worked, but it wasn’t even given enough time to fail.

The problem now is that the PSG, deeply unloved by top HP management, is an asset whose value can only decline as it sits in corporate limbo. And the hints of deep internal divisions over its future can only make matter worse.

 

Can Amazon Make a Cheap iPad Challenger?

Developments in the tablet market in the past couple of weeks, especially Hewlett-Packard first killing the TouchPad then successfully disposing of tens of thousands of them in a $99 fire sale, has led to some very strange commentary on how competitors can take on Apple. All they have to do is sell a tablet that’s as good as the iPad–or at least nearly as good–for a lot less.

Kindle iconFor example, in a Cnet post, Brooke Crothers quotes analyst Roger Kay as saying the TouchPad “wasn’t really a product failure, it was a pricing failure.” That’s self-evident as far as it goes. The TouchPad at $500 was priced higher than people were willing to pay,  and when the price was cut 80%, they flew off the shelves.

The problem is that in the real world of business, pricing has to bear some relationship to cost. No one is going to beat the iPad by building a product of equal performance and quality for less. Apple has mastered the supply chain and, with sales of the iPad in the area of a million units a week, achieves considerable economies of scale. It’s in the rare and wonderful position of offering a premium product while actually enjoying a cost advantage over competitors.

That means that no one can hope to compete with Apple simply by offering a product similar to the iPad for less. If Apple were to perceive it as a threat, they could underprice the interloper while feeling less pain than the competition. It’s a game that only Apple can win.

Another alternative is a subsidy model. Both my colleague Tim Bajarin and Kevin C. Tofel at GigaOm suggest that Amazon could afford to subsidize the hardware and cover the subsidy cost either through advertising on the tablet or through sales.

The one place where the subsidy model has succeed in in mobile phones, including the iPhone. But wireless carriers are in a unique position. Because they sell the phone on a contract, which gives them a revenue stream of known amount and duration, they can be certain of recovering the subsidy and making a profit besides. (Those early termination fees take care of most of the contingencies.) The carriers, however, have shown little interest in extending the subsidy-plus-contract model to tablets.

An Amazon subsidy would be a lot more problematic. Amazon’s operating margin runs less than 4% of sales. On a crude calculation, that means that every $100 in subsidy would require $2,500 in incremental sales just to break even. Maybe tablet customers buy higher margin goods, but the math of the subsidy model seems truly daunting.

All the signs point to Amazon doing a tablet of some sort, though the company itself has remained silent on the subject. But I don’t expect that it will offer an iPad-like product at a substantially lower price. One possibility is a tablet that competes with the iPad not on price but on a distintive feature set. (What might that be? If I knew, I’d design it myself instead of speculating about it.)

The other, which I think is a lot more likely, is a sort of super-Kindle: A 7″ tablet more capable than the Kindle or Barnes & Noble Nook, but simpler and cheaper to make than the iPad. It would primarily be a book reader, casual game console, and media player with, of course, an optimized Amazon shopping experience. A product like that could probably be sold for $300 without much subsidy. (B&N is selling the color Nook for $249, apparently without subsidy.)

Another, bolder approach, would be for Amazon to come up with its own subscription-based revenue model. The company has been steadily diving deeper into online services. It currently sells a somewhat odd bundle of movie streaming and free shipping on Amazon purchases for a $79 annual fee. The trick is finding enough other services to roll in to provide enough revenue–and profit–to pay for substantial subsidies. Book rentals are an intriguing one, but would be a tough sell to publishers. It’s a difficult proposition, but amazon has shown itself to be nearly as creative a company as Apple, and if any one can do it, they have the best chance.

 

Why Apple Still Shouldn’t Make Televisions

Ryan Block at gdgt has dusted off a six-month-old post to respond to the latest rumors about Apple getting into the business of making TV sets. His arguments about why this won’t happen as as good and succinct as ever.

Old TV with Apple  logoApple very badly wants to get deeper into the TV business, that is, the business of supplying TV content. But it is finding it a very difficult slog. The content business is tightly controlled by an interlocked web of production studios, networks, and cable distributors. Unlike the music industry when Apple attacked, they have a business model that is suffering only minor damage from the assault of internet technology and that still generates profit by the boatload. They don’t need, or want, partnership with Apple. And as the experience of Google TV has shown, the content owners and distributors are ready and able to bar devices they don’t like from accessing their programming via the web.

For Apple’s part, until it can find a way to become a prime delivery channel for content, it is unlikely to go beyond the “hobby” of Apple TV. While I can’t see Apple ever getting into the no-margin TV display business, I have no doubt that it could build a set-top box vastly better than the lame Motorola and Cisco products offered by the cable companies and vastly better than TiVo or Google. The problem is that access to the content runs through the cable companies, and I cannot imagine Apple trying to build such a product based on the kludgy CableCARD or its vaporous successor, tru2way. Apple won’t do it until it can do it right, and that will require the cooperation of a very reluctant entertainment industry. It may happen–Apple, for one thing, has a whole lot of money to throw around– but it won’t be easy.

Richard Kerris on the Future of webOS

In a post yesterday, I mistakenly attributed to Richard Kerris, vice president-worldwide developer relations for Hewlett-Packard’s webOS business unit, thoughs actually written by Derek Kessler of PreCentral. Today, Kerris graciously spent a few minutes on the phone  with me to give his actual assessment.

Richard Kerris photo
Richard Kerris (via LinkedIn)

A bit surprisingly, Kerris reports that activity among webOS developers has picked up since HP announced it was shutting down webOS hardware operations. “What’s really holding together is the developers,” he says. “More than 60 groups of developers have been formed. There has been no slowdown in app submissions.”

The sale of thousands of TouchPad tablets at deeply discounted prices is  probably providing a  boost to the webOS app business. “There is an installed base and developers are seeing record sales of apps,” Kerris says. “It’s all been happening in a day or two.”

Kerris declined to speculate on just what the future for webOS hardware will be or when an announcement might be forthcoming. But, he said: “Once we come out with the right hardware partner, which we will announce, we’ll be fine.”

 

The NSA Wants Your Home Network To Be Safer

The National Security Agency is best known for its global communications snooping, but it is also responsible for helping to keep the nation’s computers safe from attack. Most of that effort is focused on government systems and large corporate networks, But the NSA has come out with a handy guide for improving the security of home (and small business) systems.

Most of the advice  in “Best Practices for Keeping Your Home Network Secure” will come as no surprise to anyone who has been paying attention, but it is still a useful checklist. And it generally is light on both jargon and scare-mongering. One weakness: Because the government avoids recommending commercial products, the advice to “Use a web browser with sandboxing capabilities” and “Update to a PDF reader with sandboxing capabilities” without offering some specific choices is likely to prove more confusing than helpful.

On the whole, though, the advice is sound and well-considered, with a good discussion of the pros and cons of choices, for example, “Disabling scripting can cause usability issues, but is an effective technique to reduce web bourne attacks.” I can’t explain that spelling of “bourne,” though. NSA’s close partnership with it’s UK counterpart, GCHQ, may be getting out of hand.

 

 

What Does the TouchPad Fire Sale Tell Us? Not Much.

Way too much is being made of the success of Hewlett-Packard’s fire sale of TouchPad tablet, essentially the liquidation of a lot of distressed inventory.For example, this The Next Web article speculates on what TouchPad sales might mean for Amazon’s still completely notional tablet.

First, let’s put the TouchPad “frenzy” in some perspective. HP, directly and through channel partners, probably moved somewhere between 300,000 and 500,000 units. By past TouchPad standards that was fabulous. But Apple is likely selling close to a million iPads a week, at full price, every week.

Second, it’s pretty easy to get people to buy a product with a $300 bill of materials (iSuppli’s estimate for the TouchPad) for $99, even a dying product. Folks just can’t resist a deep-discount bargain. The problem is there’s no business model that will sustain it for much more than a weekend. Only wireless phone operators, with lucrative two-year contracts, can afford to offer that much subsidy. Amazon might be able to subsidize a tablet, but by nowhere near that much unless it was very, very selective about who got one.

There are lots of retail liquidators around who know how to move distressed goods of much more dubious value than a TouchPad. All you need is a channel and a low enough price. We shouldn’t read a lot of meaning into this.

How Will HP Hold webOS Talent

HP logoJoshua Topolsky at This IsMyNext has details on an all-hands meeting at which Stephen DeWitt, head of HP’s webOS business unit, declared that “we are not walking away from webOS” and promised an outline for the future within a couple of weeks.

In an earlier post, I outlined some of the difficulties that any webOS licensing strategy would face. By DeWitt inadvertently points out one I overlooked: How  on earth is HP going to hang on to any good talent in a market where Apple, Google, Microsoft, and a flock of handset makers are all competing fiercely? The webOS unit is a defunct operation within a division–HP’s Personal Systems Group–whose own future is highly uncertain. A first-rate engineer can sit around waiting to see how things turn out–or can have half a dozen job offers nearly immediately.

Richard Kerris, director of webOS developer relations, tried to put the best face on things in a tweet, but the effect and more sad than encouraging:

webOS: Forget About Licensing, the Game’s Over

Hewlett-Packard’s announcement today that it was discounting all webOS products, including the TouchPad tablet and Pre phones, set off a flurry of speculation that the elegant ex-Palm mobile operating system might find a third life through licensing to hardware manufacturers.

Sad TouchPad image

But the fact is that webOS is now stone, cold dead with no hope of revival. The issue has nothing to do with the quality of the software and everything to do with the state of the smartphone and tablet markets.

Just a couple of weeks ago, my colleague Ben Bajarin suggested that webOS could still mount a real challenge to Android if HP licensed it. But that assumed that HP would be standing behind the OS and continuing to court developers.

The biggest problem webOS faced from its Palm days through its 16 months of HP ownership was lack of support from third-party development. Even if someone, and I can’t quite imagine who, were announce tomorrow that they were taking over webOS,  it would take months to close the deal and get products back into production. The few remaining webOS developers aren’t going to wait. And the chances of restarting a development effort in the face of the Apple and Google juggernauts are nil.

I don’t know what went wrong with HP’s webOS effort. (Disclosure: I did a bit of consulting on mobile strategy with the company around the time of the Palm acquisition.) But I suspect the failure has a lot to do with HP’s never-ending boardroom dramas.

HP bought Palm in April, 2010. In early August, Mark Hurd was forced out as CEO of the company because of an “inappropriate relationship” with a contractor.  In September, HP hired formed SAP CEO Leo Apotheker to run the company. And in February, HP announced the TouchPad and its plans for webOS products at a splashy event in San Francisco.

At the time, HP Personal Systems Group executives, including Executive Vice president Todd Bradley, made it clear that the real goal of the Palm acquisition was to give HP control over its own destiny. Owning on operating system that would provide HP with Apple-like control over both hardware and software. They even announced a version of webOS for PCs, though they never provided more than the vaguest of details. But they said, they knew it would be a long fight, years not months, and they were ready for it.

At first Apotheker, whose background is all in enterprise software, seemed to be fully behind the plan, but I suspect his heart was never really in it–or any other parts of the Personal Systems Group that HP is now looking to sell or spin out. By the time the TouchPad actually launched the TouchPad in July, the company seemed to have lost most of its enthusiasm for the product. It had failed to do the one thing that might have given it a shot at success, line up a rich array of apps, perhaps because the company wouldn’t provide the funding needed to buy developer support. Given the lack of conviction, the fact that it lasted less than two months on the market is shocking but not surprising.

I don’t know that HP could really have challenged Apple–someone recently called the company “the place good products go to die.” But it was an exciting idea and for HP, webOS products offered it a chance to break out of the no-margin commodity PC game. But sadly, HP’s senior management never gave the idea a chance.

 

 

 

Why the Open OS Model Failed in Smartphones

Fifteen years ago, when Microsoft ruled the world and Apple was near death, the tech world was convinced that the conceptual batter between Windows and Mac–open operating systems available to all comers vs. closed systems–had been decided firmly in favor of open. But what applied to PCs in the 1990s does not appear to work at all for smartphones in the 2010s, as Google’s planned purchase of Motorola Mobility marks the beginning of the end for the open OS approach.

BusinessWeek cover

A major reason for this is that phones–and tablets–are very different from PCs even though they perform many of the same functions. A phone is a much more tightly integrated device in which it is very difficult to tell where the hardware ends and the software begins. Getting the user experience just right is both harder and more critical, because quirks that are a minor annoyance on a PC–or which can be remedied through an accessory such as a better mouse or keyboard–become killer flaws.

It’s easy to forget today that the first real winner in the smartphone market was Research In Motion’s BlackBerry, a closed system. RIM’s accomplishment was to provide a tightly controlled, secure mobile email device (the earliest models offered neither voice not internet service) that provided seamless access to corporate mail servers.

RIM could make this work because it controlled the hardware, the software, and the BlackBerry Enterprise Server middleware. Its rivals in those early days were the Palm Treo and Microsoft Windows Mobile. Palm was a bizarre beast that never really worked. Its owner, 3Com, first licensed the Palm OS to other manufacturers, then spun its software unit off into a separate company, PalmSource. The Treo was developed by one of those licensees, Handspring, which had been started by Palm’s founders. Palm eventually bought Handspring and reacquired some rights to the Palm OS, but it never had full control of the software. That’s a major reason why Palm and PalmOS gradually became non-competitive.

Microsoft’s mistakes were different, but illustrative of the traps inherent in an open phone operating system. In the best Windows tradition, Microsoft gave its handset manufacturers a lot of design freedom. It ended up with phones with a variety of screen sizes and configurations, with and without touchscreens, with and without physical keyboards. The hodgepodge of hardware made it impossible for Microsoft to provide a consistent–or particularly good–user experience on all Windows Mobile devices. And third-party software developers had a very hard time writing applctions that worked well, or sometimes at all, on all devices. In a final irony, until almost the very end, BlackBerry did a much better job of providing mobile access to Microsoft Exchange servers than Windows Mobile did.

Apple, of course, changed the game completely with the 2007 introduction of the iPhone, and again in 2010 with the iPad. Apple controls every aspect of the ecosystem, Apple software running on Apple hardware that can load only Apple-approved applications. This has horrified fans of open systems. such a Cory Doctorow and Jonathan Zittrain, but the mass market’s love for these devices has allowed Apple to suck up the lion’s share of profits in the handset industry and to define the tablet market to the point where it has no effective competition.

Except for Android, the open model has now all but collapsed. Nokia never achieved widespread adoption of Symbian by other manufacturers. Linux-based LiMo went nowhere, as did Nokia’s Maemo, Intel’s Moblin, and their love child, MeeMo.

The status of Windows Phone is uncertain. After the Windows Mobile nightmare, Microsoft set very tight design standards for its attempt to rejuvenate the platform. OEMs have a limited choice of display size and a physical keyboard is optional, but other specs must comply with the reference design. And Microsoft’s tight alliance with Nokia could result in, effectively, a line of “official” Nokia-built Windows Phone products. It’s nominally still a market where Microsoft offers its OS to any willing license, buy Redmond really controls the game.

Android’s openness has been a blessing and a curse. The free-to-all-comers OS has allowed the platform to gain a great deal of market share very quickly. It has also proved extremely frustrating to consumers, with a proliferation of designs and software versions all with different capabilities and no consistency in their ability to run third-party apps. With an iPhone, you know you will always be able to run the most recent version of the iOS software and any product in the App Store (with minor exceptions for some older models that lack some hardware features of more recent ones.) With Android, you just never know.

I suspect this will change in significant ways as a result of the Motorola Mobility acquisition. Google is never going to become Apple, but I suspect that the Android market is going to look a lot more like Windows Phone does today, with Motorola playing an even more central role than Nokia will for Microsoft. This sort of hybrid of open software with an official hardware maker is novel and largely untested; Palm and Nokia both nibbled at it, but neither was a fair test.

However it turns out, however, it looks like any attempt to build smartphones on the PC model is over.

 

Google+Moto: “Like a Python That Swallowed a Minivan”

Michael Mace, who knows more about mobile computing than just about anyone around, is deeply skeptical about Google’s purchase of Motorola Mobility. “Either Google’s worldview will dominate and ruin Motorola, or worse yet the Motorola worldview will infect Google,” he writes in an insightful post on his MobileOpportunity blog. “Google with Motorola inside it is like a python that swallowed a minivan.”

Mace, now CEO of Cera Technologies, knows whereof he speaks, having held executive posts at Apple, Palm, and Palm’s ill-fated OS licensing spin-off, PalmSource.

One big problem he sees is Google’s lack of experience in  hardware: “Speaking as someone who worked at PalmSource for its whole independent history, an OS company always believes that it could do a better job of making hardware than its licensees.  It’s incredibly frustrating to have a vision for what people should do with your software, and then see them screw it up over and over.  The temptation is to build some hardware yourself, just to show those idiots how to do it right. I think maybe Google just gave in to that temptation.”

The full post is well worth reading.

Updated: Motogoo: The Damage to Google’s Bottom Line

Update 8/16: The market seemed distinctly cooler to the Google-Motorola Mobility deal the day after, with shares falling 3.27% to 539. And Standard & Poor’s downgraded GOOG from “buy” to “sell” on concerns about the impact of the Motorola deal. Here’s Peter Kafka’s take at All Things D.

—————–

Whatever benefit the acquisition of Motorola Mobility brings Google in the long run, it definitely would wreak havoc on the company’s financials in the short term.

Motogoo logoFor the year ended Dec. 10, 2010, Motorola Mobility (MMI) had gross revenues of $11,5 billion compared with $29.3 billion for Google. But MMI’s operating income was just $76 million or 0.7% of revenues, compared with $10.4 billion or 35.4% for Google. MMI ended the year with a net loss of $79 million, while Google has a net of $4.2 billion or 10.3%.

During the crudest sort of combination–real pro forma financials for the combined company will be much more complicated–absorbing MMI would have knocked 11 points off Google’s gross margin and 4.3 points off its net.

Financial markets don’t seem overly concerned about this. Google shares fell 6.54 or 1.16% today in a generally up market. Despite the damage to the income statement, the acquisition will have minimal impact on Google’s balance sheet. The company won’t have to take on any debt to pay for the deal and MMI, which was spun off from Motorola only a year ago, would bring no significant debt to the marriage.

Of course, if Google continues on its recent growth path, the financial impact of the acquisition won’t last long. The real challenge will be melding two companies with vastly different  cultures and histories.

Google: Set Top Box King?

Largely overlooked in the initial reaction to Google’s proposed $12.5 billion purchase of Motorola Mobility is the deal’s potential impact on the cable set top box business. When Motorola split the company in two, the decidedly un-mobile set top box group (formerly General Instrument) went to the Mobility unit. The U.S. market for set top boxes for cable and cable-like services, such as Verizon’s FiOS, is split between Motorola and Cisco (the former Atlanta Scientific.)

Motorola set top boxThe cable box has been a huge impediment to the development of really practical systems to get internet video onto living room TVs. Motorola and Cisco build the boxes their cable provider customers want and that means very limited integration with the internet. In the view of the cable companies, Facebook and Twitter are fine, but Netflix and Hulu most certainly are not. And while it is possible to build a CableCARD-equipped device that allows customers to receive both cable and internet TV on a third-party box, resistance by the cable companies and the failure of the Federal Communications commission to enforce its own rules has resulted in a minuscule market for these products.

Google TV is a great example of a product that was choked by the set top box monopoly. The closest Google could come to integrating cable into its supposedly comprehensive service was to use a ridiculous and antiquated device called an IR blaster to let the Google TV unit control the set top box. IR blaster-based products have been around for years, but have never won favor from consumers (for one thing, at least in my house, the little IR sending units keep falling off the cable box.)

So what would Google do with its new presence in the living room if this deal goes through. It could simply follow the Motorola course and go on making the set top boxes that cable operators want, but that seems profoundly un-Googley. Or it could strike a new course, offering the first mass-market home entertainment united that fully integrate cable and internet services. That could revolutionize the business–or drive all the cable operators to Cisco, which has never shown much inclination to rock this particular boat. My bet is that Google will at least try to build the product that Google TV should have been in the first place.

Time for a Smartphone Patent Pool

Most of the creative energy in the smartphone industry seems to be going into lawsuits, with just about everyone claiming that everyone else is violating their patents. In addition to keeping a lot of lawyers in work, the disputes are having real world consequences, with, for example, Apple blocking the sale of Samsung Galaxy Tab 10.1 in the European Union. It’s time to stop the madness, but any solution is going to have to come from the industry itself, not from Congress or the courts.

A patent shingleIf you are seriously interested in the issue, however, stop right now and read “The patent system isn’t broken, we are,” Nilay Patel’s detailed and incisive analysis of the issues surrounding software patents. In addition to analyzing where we are and how we got here, Patel offers some helpful suggestions for reform.

The problem is that serious changes in the patent system require legislation, a tall order from a Congress that would probably have to break a filibuster to pass a Mother’s Day resolution. (a useful but relatively minor reform bill may pass this fall, but it does not address the fundamental issues.) Courts can impose some sanity, but they are slow moving and constrained by existing legislation.

It seems to me that the best way out of the smartphone mess would be for all the the folks now beating each other up in court and before the International Trade Commission to get together and form a patent pool. Everyone owning relevant patents contributes their intellectual property. Members and others wishing to use the patents pay a reasonable fee for a license and the proceeds are divided among the contributors.

This is hardly a novel idea. Philips and Sony, which each owned key technology behind the compact disk, set up a patent pool that helped launch the enormous success of the CD format. Six companies that owned key DVD technology (later joined by three others) created the DVD6C Licensing Group. The numerous patents behind MPEG video compression technology are pooled into MPEG LA, which licenses their use.

A pooling of smartphone patents would make life a lot simpler for everyone in the business. There are so many patents covering so many aspects of the hardware and software that it appears to be all but impossible to build a phone that doesn’t infringe on something. And right now, it looks like the big long-term winners will be the lawyers. In theory, the issues could be resolved by a series of pair-by-pair patent cross-licensing agreements, but a single patent pool seems simpler and more efficient.

Not that creating such a pool is going to be simple. First, any arrangement would probably need the blessing of U.S. and European antitrust regulators, who tend to see such cooperation as potential collusion. The other pools I referred to were easier because they were created at the onset, before an industry existed to be divvied up. A tremendously difficult issue would be determining how to share the license fees among the contributors, a problem that would probably call for a complex arbitration. The position of Google, a major smartphone player with a relatively puny patent portfolio is particularly difficult, although in fairness, Google also stands to be the big loser if the industry proceeds down its present litigious path.

A key step any patent pool would have to take to be successful is to indemnify its licensees against attacks by non-member patent holders. In effect, the pool would have to say: “A license from us gives you access to all the intellectual property needed to build a modern smartphone. If a third party claims otherwise, we will defend you.” This sort of insurance can be expensive, but certainly within the means of a pool that included Apple, Microsoft, HP, Samsung, and other giants.

One serious concern is that the existence of a pool could cripple innovation. If inventors have to share their creations with competitors. will they have any incentive to innovate? One solution would be to limit the pool to current patents–often the most troublesome because their existence and extent is unknown–and leave companies free to claim exclusive rights to future inventions.  That might set up more problems for the future, but could still deal with the difficulties of today.

Identities May be Collateral Damage in AntiSec Data Dump

Guy Fawkes maskA couple thousand people could be at high risk for identity theft as a result of a large dump of documents snatched from law enforcement agency web sites by a group calling itself AntiSec. The Aug. 6 data release, latest in a series by what appears to be a loosely linked collection of–take your pick–activists or vandals, was justified as retaliation for the arrests of a number of members of the Anonymous collective.

 

IdentityFinder, which makes software designed to flag personally identifiable information in email messages and a variety of document formats, scanned the data dump (AntiSec claimed it contained more than 10 gigabytes of data.) The check found over 100,000 unencrypted files containing personal data, Included were:

  • 1,923 unique Social Security numbers
  • 4,661 unique passwords
  • 15,738 unique dates of birth
  • 17,105 unique phone numbers

This information, along with an assortment of other data, could be used to cause considerable grief for individuals named in the files. “This is collateral damage,” says Identity Finder CEO Todd Feinman. “AntiSec didn’t care about the consequences, but they weren’t going after ID theft.”

The incident onces again serves as a warning–as if any further alerts were needed–that sensitive personally identifiable information should never be stored in unencrypted files accessible from the internet.  And as an additional warning to anyone who might feel like poking around in the next set of data to be dumped, Feinman also said that many of the files released by AntiSec contained malware, presumably Because the source files were infected.

 

Why Public Wi-Fi Isn’t Doing the Job

The easiest and best way to relive many of the pains of mobile wireless is to offload traffic from 3G or 4G networks to Wi-Fi. But this doesn’t work nearly as well or as smoothly as it should.

Wi-Fi logoFor the past couple of days, I’ve been at Mathfest, the summer meeting of the Mathematical Assn. of America in Lexington, Ky. There’s free Wi-Fi,  of variable quality, in the Louisville Convention Center. Like many public networks, free or paid, it is set up so that network access requires login on a web page. And, as with the case of many such networks, you have to log in every time your network connection is broken and reestablished, effectively every time you move from one room to another.

It’s not a good idea to run completely open Wi-Fi. Even if you don’t care who gets on the network, communications over open networks, other than those with secure sites supplying their own encryption, are wide open to anyone who cares to listen in. Since most users are unaware of this, they are very dangerous.

The best way to provide free public service is using Wi-Fi Protected Access (WPA). This requires giving all potential users a passphrase (you could oost it on the wall.) The advantage is that once the passphrase is entered, most devices will store the configuration and automatically reconnect as needed.

Unfortunately, this approach does not work for paid services, whether pay-by-session or subscription, because there is no way to authenticate individual users. I think the best solutions for these is to provide apps for all devices that will automatically handle the authentication, requiring the user to enter a username and password at most once (you start talking like that after a couple days as a math meeting.)

Boingo does something like this for its subscribers. You give your Boingo credentials to the app–typically just once–and Boingo takes care of the mechanics of logging you on to a wide variety of networks. Unfortunately, Boingo’s coverage is far from universal; it did not, for example, work in either my hotel or the convention center.

Wireless carriers should really be leading the way in making this happen. They are increasing anxious to move traffic onto Wi-Fi and are building hotspots to facilitate this. But sometimes even getting onto your own carrier’s Wi-Fi is nowhere near as seamless as it should be, and using a rival carrier’s network is often impossible.