Unpacked for Friday, August 19, 2016

US Wireless Carriers Continue to Evolve Data Pricing – by Jan Dawson

This week saw three of the four major US wireless carriers introduce new pricing. AT&T kicked things off earlier in the week with new pricing options designed to eliminate overages, while T-Mobile and Sprint announced new unlimited data plans on Thursday morning.

All three of these announcements – and an earlier price increase by Verizon Wireless – are indicative of changing dynamics in the US wireless market. AT&T’s changes were a response to pressure from T-Mobile (and, to a lesser extent Sprint) around overages and to give its store and call center staff an easy response to customers threatening to switch to another carrier to avoid overages. T-Mobile’s price changes (which I analyzed in detail here) are part of its longer-term “Un-Carrier” strategy to eliminate pain points for customers. But it also builds on its introduction a year ago of a video-throttling technique which restricts videos to 480p quality and reduces bandwidth by two thirds in the process. Sprint’s announcement seems to be an attempt to capitalize on T-Mobile’s price changes by undercutting it while focusing on the same unlimited message.

These changes reflect increasing confidence by the three larger carriers that their network advantage allows them to charge higher prices without driving noticeably higher churn, while Sprint’s focus on price is an indication of its need to compete there to offset perceptions of poorer network quality. The US wireless market remains very competitive, as the absence of meaningful market growth means new subscribers have to come from competitive wins, but it’s also characterized by historically low churn rates between the carriers. Many subscribers have simply made up their minds to stick with the carrier they have, regardless of the pricing and promotions offered by various companies. Almost 99% of customers on the major postpaid plans decide to stay put each month.

This increasing competitive intensity will drive more and more differentiation around service and pricing structure rather than necessarily pricing alone, with the two smallest carriers emphasizing “unlimited” plans (both of which involve throttling of video and, in some cases, other content), while the larger two will continue to emphasize their superior networks and service quality. All the carriers are also investing in better customer service and experiences across both their postpaid and prepaid portfolios. Ultimately, though, the postpaid phone business is becoming a zero-sum game and the carriers need to look elsewhere – principally to connected devices, like connected cars and machine to machine deployments – for future growth.

Honor 8 Delivers Great Value for Money but Will Consumers See That? – by Carolina Milanesi

On Tuesday night, Honor launched their new flagship smartphone for the US market: the Honor 8.

If you wonder if you could trust this brand, I can tell you they are the 3rd largest smartphone manufacturer in the world. Surprised? While Honor positions itself as a smartphone manufacturer, they are, in all terms and purposes, the e-brand for Huawei smartphones and tablets and they are part of the Consumer Business Group.

If you read the details on the device specification, you can quickly see why this is a flagship device. The look and feel nicely fit the specs and you could be forgiven for thinking the Honor 8 looks a lot like a cross between the Galaxy S7 and the iPhone.

But the real story of this device is the price: $399.99 for a 32GB model, unlocked. Pre-order started on August 17 through the following retailers: Best Buy, Amazon, Newegg, and B&H Photo Video as well as on HiHonor.com. For the first 60 days, Best Buy will offer the Sapphire Blue edition exclusively. Customers pre-ordering Honor 8 between August 17 and August 31 will also receive a $50 gift card from participating retailers or a $50 rebate.

Honor is able to deliver these prices as it leverages Huawei’s economies of scale as well as the lower costs associated with an online channel. Online is growing as part of overall smartphone sales as carriers have started adding the option of bringing your own phone to a subscription service. The move from contract to installment plans has also helped clear the confusion around smartphone pricing. More consumers than ever before realize that smartphones are not all $199. Some have started to question why they are paying anywhere between $600 and $900 for some models. Brand remains very important in the space and price tags do not seem to matter for certain brands or “Hero” products. For everybody else, however, competition is getting tougher and we have seen many vendors from HTC to Motorola struggle in the high-end.

While online is growing, most consumers are so used to buying through their carrier so trying to compete by going through the direct channel remains a challenge. The list of partners Honor is working with is encouraging but I see the biggest opportunity with Amazon, especially if Honor 8 is picked as a partner in the way we saw Amazon do with Blue and Motorola – providing a discount to Prime Members who will receive ads on their locked screen. Associating a popular and trusted brand like Amazon to Honor will certainly reassure customers unfamiliar with the name as well as increasing visibility.

Honor 8 is targeting Millenials which makes sense from a feature vs. price proposition but the channel might not necessarily be the preferred one – we will have data shortly on this very topic. Brooklyn Beckham as the world-wide brand ambassador might work but, judging from the audience at the event, not many Americans are familiar with the son of soccer player David Beckham and Posh from Spice Girls, Victoria Beckham.

Bottom line, I think the Honor 8 is a strong product but discoverability will be a challenge. Honor will have to focus on communication channels millenials rely on for advice, which puts social as a top priority. As for sales, however, the channel as the advertising medium is not enough. Messaging needs to be right and Asian vendors do not have a great track record — a lot gets lost in translation.

Intel Focuses on Automotive – by Bob O’Donnell

The day after their IDF developer event, Intel held an Investor Day focused on the company’s efforts in the automotive industry, particularly around autonomous driving. To date, Intel has been fairly quiet about their efforts but it’s clear that approach is changing and frankly, for good reason. The company said they’ve done over $1 billion in revenues in automotive-related efforts over the past 12 months.

The company’s approach focuses on a complete end-to-end perspective—from the car to the cloud in this case—and highlights what they see as opportunities for software and silicon in the car (through 5G connectivity in the networks) and into more silicon as well as machine learning and deep learning applications in the data center. In some ways, it’s similar to how the company is thinking about a whole range of large vertical opportunities, such as some of their work in medical research, which they used as an example during their various presentations.

One of the fascinating parts of the connected car opportunity is it pulls together a number of key technological developments into a single story. From sensor fusion, through high-end multi-core computing, to increasingly sophisticated graphics, to multiple types of radio connectivity and network connections, and into cloud computing with artificial intelligence and deep learning, connected cars are a technologist’s dream. Of course, this explains why Intel and so many other tech companies have been so focused on the automotive market of late—it’s the cool place to be.

But that doesn’t mean it doesn’t have challenges. Right now, the semiconductor bill-of-materials is about $500 per car, which sounds decent at first, until you realize average new car prices are in the $25,000-$30,000 range, making silicon components still just a small part of the puzzle. Over time, as more autonomous capabilities are added, the revenues per car are expected to increase, though the actual number of components is expected to consolidate to a lower number. So, the potential opportunity is to get a piece of those more expensive parts, instead of battling it out for the roughly 150 $2-$3 parts that currently sit inside today’s cars.

It was clear from the Intel event there’s still a great deal of work to be done by component makers, Tier 1 suppliers, and automotive OEMs to reach the goal of fully autonomous cars. Watching how it develops and how computing and other tech vendors jockey for position is going to make for some great observing for some time to come.

Apple Watch and Cellular Connectivity – Ben Bajarin
In what I consider a non-story, Bloomberg is suggesting the newest versions of the Apple Watch will not have cellular connectivity. While we should always take rumor or leaked “scoops” with a grain of salt, this one will not surprise me and is also a non-issue and there is no reason for concern for Apple’s Watch outlook going forward.

Apple makes the entire computer board for the Apple Watch. They call this the S1 and it is a designed by Apple computer on a chip. In order to keep this model going forward, Apple would need to design the modem onto the S1. This is something they can not do — their only third party modem options are Qualcomm and Intel. I have been suggesting for some time it is likely Apple is working on their own baseband processor and designing their own modem is the only way they can integrate that part onto the S1 for a fully integrated design for the Apple Watch. From semiconductor industry gossip (the best kind of industry gossip) I’ve heard, Apple’s modem designs were behind in the development timeline. This could be due to power, as the article suggests, but any sufficiently designed LTE modem will have only an approximate power or thermal increase of about 10%. The real battery hog is making phone calls. So, if Apple’s modem design did not pass a battery sniff test, it would have likely been due to a heavy future or use case of making phone calls from the watch, not consuming data.

Untethering the Watch from the phone is certainly a heavily requested feature from existing Watch owners but I do not personally feel the lack of this feature will inhibit Watch sales in any way. While existing customers want it, I still think the smartphone tether is sufficient for most of the key use cases for the foreseeable future. Also, I’m not convinced in any way the Watch’s lack of a modem is a is a barrier for sales to new customers. I believe at this point, the way to move the chains with the Watch is to lower the price. How Apple expands the line and offers a wider range of prices is the key to look for as they attempt to make the Apple Watch more mainstream.

6 thoughts on “Unpacked for Friday, August 19, 2016”

  1. I’m wondering about Intel: they’ve been great at pushing x86 forward, especially after AMD woke them up back with the original Athlon. But the rest of their diversifications are a long list of failures: graphics cards (remember DGX ?), Itanium, i960, networking gear, Classmate PC, Mobile, their ARM business…. Only their Flash/SSD business is doing OK-ish ?
    Being paranoid is working for them, kinda, but isn’t being creative and customer-driven better, at some point ? As it is, their fate seems intertwined with Windows’ and threatened on the Linux/Server side if ARM now moves into the server space, which now seems more likely to happen ?

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