Telecom Monthly - May Newsletter: The Great American Melting Profit

May 1, 2009

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Settle in my friends, for today we have a tale of trouble, trickery, and tribulation to tell as April lived up to her stormy reputation. By now, even monks living in Tibetan caves know that the world economy has rarely been worse, and when times get tough - the tough get nasty! Several of the industry’s biggest names have proven that if you fail to claw for survival, you might just get dragged down with the likes of Motorola and Nortel. If you’ll give us a moment, we’ll deliver your juicy ultra-digest version of what happened last month in our back stabbing, hand wringing, stimulus seeking industry.

Hopefully you weren’t in the process of funding a big tech start up last month. If so, you likely found it more difficult than expected to find investors. Venture capital took a huge 56% plunge in the first quarter of 2009 compared to the same period one year ago - the lowest level of technology investment in over a decade. But that doesn’t mean that a few high flying tech companies haven’t managed to soar.

Soar is exactly what Twitter did in April as it became famous through the efforts of Oprah, Larry King and other celebrity bigwigs. Unfortunately, all the buzz resulted in more tweets than Twitter could keep up with, which has left users increasingly frustrated with Twitter’s adorable “Fail Whale,” the symbol displayed when servers are busy. But that wasn’t the end of Twitter’s troubles, as the company also dealt with a series of well publicized and troublesome Internet worms which infected the service. That didn’t stop Ashton Kutcher from becoming the first Twitter user to record one million followers. And if all this attention has you thinking that Twitter is king of the social networking hill, you’d be way off - Twitter has a long way to go until they hit the 200 million users that Facebook just recorded (at least 180 million more users to go).

It seems as though everyone faced a challenge in April, but few worse than what cellular handset manufacturers were challenged with. Nokia profits fell 90% and Sony Ericsson reported losses of $467 million in the last quarter. Unfortunately that will translate into 2,000 additional layoffs at Sony Ericsson, which has seen its share of the market slip an additional 2 points to an abysmal 6%. But the losses of Nokia and Sony Ericsson are nothing compared to the dramatic fall from grace which Motorola has suffered in the past year. Once the number one handset maker, they now share a paltry 6% of the market.

Poor T-Mobile can’t quite catch a break with their “iPhone Killer” Android phone. The public and media just don’t seem enthusiastic about the device. To date, just one million of the slightly clunky Android phones have been sold. The Android platform is open to any developer or handset manufacturer, but that hasn’t resulted in critical mass - at least not yet.

The cable companies managed to make their own little bit of news this month as Cablevision prepared to roll out its super high speed internet service which promises to bring a blazing 101 MBPS to users in New York City for just $99.95 per month. Streaming American Idol will be a snap at speeds that high. They might even find a way to wrestle a few bucks out of Uncle Sam’s broadband stimulus to make the product available in more areas and possibly at more affordable rates. Meanwhile, Time Warner cable continues to piss off savvy consumers with talk of a broadband cap. We honestly have to wonder if anyone at the company is capable of touching the pulse of the government and consumers - both of whom are pushing for bigger, better, faster, cheaper when it comes to broadband. No one wants to worry about the number of I Love Lucy episodes that they can download before big brother turns off the Internet. Time Warner needs to catch a clue. The need for higher bandwidth just increased exponentially as broadcasters and consumers have switched to high definition media and streaming.

Things are a bit different at AT&T which has been hit hard over the last few years as consumer long distance began to dry up as a viable business model. However, the company has successfully shifted its focus to more lucrative wireless and Internet services and is displaying strong vital signs and impressive resilience in this troubled economy. We’re just not quite sure how the public is going to react to their new family tracking service know as “Family Maps,” which allows you to keep tabs on the physical location of all mobile units on your account. We can only assume that the app was developed by George Orwell or the NSA, but your teenager is still going to find a way around the service (that’s what they do best). In less spooky news, iPhone owners will rejoice as AT&T prepares to nearly double the speed of their 3G network in coming months.

Higher speeds aren’t the only thing that iPhone owners have to celebrate, as Apple has just sold its one billionth app last month. That’s a whole lot of sales in a very short period of time. So what do you do to celebrate your success? Sketchy reports claim that Apple has been in hot and heavy talks with Verizon about possibly bringing an iPhone and a new tablet like device (rumored to be a larger format high resolution iTouch-like device) to AT&T’s rival. Some think that Apple is merely using Verizon to get a better deal from AT&T whose exclusive iPhone contract is set to run out next year. But two can play at that game as Verizon is also rumored to be in talks with Apple’s chief rival, Microsoft, regarding a Zune-phone. Is Verizon playing hardball with Apple in the attempt to win an iPhone contract, or do they simply hope to land both of these competitors? They shouldn’t count on it. Apple looks to be the player with the loaded hand and AT&T and Verizon would each be lucky to land a deal. Still, with each passing year, the temptation for Apple to make its attractive iPhone available on other networks becomes increasingly likely. The iPhone will no doubt become network independent at some point in the future as it burns through the number of potential converts from AT&T.

If you enjoy corporate thrillers, Sun Microsystems was in the middle of a big one last month. IBM chased Sun and sought what it thought was a sweet deal for the server and Solaris operating system company. But when Sun asked for more money than IBM thought was reasonable, IBM abruptly broke off negotiations and Sun’s shares plummeted. But not for long. In a shocking turn of events IBM’s competitor, Oracle, snapped up Sun for $7.4 billion in a move that is sure to shake up the suits at Big Blue. There are many unanswered questions surrounding this deal, mostly involving Sun’s open source efforts with Open Office, MySQL and Java.

And that’s the sort of month it was - one minute, a handset maker was reporting gloom and in the next we’d hear the juicy details of corporate intrigue. In the end, April proved to be a stormy mistress, but as they say, “April showers bring May flowers” . . . a saying that we can only hope comes true.

Written by iTodd · Filed Under Business, Featured, Internet, Mobile, Monthly Newsletter, Telecom