SK Telecom got the satellite frequency license and is a 33% owner in the venture. EchoStar recently bought a 10% position.

Young K Su pointed to the service’s 95% population coverage and 50+ terminal choices as critical to its early success. That didn’t come cheaply as the company estimates it spent $400 mil. on a fill-in relay network to extend satellite coverage in metro areas and indoors. But it also found it had to be quick to evolve the offering to attract users. For example, the company started the service at a $14/mo. subscription rate but dropped it to $11/mo. last November and saw an immediately improved take-up response.

A number of the company’s pre-launch assumptions were dispelled once subscribers showed their usage patterns, which led it to repeatedly change the channel lineup, which was reworked 22 times inside the first 18 months on air. It currently provides 38 channels (15 video and 18 audio), of direct broadcast TV as well as other event and special fare. And customers on average are using the service for 60 minutes/day.

A before and after launch assumption chart looked something like this:

Expectation Pre Launch
Content: short form most popular
Place: outdoor use most popular
Time of Day: commute time = primetime
Age Group: users will be youth generation

Reality Post Launch
Content: run time not very important to user
Place: indoor use just as important as outdoor
Time of Day: no prime time during the day; less use in the evening
Age Group: 30% of users >40 years old; only 10% of base under 20 years

In explaining the disconnect which he still sees between video and wireless, Roberts noted that wireless video uses 100x as much spectrum as voice which makes the economics of the service on the tiny screen a challenge, and at the same time over 50% of the TV sets to be sold in 2007 are going to be 50” screen size or larger. The stats speak to the immaturity of mobile video and the still tenuous connection between mainstream television and the mobile screen.

Meanwhile, Comcast is charging into landline telephony and aiming to sell 2.6 mil. subscriptions for that service in 2007. It figures having a mobile add-on might net it a fractional gain in that sales goal, but it is fully occupied with its current mandate to sell video, broadband and telephony packages, where the current appetite is enormous. Take-away: no hurry.

Because Comcast and the other cable cos. are very interested in enhancing personalization options for their customers, and pushing the use of video on demand as a platform to support that effort, we think that it is likely that mobile video could come into focus on Comcast’s radar from that direction first.

The timing of the Journal’s compliment is fortuitous because the players on the ground in mobile TV in the U.S. may now be ready for the scrutiny.. MobiTV just passed the two mil. sub mark, doubling its base in a year. MediaFlo is launching its mobile broadcast service on Verizon (reportedly sometime in March) and Cingular, content owners and aggregators like MobiTV are sharply focused on tailoring and improving their mobile video menus, plus the carriers are sort of making it easier to find what they and their partners have to offer. ALLTEL, for example, just introduced something called CellTop, a Brew platform-based technology which allows subscribers to quickly access and manage their preferred applications on the phone via a personalized array of graphical navigation short-cuts. Aimed at increasing discovery, ease of use and ultimately usage, CellTop is pre-installed on phones and is free.

What price points and/or combination of price/ad support will attract steady viewers has not yet been proven out, but delivery of good product and a quality viewing experience seems to be coming into focus. And best of all, with customers regularly changing out phones for the next upgrade every 18 months or so, mobile TV can get judged--good or bad-- on its own merits rather than on the limitations of network and device environment.

This particular complaint relates to Qualcomm’s claim that Nokia has been infringing on QCOM CDMA patented technology in its GSM phones. Nokia intimated that QUALCOMM’s claim was shrinking as it has reduced its patent infringement claims from six to three over the course of the litigation to date.

This is the 2nd shoe to drop in a week. On Feb. 23, QUALCOMM and Broadcom agreed to drop patent claims for two of five and two of four patent infringements the pair had claimed against each other. The rest of the claims remain open.

But the bigger shadow over an assortment of litigation among Qualcomm, Broadcom, Nokia, Ericcson and others is whether QUALCOMM can migrate its 800 lb. gorilla status in CDMA into coming generations of WCDMA and OFDM protocol technologies. How valuable is its patent portfolio and what can it charge its competitors for same? The GSM vendors have a long-standing complaint at the European Commission claiming royalty overcharges by QUALCOMM for its patents. Its blanket reciprocal patent licensing agreement with Nokia expires Apr. 9 and is still being negotiated.

QUALCOMM ceo Paul Jacobs indicated last week to investors that he was hopeful the GSM carrier Cingular’s recent choice of MediaFlo for mobile broadcast might positively influence the GSM group vs QUALCOMM negotiations, but also noted that mediation is a good possibility.
Most recently, QUALCOMM has posted on its web site a 3rd party critique which claims Qualcomm’s “essential” CDMA patents should be valued and licensed on a simple numeric basis vis a vis all other CDMA patents. The rebuttal paper blasts the idea of relying solely on the number of patents identified as essential for a given set of products and applications and instead recommends a blend of qualitative and quantitative analyses plus historical pricing precendent as more reliable.

The authors include an interesting table which identifies U.S. patents disclosed to ETSI for UMTS standard using data between 1975-2004, comparing simple patent counts, non-self citations received and average non-self citations received per patent for Ericsson, Nokia and QUALCOMM among others. The table highlights the different conclusions one might draw from simply counting a patent vs counting how often it is cited by competitors as essential to a given product vs counting how often each patent in a patent family is cited on average.

Simple Patent Counts
Ericsson 163
QUALCOMM 105
Nokia 53

Non-Self Citations
QUALCOMM 6,528
Ericsson 2,980
Nokia 466

Non-Self Citations/Patent
QUALCOMM 62
Ericsson 18
Nokia 9

There are definitely a few more twists and turns to come before this standoff gets resolved, but the events of the past week indicate the courts may be helping it along. Shares in both QCOM and NOK fell about 2% during the panic trading of 2/27.

We estimate that BellSouth has on average about 100 MHz in 40 license areas covering just under 20 mil. pops, which would put the deal value at approximately 16 cents/MHz pop.That's equivalent to the level at which Clearwire is aiming to go public in the next month or so, before adjusting for equity dilution from convertible preferred, warrants, options etc. If it can get its proposed per share offering price of $24/share in its IPO, on a fully diluted basis, the market would be valuing its portfolio (U.S. and international combined) at closer to 26 cents/MHz pop, putting the acquisition from AT&T at just over 60% of its public market price point--on a MHz pop basis. (for detailed analysis of Clearwire pending IPO, see the Wireless Investor report at Kagan Research. www.jupiterresearch.com/bin/item.pl/research:concept/1235/id=98811/

More similar to the DBS operator proposal, Verizon has also weighed in in favor of the large supra-regional license plan that is provisionally in place (6 covering the U.S. and Territories) vs the smaller metropolitan geographic area that were part of the AWS auction. The larger the license areas, the fewer the bidders there are who would be financially capable of participating. The current band plan for the upper 700 MHz auction calls for six 10 MHz licenses and six 20 MHz licenses to be auctioned—30 MHz in all.

It probably also increases MediaFlo’s chances of gaining favor among European carriers, which have been focused mainly on the Nokia-promoted DVB-H version of broadcast mobile TV. Qualcomm is pushing the service this week in Barcelona at the giant 3GSM confab, where it has already scored a coup on the chip side of its house. It will supply the chips for new entry-level 3G phones to be produced by LG Electronics for a group of 12 international carriers in their “3G for All” Campaign around the world. The phones will be delivered in bulk in 2Q07 at a 30% wholesale discount to current entry-level 3G models and could retail for as low as $100.

Among the 700 MHz admirers, and possible bidders, are Verizon, T-Mobile, ALLTEL, Leap, the cable MSOs with or without Sprint, satcaster EchoStar, satcaster DirecTV, now controlled by Liberty, which is flush with cash and Aloha, already a 700 MHz spectrum owner of 12 MHz…but a DVB-H technology proponent. Each of these potential bidders has different motivations (and means) for being in this auction. And that will play into their bidding appetites, should they join the fray. Add to that the ever-present speculation over a wild card (read: internet) player and private equity funds in assorted co-productions.

With any variation of this cast of bidders, it’s pretty clear this will be a very competitive sale proceeding. The spectrum is high end, the amount being auctioned (30-60 MHz--30 MHz upper 700 band; 24 MHz lower 700 band) is limited and this may be the last of it, it’s very attractive for all fixed/mobile business models and it is perceived as a powerful weapon or highly fungible trading card in the hands of incumbents as well as new entrants. It’s a good bet you won’t see AWS Auction #66 price points in this go-round.

One third of Orange mobile subscribers watch live mobile TV, on average about 35 minutes/month. They watch primarily regular TV channels, but Orange complements this with made-for-mobile /TV Lite fare as well. Subscribers can buy a subscription package of 12 Channels for 5 Euros or the full offering of 53 Channels for 12 Euros/mo.

Orange also has an alternative opt-in subscription plan for ad-supported mobile TV. In this version, the sub is asked to answer a short list (3-4) of questions, then view a 15-20 second advertisement before the programming is opened. Orange is able to appeal to a wider swath of viewers by making both plans available.

But Frank Boulben, former evp Marketing at Orange thinks the real driver for making mobile TV mainstream will be a satisfying user experience. With each improvement in video delivery quality via devices, infrastructure and technology, Orange has seen better consumer response. In the company’s DVB-H trials, where consumers are watching this much better quality TV, their average viewing time has escalated dramatically.

Aloha Partners/Hi-Wire Preps for DVB-H Trial in Las Vegas With TV Viewer Research

Those are the kind of results that Aloha Partners, license holder of 2 6-MHz channels in the 700 MHz band and that band’s proponent of DVB-H mobile video technology, has found in its viewer research as well. Aloha will start its technology trial of DVB-H mobile TV with T-Mobile in Las Vegas on April 1. It plans to use both of its available channels for 20-30 programming options.

Its programming choices to start are going to be driven by TV Viewing research it conducted via Nielsen and other ratings statistics. It is going after a relataively broad 18-45 age group band, but broken down into 4 groups—15-25 and 25-45 and males and females separately within each of the age group sub-sets. These are the people already watching mobile video via cellphones and video iPods today.

There are some commonalities in the viewing habits within these sub-sets but also lots of differences, which is why Aloha is thinking it will need both of its channels. And so far it is the only player with two channels at 700 MHz.

What all four groups had in common, according to Nielsen stats is that they primarily watch 6-10 channels of which 4-5 basic cable channels are staples—TNT, USA, Fox and TBS for starters. But after that, there is a distinct divergence between male and female viewers. The top picks among males 25-45 are ESPN, History Channel, Discovery, FX, Spike and Adult Swim. But the female group 25-45 is partial to Lifetime, Nick at Nite, HGTV, Nickelodeon, Hallmark and the Food Channel. And according to Aloha ceo Charlie Townsend, the divergence gets even more pronounced, as one might expect, when you drop down to the two age group sub-sets and also to the males vs females within the two age groups. Aloha also determined that local networks had a big draw, so the company is aiming to get local as well as national program rights from broadcasters.
While Aloha’s first appearance is a technical trial, it will also be testing pricing preferences within the control group.

In advance of the sunset date for moving incumbents off the 700 MHz space, the company has also applied for a FCC waiver to operate in Dallas, using newly simplified rules of minimum interference (0.5-2%) that the FCC implemented in granting a Qualcomm blanket request for better defined and less stringent waiver processing at 700 MHz.

The WJS today (10/25) reported on persistent rumors that Comcast might be eyeing Sprint Nextel or Yahoo as an acquisition target, given its 52 week high stock price and the other companies’ down market trading levels. Comcast recently $39, up 42% LTM, while Yahoo is down 31% to about $24 and Sprint Nextel down 25% to under $18.
Comcast has been firm in roundly quashing that talk. Comcast surely doesn’t need to be in any hurry to leverage up for Sprint Nextel should it develop an interest. Timing and tactics are on its side.

a. Now that it has its own wireless spectrum from the AWS auction, its bargaining position for a re-written jv with Sprint is much stronger, should the MSOs want to go that route.

b. Sprint Nextel is struggling mightily with a poorly executed Nextel integration (see earlier blog) and would be a big headache to take over. And while it fixes its network problems, its stock is likely to get hit some more.

c. Competitors AT&T and Verizon haven’t made much of their wireless capabilities in any bundle marketing yet, although it is on their radar to do so. But first up are AT&Ts BellSouth merger and Cingular roll-up, Verizon’s $18 bil. spend on its IPTV net.

Comcast has always been measured in its pace of rolling out new technologies. It was a year behind its peer group in getting to its cable telephony offering. But after less than a year in the market it has 10% penetration of its marketed homes, and cable telco penetration in aggregate will ramp to over 20% by 2011 and over 25% by 2016, according to our latest Kagan forecasts. It’s unlikely Comcast’s mobile moves will be any less thoughtfully deliberately executed than its telephony and previously its broadband tier were. That makes the Sprint/Cable jv a perfect starter course for whetting the appetite.