Anton Wahlman's  Instablog

It never ceases to amaze me how many real and prospective iPhone users who don’t know they can get service for half the price, and in some ways improve the functionality.  What I am about to describe to you is not the ideal configuration for every consumer, but it may be superior for some.

 

The lowest pre-tax price at which you can obtain cellular service for your iPhone and laptop today is $130 per month -- $70 for the iPhone and $60 for the laptop.  You can cut that to $60, or more than half, by using the newest 32 gig version of the Apple iPod Touch in combination with Novatel’s MiFi device offered by Verizon Wireless and Sprint.  In this latter configuration, the Novatel MiFi device provides for ubiquitous service to up to five simultaneous devices, including your iPod Touch and laptop(s).

 

What about voice service, you say?  This is clearly the point at which this “synthetic iPhone” solution will not be acceptable to every single consumer.  Using the iPod Touch, you can use any of numerous available VoIP programs such as Skype and Vonage, just to name a couple.  Some of these providers have choices between pay-as-you-go a-la-carte pricing and monthly subscriptions.  Unlike a traditional wireless circuit-switched carrier such as AT&T, these can take many forms and for many users cost well below $10 per month, depending on the usage pattern.

 

One objection against the iPod Touch + MiFi solution is that these are two devices instead of one.  This is true, but considering that the combined size and weight of these two devices is almost identical to one regular iPhone, this is not a big deal.  Furthermore, when you are in your own home and don’t need to carry around the MiFi device, you benefit from the fact that the iPod Touch is thinner and lighter than the iPhone.

 

Surely there are other objections against the iPod Touch + MiFi combination as well, including battery life and multiple chargers.  However, the “synthetic iPod” also confers one other benefit except for giving the user service at half the price:  No relationship with AT&T.  I am the opposite of those malcontents who perpetually claim to “hate “ AT&T, but for those who love their iPhone, but would pick ANY carrier except for AT&T if given the choice, the fact is that the choice is already here!  You can get your iPhone experience on Verizon Wireless and Sprint today – by using the iPod Touch in combination with the Novatel MiFi device on either of those two carriers.  This should be a huge selling point by Verizon Wireless, Sprint and Novatel – but for some reason they have never pressed this important argument.

 

So there you have it:  You can cut your iPhone monthly bill in half, and get your service on Verizon Wireless or Sprint, today, by using the iPod Touch + MiFi combo.

LONG:  AAPL, NVTL
SHORT:  none

 Following Novatel’s 3Q report and 4Q guidance last Thursday evening, NVTL stock dropped over 25% on Friday.  Investors had expected strong MiFi revenue growth for 4Q, but management stated that this was unlikely to happen, despite continued channel sell-through improvement.  The culprit was simply an inventory build-up in 2Q and 3Q, presumably at Sprint and/or Verizon Wireless.

 

Aside from sell-through catching up with inventories by 1Q, there are other more fundamental technology shift reasons why NVTL should see very strong MiFi growth throughout 2010:

 

1. There will be a WiMax/EVDO version of the MiFi for Clearwire/Sprint/Cablecos.  Given the dramatically lower cost per bit associated with Clearwire’s WiMax network, compared to EVDO, the monthly service price should come down, and the 5 GB/s monthly cap could be increased.  When could this happen?  Given the dual-mode nature of the device, and that WiMax is already, or will soon be, offered in numerous large cities such as Chicago, Philadelphia, Atlanta, Las Vegas, Dallas and Seattle, Portland and Baltimore by December 2009, a dual-mode WiMax/EVDO version of the MiFi is already overdue.  It is reasonable to expect availability of this device by 1Q.
2. There will be an LTE/EVDO version of the MiFi for Verizon Wireless.  The rationale is the same as for the WiMax version.  In terms of widespread city deployment, it appears VZW is approximately one year behind Clearwire in deploying LTE vs. WiMax.  LTE chips are not yet mature, so it is reasonable to expect such an LTE version of the MiFi late in 2010, probably 4Q.

 

In both the WiMax and LTE cases, the latency of these networks compared to EVDO is much lower, making these networks much more suitable for VoIP.  There is an enormous itch by many people to switch to cheaper VoIP telephony, but quality concerns rightfully abound.  Do you really want to save $50 per month if the quality of your phone conversations deteriorates from time to time?  Probably not worth it for most people.

 

The key MiFi advantage in a low-latency WiMax and LTE world is that you can use as your handset terminal a WiFi-only device such as the Apple iPod Touch, on which you run your favorite VoIP service such as Skype or Vonage.  The stage is now set for a cottage industry of VoIP apps to take advantage of the ability to de-couple VoIP service from otherwise mandatory voice service offered by the large cellular carriers such as VZW, Sprint, T-Mobile USA and AT&T.  Yet, at the same time, you also support your laptop – or several laptops – using the same MiFi connection, paying one unified price that is much lower than the current captive voice plan rates.

 

The good news for NVTL is that this mobile VoIP trick is possible already today, with the caveat of EVDO having potential quality issues for VoIP as a result primarily of latency.  That said, NVTL can gain early-adopter business from this architecture today, and then grow it dramatically once the WiMax and LTE versions become available during 2010.

 

There is a third development we can expect from NVTL’s MiFi device in 2010, and that is the transition from 802.11g to 802.11n.  In the past, 802.11n has meant unacceptable battery performance for mobile devices.  However, given new single-stream chips such as Atheros’ AligN 802.11n router chip, it is now possible to beef up the performance of the MiFi solution dramatically.  The range of the MiFi today is suggested to be 33 feet.  With 802.11n, even in single-stream configuration, both range and speed should increase dramatically.  The 802.11n speed increase also goes hand-in-hand with the greater capabilities of WiMax and LTE when compared to EVDO.

 

What is the greatest threat to the NVTL story in coming quarters and years?  Given that the market for this MiFi-type functionality should increase faster than almost any product category, the answer is pretty much only one: competition.  At its core, the basic functionality of converting a licensed spectrum wireless broadband signal to WiFi is not rocket science.  We should expect copycat devices not only from Huawei and Sierra Wireless, but also from the handset operators such as RIM, HTC and others as they incorporate this functionality in coming years.

 

In the long run, the largest part of this MiFi-functionality market will be an integral part of the smartphone hardware/software.  That said, in the meantime NVTL has managed to gain first-mover advantage with an unusually attractive and well-designed – indeed iconic – stand-alone product.  NVTL should be able to use WiMax, LTE and 802.11n to leverage itself into one of the fastest-growing companies of 2010 as mobile VoIP takes off.  With the shares now trading at a severe discount, it looks to me like this may be a superb investment proposition for the next 6-12 months.

LONG:  AAPL, RIMM, NVTL

Until you have seen the new Sony Vaio X laptop, you haven't seen anything at all. This just blows your mind away. It will be delivered to consumers November 20, and you can pre-order it from Sony now.

This laptop is the thinnest, lightest and most battery-efficient thing on record. When you pick it up, you're asking: Where is the battery? It's so light you have to be careful to not throw it up in the air by mistake. With the small battery, it's 1.6 lbs. With the bigger battery, I think it's 2 lbs or slightly more. The battery life is 2.5 hours with the small battery, and 12 hours with the big battery. And yes, both batteries are included, so for a long flight you're covered for 14.5 hours even without a power cord.

This is a 2 GHz Atom with 2 meg RAM and a 128 gig SSD. The color is "gold" which sounds bad, but doesn't look bad at all in reality. It's a pale gold bordering on silver, but at a minimum it just doesn't look bad at all. For connectivity, it has 802.11n by Atheros and Gigabit Ethernet -- an amazing feat on a device this thin.

The screen is 11.1 inches, which is a little smaller than my normal minimum acceptance of 12 inches. The keyboard is 17mm pitch, which is also smaller than a typical 12 inch laptop. Not ideal, but not terrible either -- compared to other ultra-light netbooks.

The device oozes quality. It seems strong as a rock, similar to the MacBook Air. Yet it weighs essentially half of the MacBook Air. It's not as rounded as the MacBook Air, but with these dimensions and weight, it still makes the MacBook Air seem like a total hog from ancient pre-history. The keyboard feels high-quality, despite being a shade too small.

The price is $1,500, or $300 less than the MacBook Air with a similar 128 gig SSD. As is typical of these prices, they don't include 3-year warranty ($200) and Microsoft Outlook/Office ($450).

The best competition I have seen against the Sony Vaio X are, at the low end: the MSI L2100, which has a 12 inch screen and sells for $400. No SSD or ultra-thin or ultra-light, but still as small as any comfortable laptop has been otherwise. The keyboard is very good. On the high end, the Toshiba R600 is nearly as thin and light as the Sony Vaio X for $3,500, but that includes an industry-first gigantic 512 gig SSD and a faster non-Atom Intel dual-core processor. The weight is 2.5 lbs, battery life 7.5 hours, and it includes a 3 year warranty -- had better be, at that price!

Bottom line: The Sony Vaio X is an outrageously compelling laptop, unlike anything else. It's so thin and light, that one feels transformed to a future science fiction world just by touching it and lifting it up. Some people may find it too small or lacking in CPU power to be a primary office computer, but for everyone else it is only a matter of whether they can spend $1,500 (or $2,150 equipped with 3 year warranty and Microsoft Office).

LONG: AAPL
SHORT: MSFT

Our government has settled on a new formula for regulating industry, and they are applying it to one industry after another.  While they haven’t yet made it to the restaurant business, at this pace we may not have to wait too many years for the following to happen:  Every restaurant is mandated to only offer food in the form of an all-you-can-eat buffet.  The government decides on what needs to be served on this buffet, at a minimum, in order to be compliant.  No restaurant is allowed to deny a customer service, and all customers must be charged the same price.  After all, eating is no longer one half of an exchange of private property, but a “right” entitling a consumer to his neighbor’s property.

 

What would happen to the restaurant industry if it were regulated this way?  300 lbs people would pay the same as 100 lbs dieting models, all while abusing the buffet’s contents.  The restaurant owner, unable to discriminate or restrict, would have to raise the uniform price to reflect the heaviest consumer, at which point the price becomes unacceptable to the lighter consumer.  Unable to reduce cost because of the requirement to provide a minimum level of content, the restaurant would under-invest in other areas such as kitchen and furniture; yet profitability would suffer despite the higher price.  Eventually the government steps in to limit the price restaurant charges for the buffet.  Cost then exceed revenue.  Bankruptcy follows.

 

Crazy, you may say.  Of course it is!  But now apply the mad scenario of the government-regulated lunch buffet to two other industries: Internet Service Providers (ISPs) such as AT&T and Verizon, and the health care industries, including insurance companies.  Let’s take these two industries in turn:

 

Internet Service Providers (ISP):  The drumbeat is on from the FCC and Congress to force companies such as AT&T and Verizon to “open” their pipes to positively anything that any user wants to do.  Think the streets of San Francisco, where lawlessness and filth have become rampant.  According last week’s AT&T management presentation at the CTIA in San Diego, 3% of its wireless users consume 40% of the bandwidth.  Unless AT&T can charge these people more – the more you eat, the more you pay – its economics will collapse under its own weight.  Casual users don’t want to pay for the investments necessary to keep a high level of service for those who use the most resources.

 

Charging people for usage can be a good thing, but for Internet bandwidth it can make for a tough consumer proposition.  Most people have no clue how much they just consumed by clicking on a web page.  I sure don’t.  As a half-measure and compromise, AT&T and Verizon want to “traffic-shape” the consumption by having computers monitor user behavior and throttle down extreme usage scenarios.  By doing so, they believe they can maintain flat-rate pricing for at least a bit longer, instead of having to charge per bit.  This attempt at establishing order between those who take advantage of the all-you-can-eat buffet, and those who just eat “normal” or even little, is at a bare minimum a property right of the service provider.

 

Under many so-called “Net Neutrality” proposals, the government would deem such a “traffic-shaped” consumer offer illegal.  You see where this is going: The government (FCC and Congress) passes a law proclaiming Internet-In-Your-Pocket a “right”, mandating a uniform level service that must be offered to all, and denied to none.  Telcos and ISPs are then forced to invest to meet the demands of high-intensity users paying the same low flat rate as my grandma.  Unable to raise prices, profitability falls, turns into losses, and bankruptcy follows.  In the end, the government takes over AT&T, Verizon and all the others, offering a taxpayer-subsidized one-size-fits-all Internet that brings us to the level of Cuba’s consumer welfare.  That’s the government-regulated lunch buffet applied to Internet service.

 

Then let’s apply the same principle to health care and related insurance.  States and soon the Federal government impose mandates as to what a health insurance policy must cover: Thousands of details for all sorts of procedures, dramatically driving up cost.  Because these are state rules, they almost automatically outlaw inter-state competition, in direct defiance of the commerce clause of the Constitution.  While all normal insurance companies – car insurance comes to mind – price customers individually based on perceived risk and past behavior, the government forces health care insurance to charge only one price for customers, whether they appear super-healthy or a likely multi-million dollar liability.  Put aside the emotion for a moment: As a businessman, would you ever knowingly agree to do business with a customer who you think is likely to lose you money?  Of course not.  That’s the fastest road to bankruptcy.  Yet that’s the essence of the health care “reform” now making itself through Congress.

 

In the old days of The Cold War, we used to define Communism and Socialism as ownership of the means of production – banks, car companies, etc.  The current plans to mandate a one-price lunch buffet for Internet access and health care insurance don’t directly confiscate the shares of the companies providing those services.  Rather, the government seeks to use regulation to smother rational economic behavior, forcing the inevitable bankruptcies, surely swiftly followed by a massive bailout of all of those companies.  Think Citibank, Chrysler and General Motors.

 

If there is a serious objective to maintain a free enterprise system, all efforts to regulate services and products must be rejected.  All price controls must be rejected.  And finally, the core principle at the heart of this country’s 220 year legacy – private property, which implies freedom of contract – must be vigorously defended.  With the government attacking the Internet service provider market and the health care industry market with mandates and price controls, the opposite is now happening.  If the US government now gets its way, profitability in these companies will be dealt a body blow, most certainly leading to lower stock prices on an inflation-adjusted basis.

Positions: none

Microsoft’s recent debacle with its Sidekick device is the ugliest user experience we may have ever seen in wireless.  The Sidekick device was the first one to backup and synchronize over the air (the “cloud”) to a central server starting already several years ago.  The company behind the device was acquired by Microsoft 18 months ago, and after that point the Sidekick platform fell behind the competition – Blackberry and iPhone to begin with, and more recently also Palm/WebOS and Google/Android.  Yet, the remaining Sidekick users appear to have lost all of their data as a result of Microsoft’s server failure.

 

What this saddest of technology sagas illustrates is that while cloud sync may be convenient, it is no replacement for making your own daily local backup on your own PC at home.  Supplement, yes – replacement, no.

 

What that in mind, how will the typical consumer fare if he migrates from a Sidekick device to a Google/Android device made by HTC, Motorola or Samsung, just to mention the manufacturers that will be in the market on T-Mobile and Sprint before Thanksgiving this year, according to their recent press releases?  In particular, consider the following use case: An average consumer has a Microsoft Vista PC using Microsoft Outlook for his calendar and contacts database, or the equivalent on the Apple platform.  He is not connected to an enterprise environment such as Microsoft Exchange.  He may or may not be fine with any form of cloud sync for reasons of security and/or reliability, but in any case he just wants to do a local backup on his own PC, presumably using a simple USB cable.

 

This is what every consumer Blackberry user on a Windows OS has been doing for over 5 years.  It works as simple as plugging in the cable and pressing “Synchronize” on the desktop utility.  It synchronizes and backs up.  You could have tens of thousands of calendar and contacts records, and it “just works” in a matter of a couple of minutes.

 

So does it work on Android phone?  As it turns out, in every case except one, it does not.  It fails this most basic requirement of security and reliability.  Let’s go through the devices one by one:

 

T-Mobile USA offers two Android devices today, with a third on the way in a matter days or weeks.  HTC makes the G1 and the MyTouch, and neither offers local sync to your non-Exchange Microsoft Outlook.  If you trust Google to sync over the air, or if you have Microsoft Exchange, you’re fine.  As far as Google’s cloud sync goes, how accurate is it for calendar and contacts?  Does it still work if you have many tens of thousands of entries?

 

Hitting the T-Mobile USA stores supposedly on November 2 is the Motorola Cliq, announced on September 10.  It works much the same way as the HTC devices, except it adds its own cloud sync software called MotoBlur.  I asked several Motorola representatives at last week’s CTIA (Cellular Telecommunications Industry Association) trade show in San Diego , where Motorola focused almost exclusively on this device, and the answer I received was that this service only handles 2,500 entries.  That makes it essentially useless certainly for me, and just about everyone I know.  In addition, they described a complicated procedure for uploading one’s contacts/calendar data from Outlook to the MotoBlur cloud service for the initial set-up.  What about getting this data out of the MotoBlur service if I change my mind and want to move to an iPhone on AT&T, PalmPre on Sprint or Blackberry on Verizon, I asked?  They told me once the data has been sucked into the MotoBlur service, I can’t get it out.  Ouch.

 

Samsung announced its first Android device for the US market, to be available on Sprint November 1.  I asked several Samsung reps at the CTIA event if it can sync locally with Microsoft Outlook, and they all told me that it can’t.  Basically, same story as with the two HTC devices currently offered by T-Mobile USA.  Fail, fail, fail, fail on all these four Android devices.

 

This brings us to the fifth and final Android device in the US market this month, having just become available on Sprint October 11 – the HTC Hero.  Guess what?  It actually comes bundled with software that accomplishes this vital task required by most consumers.

 

So there we have it:  4 out of these 5 current or imminent Android devices are unsuitable for the average US consumer who has a local PC contacts/calendar database such as Outlook, and wants to keep it that way.  Cloud sync has been showed to be potentially unreliable (to say the least) and may not even handle larger databases for those of us who have many thousands – or tens of thousands – of entries.

 

This should be an easy problem for companies such as HTC, Motorola and their current and future carrier partners to fix.  It doesn’t require a change to any device hardware, and doesn’t add any noticeable cost.  Let’s hope they see the light, or they will find themselves with many unhappy customers, poor reviews and a high return rate.

 

In the meantime, products such as the iPhone and Blackberry look very good in comparison – at least when it comes to this most basic and essential functionality.  I see a marketing slogan for one of these companies in the near future: “Security and Reliability.”

Long:  RIMM and GOOG
Short:  AAPL and MSFT

 We all have numerous good reasons to love our iPhone.  It revolutionized the handheld business with its AppStore and ease of use interface.  Apple will continue to gain ground, and further innovations to its iPhone product portfolio could accelerate its growth even further.  The synergies with the Mac computers and the Apple Stores themselves, are real and material.

 

The advantages of the iPhone are mostly immediately visible.  Its differentiating characteristics are extroverted, shouting them right into your face.  For the casual observer, these iPhone advantages are very compelling when comparing it to its main rival to date, the Blackberry.  However, Blackberry also has numerous advantages, almost all of whom are “behind the scenes” and therefore often beyond the comprehension or attention span of most consumers to fully analyze before a purchase decision is made.

 

One is tempted to draw a political analogy – the flamboyant candidate with the eloquent rhetoric, versus the “boring” candidate focusing on the substance of the intellectual argument.  The analogy fails in part as far as the iPhone is concerned, because its “superficial” advantages are real.  However, the analogy holds as far as the Blackberry is concerned, because its advantages require a more serious intellectual analysis by the consumer in order to be fully appreciated.  For this reason, it is possible that Research In Motion (RIMM) is underestimated as a force in the consumer market as well as the stock market.

 

Seeing as we already know the strong advantages of the iPhone, ranging from the class-leading AppStore to its beautiful and easy-to-use interface, it is about time that someone lists the advantages of the Blackberry when compared to the iPhone.  Below are the top 26:

 

1.       1. Blackberry can be used on almost every carrier in the world (over 475 of them).  In the US, the iPhone is available on AT&T only.

2.       2. Blackberry is available in five form factors – small keyboard, large keyboard, no keyboard, flip phone, and candy-bar.

3.       3. Most Blackberries have keyboards, so you can actually type fast and with no errors.  Helps while driving, walking, carrying something in your other hand – all the time.  iPhone: well…

4.       4. Blackberry uses standardized (=inexpensive and available everywhere in the world) MicroUSB connector for synchronization/charging.  iPhone has a much larger proprietary 30-pin connector.

5.       5. Some carriers such as Verizon and Sprint offer unlimited international Blackberry data roaming for $40/month or less.  iPhone does not.  This could save you literally tens of thousands of dollars when you are abroad.

6.       6. If your Blackberry is on T-Mobile USA, it also offers unlimited WiFi calling from anywhere in the world.  This is with your existing number – in and out – so no new special number, procedure, etc.  iPhone cannot do this (because it is only on AT&T; only T-Mobile USA offers this), and it can save you well over $100 per day when you’re abroad.  Think $1 per minute savings, and you’re on the phone two hours per day.  That’s $120/day.

7.       7. Blackberry has expandable memory.  iPhone is fixed and sold at 8, 16 or 32 gig only.

8.       8. Blackberry has removable and expandable battery.  iPhone is fixed.

9.       9. Blackberry allows programs to multitask.  iPhone has limited multitasking.

10.   10. The newest Blackberry screen resolution is 480x360.  iPhone is 480x320.

11.   11. Blackberry allows communicating peer-to-peer via PIN identifier, circumventing the email system.  No such iPhone equivalent.

12.   12. Skype on the Blackberry?  Yes, from anywhere to anywhere.  Skype on iPhone?  Only if you’re on WiFi.

13.   13. Sling on the Blackberry?  Yes, it’s free.  Sling on iPhone?  $30.

14.   14. Google Voice on the Blackberry?  Yes, it’s free.  Google Voice on iPhone?  Verboten.

15.   15. Blackberry can be synchronized to multiple computers simultaneously, if you have multiple computers.

16.   16. Multiple Blackberries can receive the same email feeds simultaneously, if you have multiple Blackberries.

17.   17. Blackberry can sort the address book entries by company name, so you can scroll down a long list of names you don’t remember, but you just want to see who works for which company.  Aside from sorting, the iPhone can take several seconds to search your address book, particularly if you have several thousand address book entries.

18.   18. Blackberry isn’t slowed down by having, say, 10,000 or 100,000 address book entries.  Try using an iPhone with 10,000 address book entries.

19.   19. All major instant messengers are available on Blackberry.

20.   20. Blackberry is available with multiple browsers from multiple suppliers.  iPhone is available only with its standard Safari browser.

21.   21. Blackberry synchronizes with iTunes – and every other media management program.

22.   22. Blackberry models with 480 pixel resolution and WiFi offer PrimeTime2Go, an $8/month TV service that works as a DVR.

23.   23. Blackberry fits as many emails in the inbox as there is memory available (typically many tens of thousands).  iPhone is limited to 200 emails.  Yes, iPhone has a remote look-up capability, but that doesn’t do you any good when you’re on an airplane or are otherwise out of coverage.

24.   24. Price:  Unlimited iPhone voice/data service, including unlimited SMS, is $150/month.  Blackberry can be had for much less.  For example, unlimited Blackberry service is offered on Sprint for $100/month, T-Mobile USA $125/month, MetroPCS $50/month, although AT&T/Verizon match the iPhone at $150/month.

25.   25. Prepaid “no contract” flexibility:  The AT&T web site says the iPhone is sold with a 2-year contract only, although once upon a time it offered a “contract-free” iPhone if you paid close to $899 up-front for the iPhone itself.  In contrast, you can get prepaid no-contract Blackberry service on any old or new T-Mobile USA Blackberry handset for $65/month (600 minutes, unlimited Blackberry/Internet, but no SMS), or you can get truly unlimited-everything prepaid $50/month service from MetroPCS, if its handset selection and coverage areas are acceptable to you.  That’s ONE THIRD the cost of the iPhone, and there is no contract.

26.   26. Blackberry is an encrypted military-grade security platform, with 100% market share at FBI, CIA, White House, Congress, Department of Defense, major consultancies and major investment banks.  In contrast, iPhone has security vulnerabilities.  Please see this document for details as to why the Blackberry is the only platform approved for use in our national security agencies.  It compares against the iPhone and Microsoft Mobile platforms:  http://web.mac.com/mardelibre/Lopez_Research/Research/Entries/2009/5/25_Mobile_security_files/Final%20Mobile%20Deployments%20Require%20Robust%20Security%20May%2009.pdf

 

Disclosures:  Long RIMM, AAPL and GOOG