Cisco Systems reported fiscal first-quarter earnings that beat expectations with good sequential growth, giving hope that the ailing economy is on the upswing.
The network equipment maker on Wednesday reported that fiscal first-quarter profits and revenue that were down from the same quarter a year ago but up from the previous quarter.
Cisco reported a quarterly profit of $1.8 billion, or 36 cents a share, compared with a profit of $2.2 billion, or 42 cents a share, for the same quarter a year ago. Revenue for the first fiscal quarter in 2009 was $9 billion, down from $10.3 billion during the same quarter a year prior.
Analysts had expected Cisco to report earnings of 31 cents a share on revenue of $8.75 billion, according to Thomson Reuters.
Even though revenue and earnings were lower than a year ago, Cisco grew revenue and earnings, compared to the previous quarter. In the fiscal fourth quarter, Cisco reported profits of $1.1 billion, or 19 cents a share. And it reported revenue of $8.5 billion.
Cisco CEO John Chambers commented on the company's strong sequential growth, saying the gains are a good indication that economy is in recovery.
"Building off what we saw as a clear tipping point in (the fourth quarter), our (first-quarter) results continued to reflect strong sequential growth trends that meet or exceed expectations during normal economic times," he said in a statement. "We view the improving economic outlook, combined with solid execution on our growth strategy, as creating unparalleled opportunity to drive more value into the core of the network."
The mobile handset market is set for recovery after the worst economic downturn since the Great Depression, according to Nokia, the world's largest maker of cell phones.
The cell phone market has been hit particularly hard by the worldwide economic slowdown. And companies such as Nokia and Sony Ericsson have taken a beating.
The second quarter of 2009 was particularly hard for Nokia. The company's earnings were ugly with a 25 percent drop in revenue, a 15 percent drop in handset shipments, and a more than 70 percent decline in operating profits, compared to the same quarter in 2008.
Sony Ericsson, which reported its second quarter earnings just hours before Nokia, also had a poor showing in the second quarter. The company posted a 213 million euro ($301.4 million) net loss for the second quarter, which was down from a profit of 6 million euro ($8.5 million) during the same quarter a year ago.
But for Nokia and Sony Ericsson there are glimmers of hope in their results. Sequentially, Nokia's revenue and profits improved slightly compared to the first quarter of this year. And Sony Ericsson posted a narrower net loss than analysts had forecast.
These bits of positive news are likely contributing to a growing sense that the worst of the recession may be over.
"Competition remains intense," said Nokia's CEO Olli-Pekka Kallasvuo. "But demand in the overall mobile device market appears to be bottoming out."
This is good news for an industry that some market research firms have predicted will see at least a 20 percent drop in product shipments for 2009 compared to 2008. Nokia admits that neither its company nor the industry as a whole is out of the woods just yet. It reiterated on Thursday that it expects the industry to shrink about 10 percent in 2009 compared to last year.
But news that Nokia, which sells about 40 percent of all handsets in the world, is seeing the light at the end of the tunnel is a major positive for the industry and the economy as a whole. Even though unemployment rates are still rising in the U.S. and abroad, there are other signs from the technology industry that consumers and businesses are starting to spend again.
Earlier this week, Dell said it's seeing demand for its products--PCs, services, servers--"stabilizing." And Intel released an upbeat outlook during for its second-quarter report on Tuesday. Intel's feel for the market is an important bellwether for the tech industry, and the chipmaker reported its best first-to-second-quarter growth in almost two decades. CEO Paul Otellini declared it a "clear expectation for a seasonally stronger second half."
These are all good signs that the economy is headed for recovery. But the climb back to robust growth could be a slow one. And there's no guarantee that a rising tide will lift all boats, especially in the mobile handset business.
Right now, the mobile handset market is going through a massive transition. Cell phones that were once used simply to make phone calls have evolved into jack-of-all-trade devices. Increasingly, cell phones are being used to provide Internet connectivity that allows people to use new forms of communication, such as social networking sites. Olli-Pekka acknowledged this trend during Nokia's second-quarter conference call with analysts and investors, noting that in the future more people will connect to the Internet via a cell phone than a computer.
"A new industry is emerging as the Internet and communications converge," he said. "And consumers will increasingly demand products that are more integrated."
Nokia has been at the forefront of developing devices that do just that. The company has led the market with its 3G wireless portfolio and it has led the market in terms of worldwide shipments with its smartphone devices, the N-series and E-series phones. On Thursday, it reported that some of these devices have been doing quite well worldwide. For example, it shipped 3.7 million 5800 series handsets during the quarter. And it also noted I has sold a total of 5 million units of its popular E71.
Smartphones are key
Smartphones in general are expected to lead growth in the industry as consumers look for more advanced features and easier access to the Internet and online applications.
But recently Nokia has lagged in terms of innovation here. Meanwhile, Apple is now viewed the leader in terms of innovation with its iconic iPhone. And other companies like as Research In Motion and Palm are also making advances with their own products. The new Google Android operating system, which will be on a whole slew of devices in the second half of 2009 and into 2010, is also expected to push the industry forward in terms of innovation.
Nokia and Sony Ericsson, each recognize that they need new products in the smartphone market to excite consumers. Sony Ericsson's flagship smartphone, Xperia, has so far not been particularly strong. But the company is working on other new products. And during a conference call with investors, Sony Ericsson Chief Executive Dick Komiyama said his company's new product portfolio should contribute to "healthier topline development" once shipments start later in 2009.
Nokia's Olli-Pekka also noted that the company plans to increase its focus on developing more advanced phones.
"The line between handsets and PC will not exist in the future," he said. "And our ambition is to become the leading provider for these integrated mobile devices."
But Olli Pekka also emphasized the need to address the low and mid-range of the mobile market as well. And he emphasized the need for Internet connectivity and sophisticated technology in these devices as well.
"As we have said before, one size doesn't fit all," he said. "Nokia will continue to address all price points and all markets globally."
This is exactly the market that INQ Mobile, a new handset maker backed by Hutchison Whampoaa, is addressing. Smartphones may offer more growth, but basic Java-based feature phones still make up the bulk of the market. Today about 40 percent of the cell phone market is made up of phones that operators buy for between $36 and $99, according to Strategy Analytics. These are typically basic feature phones. Smartphones, which sell to carriers for more than $300 a pop, make up about 17.8 percent of the market currently, says Strategy Analytics.
In terms of market share, these figures are not expected to change much over the next few years. Mass market devices, which are in the mid-tier in terms of pricing, will continue to make up about 40 percent of the overall cell phone market well into 2014, the firm has said. But this doesn't mean that the average consumer will settle for me-too low-functioning devices. They are increasingly demanding more advanced functionality in lower-priced devices.
"The market is going through a huge seismic shift right now," said Frank Meehan, CEO of INQ Mobile. "People want more functionality in their phones, even the less expensive phones. They are demanding a good user interface. And they're refusing to put up with a bad Internet experience."
Meehan believes that this market has been largely overlooked by the major cell phone manufacturers, which have done a poor job integrating Internet-based applications and social networking into their devices. His company is trying to address this void with new, inexpensive devices that make it easier to access Internet based applications like Facebook with a single click.
The challenge for companies such as Nokia and Sony Ericsson over the next couple of years as the industry moves out of the recession and toward Internet-enabled devices is to address the high-end of the market as well as the low and mid-tier of the market. For these companies it will require a balance between controlling costs and adding innovative new features. As Nokia's Olli-Pekka pointed out during the conference call, the winners in this new era in the cell phone market aren't apparent yet. But he is confident that Nokia can rise to the occasion.
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The Apple iPhone and other smartphones hitting the market are cool, but if you don't have a spare $200 in your wallet, and you can't afford the hefty monthly service fees, there are less expensive options that still offer some of the wireless Web at a much more affordable price tag.
These alternative phones may not be as sexy as the iPhone or the new Palm Pre. And the Internet service and applications will not be as slick as what you'll find on a full-fledged smartphone. But for many wireless subscribers, less expensive feature-phones and cheaper data plans will offer enough to do the trick.
There is no denying that smartphones are the future of the wireless industry. As a category, smartphones are the fastest growing segment of the entire market. And new devices hitting the market this summer are selling fast. Last month, Apple and AT&T sold over a million new iPhone 3GS models in the first weekend it was available. People also lined up throughout the country to be the first to buy the Palm Pre sold exclusively by Sprint Nextel. And hype is already building around the new Google Android phone, called the MyTouch, which is set to launch on T-Mobile's network early next month.
These devices are made for the Internet, and developers are creating lots of cool new applications to take advantage of loads of advanced features. But all these features and speedy access to the mobile Web come with a hefty price tag. And as the economy in the U.S. languishes and more Americans lose their jobs, more consumers may find themselves unable or unwilling to shell out the extra cash every month for a smartphone service.
For many wireless subscribers, the functionality they get on a smartphone is simply overkill. And as a result, they are overpaying for services they don't really need or even use. For these consumers, who are mostly interested in checking e-mail, updating Facebook and Twitter, looking up a few things on the mobile Web, and occasionally using location-based services, there are plenty of less expensive options.
At the low-end of the market, there are several feature phones that with a two-year service contract, rebates, and online discounts cost less than $30. And these devices are just fine for accessing basic Web e-mail and Web sites like Facebook. For a little bit more money upfront, wireless subscribers can get slightly more advanced devices with assisted-GPS for navigation and location-based services, corporate e-mail access, and integrated applications for social networking sites like Facebook.
While these phones are often much cheaper than the latest smartphones on the market, the other big benefit is that the data service plans to access all these mobile Web goodies are cheaper, too. Wireless subscribers on average can save about $15 a month using a more basic feature phone for accessing mobile e-mail and the Internet rather than using a full-fledged smartphone. This is a savings of about $360 over the life of a two-year contract.
To help readers figure out which phone and carrier service plan fits their needs best, here is a summary of some of the hottest phones on each of the four major U.S. carrier networks with a summary of the service plans that are offered for these devices. For full reviews of each of the phones listed in the article, check out CNET Reviews.
*** AT&T ***
Motorola Karma QA1 - $79 with 2-year contract
Motorola Karma QA1
(Credit: CNET)Motorola Karma QA1 CNET review
The Karma is a new 3G phone that offers text messaging, instant messaging, and home screen access to Facebook and MySpace. It has a slide-out QWERTY keyboard, and high-resolution display. Other features include assisted-GPS, a 2.0-megapixel camera, an MP3 player, stereo Bluetooth, a 3.5-mm headset jack, a microSD card slot capable of holding up to 16GB cards, and quad-band GSM.
LG Neon - $30 with 2-year contract
LG Neon
(Credit: CNET)The Neon is one of the lowest-cost touch-screen devices available. It also features a full QWERTY keyboard, a 2.0 megapixel camera, and access to instant messaging (AIM, Windows Live Messenger, and Yahoo Messenger), mobile e-mail, AT&T music, and the mobile Internet. While there is mobile e-mail support it only supports a few service providers, including AOL, Yahoo, AIM, Windows Live Hotmail, AT&T Yahoo, Bellsouth, Comcast, Earthlink, Juno, Mindspring, and NetZero. Gmail is not accessible because the phone doesn't support POP or IMAP. It is also not a 3G phone.
LG Xenon - $99.99 with 2-year contract and rebates
LG Xenon
(Credit: CNET)Xenon has a full QWERTY keypad for text messaging beneath a large touch-screen display. This 3G device has a 2.0 megapixel camera and offers the full suite of AT&T entertainment services. It's one of AT&T's best-selling devices and is available in three colors.
It also has more advanced features, such as stereo Bluetooth, instant messaging (with AIM, Yahoo, and Windows Live accounts), mobile e-mail, and assisted-GPS. The mobile e-mail is housed within a Web-based interface and will only support e-mail from certain accounts like Yahoo, AOL, AIM, Windows Live Hotmail, AT&T Yahoo, BellSouth, Comcast, Earthlink, Juno, Mindspring, and NetZero. We weren't able to use Gmail, especially since the Xenon doesn't support POP or IMAP. As for A-GPS, the Xenon comes with AT&T Navigator, AT&T's turn-by-turn location-based service.
Similar phones from AT&T: (Listed pricing is for phones with a two-year service contract and also reflects the price after any rebates or special Web offers.
Samsung Magnet: $19.99; Pantech Matrix: $29.99; Samsung Propel: $30; Samsung Impression: $149.99
Service plans: AT&T offers a series of voice minute packages starting at $39.99 for 450 minutes of talk time that must be used with all its phones. From there, customers can layer on additional services, such as text messaging or data. For text messaging, AT&T offers bundles of other services. For $5 extra a month, subscribers get 200 text and picture messages . For $15 a month, they get 1,500 messages. And for $20 extra a month, they get unlimited texting.
The plans differ when it comes to data. Smartphone subscribers must subscribe to a $30 unlimited data plan in addition to a voice plan and any texting plan they may choose. Feature-phone customers are charged $15 a month for unlimited e-mail and mobile Web access if they choose this option. It is not mandatory. AT&T also offers a special discount for a combined data and unlimited messaging package that is $30 extra per month.
The bottom line: AT&T subscribers who want access to Web-based personal e-mail and Internet Web sites, like Facebook, can get a good bargain with a low-cost feature phone. At a minimum they can save $15 a month using a non-smartphone data plan versus the data plans that come with smartphones, such as Apple's iPhone and RIM's BlackBerry devices.
*** Verizon Wireless ***
Samsung Alias - $19.99 with 2-year contract and online discount
Samsung Alias
(Credit: CNET)The Samsung SCH-u740 has a dual-flip hinge that lets users view the display in either portrait or landscape mode. It has a QWERTY keyboard, access to Verizon's V Cast offerings, and a full array of multimedia goodies. Other basic features include a vibrate mode, text and multimedia messaging, instant messaging (AOL, MSN, and Yahoo messengers are supported), POP3 and IMAP e-mail support, and corporate e-mail syncing using Web-based Microsoft Exchange and Lotus Domino services. And it comes with a wireless WAP browser for stripped-down versions of Web sites for mobile devices.
LG enV2 - $49.99 with 2-year contract and online discount
LG enV2
(Credit: CNET)The LG enV2 is a slim handset with a full QWERTY keypad that flips up and has two displays. It supports instant messaging, Web browsing using a WAP browser, access to Web e-mail, USB mass storage, wireless syncing, and a text-to-speech feature. It also has a music player with access to Verizon's VCast music service. The music player supports MP3, WMA, and unprotected AAC and AAC+ files. Other Verizon applications are also available, such as VZ Navigator, Verizon's own location-based turn-by-turn navigation service. The enV2 comes with 63MB of built-in memory, but you can always get more storage via a microSD card.
LG Dare - $79.99 with 2-year contract and online discount
LG Dare
(Credit: CNET)The LG Dare has touch-screen interface, an advanced 3.2-megapixel camera, a full HTML browser, and operates on Verizon's 3G EV-DO Rev. A network. The Dare has all the standard features you'd expect on a phone. And also comes with some advanced features, such as full Bluetooth support with stereo A2DP, the capability to use the phone as a modem, and file transfer. It also supports mobile e-mail, mobile instant messaging, a USB mass storage mode, voice command and voice dialing, voice recording, and GPS functionality via Verizon's VZ Navigator service. Mobile e-mail is restricted to popular Web mail services such as Hotmail, Yahoo, and AOL, so it's not nearly as robust as using a smartphone.
It also has a full HTML browser, which is an important distinction since many phones in this category are only WAP-enabled, which presents stripped down mobile versions of Web sites on mobile devices. The phone can also be rotated to display the browser in landscape mode, which makes entering URLs a lot easier via the virtual QWERTY keyboard. However, CNET reviewer Nicole Lee notes in her review that the browser experience is not as clean as the Safari browser on the iPhone.
Similar phones from Verizon Wireless: (Listed pricing is for phones with a two-year service contract and also reflects the price after any rebates or special Web offers.
Verizon Wireless Blitz: $19.99; Motorola Rival: $49.99; Samsung Glyde: $69.99; Motorola Krave ZN4: $69.99; LG Voyager: $79.99; LG enV3: $79.99; LG Versa: $99.99; LG enV Touch: $99.99; Samsung Alias 2: $149.99
Service plans: Verizon Wireless offers a variety of options for consumers who want to use data services. But all these choices can be confusing. Here is a general summary that should help steer prospective consumers in the right direction.
For basic service, Verizon allows subscribers to sign up for services a la carte. So a subscriber could start with a voice plan, which begins at $39.99 per month for 450 minutes of talk time. From there subscribers can layer on additional services. Text-messaging services can be added in different increments. For $5 more a month, subscribers get 250 messages. For $10 a month, they can get 500 messages. For $15 a month they can get 1,500 messages and $20 gets them 5,000 messages per month. All messages sent to other Verizon subscribers are free and not counted against these totals.
Then subscribers can either choose to pay $1.99 per megabyte of data used per month when surfing the mobile Net or checking e-mail, or they can sign up for a VPak data plan that includes video clips, sports highlights, news updates and unlimited e-mail and Mobile Web usage. This package is $15 a month.
If subscribers want unlimited messaging, e-mail and data, they can sign up for either a Nationwide Connect Plan, that starts at $69.99 a month for 450 voice minutes, unlimited e-mail and data, and unlimited messaging, or they can sign up for a Nationwide Premium Plan that begins at $79.99 per month for 450 voice minutes, unlimited messaging, Mobile email, VZ Navigator and the V CAST VPak, which includes access to Verizon's entertainment video.
Meanwhile, smartphone subscribers can also sign up a la carte for services. Voice and text messaging is the same. But data services are $29.99 for unlimited Web usage and e-mail. For corporate BlackBerry users the price tag for this service is $44.99 per month.
The bottom line: Verizon Wireless subscribers who want access to Web-based personal e-mail and Internet Web sites, like Facebook, can save at least $15 using a data plan for non-smartphones. But with some smartphones priced at around $50 with a two-year contract, the price difference over the life of the contract might not matter to some subscribers.
*** Sprint Nextel ***
SCP-2700 by Sanyo - Free with 2-year contract and Web purchase
Sanyo SCP-2700
(Credit: CNET)The Sanyo SCP-2700 is a slim and lightweight phone with a full QWERTY keypad that makes it look like a lower-end version of a BlackBerry. It offers POP 3 e-mail from providers like Sprint's own PCS Mail, AOL, Hotmail, Yahoo, and Gmail. It also supports Web-based work e-mail using Outlook Web Access.
LG Rumor2 - $29.99 with 2-year contract, rebates, and Web purchase
LG Rumor
(Credit: CNET)The LG Rumor2 has a full QWERTY keypad and offers access to POP3 e-mail, such as AOL, AIM, Hotmail, Yahoo, and Gmail. It also offers access to work e-mail for subscribers using Web-based Outlook and Lotus Notes. And it includes some basic features, like text and multimedia messaging, an alarm clock, a calendar, a calculator, a voice recorder, voice dialing, wireless phone book backup, a unit converter, and a notepad. It also supports PC syncing, USB mass storage, a memory card manager, GPS with support for Sprint Navigation, Sprint's Family Locater service, stereo Bluetooth, and instant messaging.
Samsung Instinct - $49.99 with 2-year contract, rebates, and Web purchase
Samsung Instinct
(Credit: CNET)The Samsung Instinct is a touch-screen 3G wireless device with POP3 e-mail from AOL, AIM, Hotmail, Yahoo, and Gmail. It also supports corporate e-mail via Outlook Web Access. When it first launched, it was compared to the Apple iPhone. While it's not quite a smartphone, it offers some compelling features, like its own brand of visual voice mail. It offers several organizational tools and voice command for dialing and searching contacts or places and things on the mobile Web. For example, simply speaking the name of a business or even the type of business (like "pizza"), it will use the phone's GPS connection to search your surrounding location for a match. It then offers a map and directions to the business, which can be shared with a friend via a message, or it can dial the number to the location. The phone also supports a full HTML browser.
Similar phones from Sprint Nextel: (Listed pricing is for phones with a two-year service contract and also reflects the price after any rebates or special Web offers.
LG Rumor: $29.99; Palm Centro: $49.99 LG Lotus: $49.99; Samsung Rant: $49.99; Samsung Exclaim: $79.99; Palm Treo 755p: $99.99; Samsung Instinct s30: $129.99; HTC Snap: $149.99
Service plans: Sprint has greatly simplified its pricing. But simple doesn't necessarily mean cheaper. In fact, the service plans offered for Web-enabled and e-mail friendly feature-phones are exactly the same as for its smartphones.
Sprint's Everything Data plans start at $69.99 and include 450 minutes of talk time plus unlimited Web surfing, e-mail, BlackBerry Internet Services, GPS Navigation, and a series of entertainment services, such as Music Premier, TV Premier, and NFL Mobile Live. It also offers unlimited Direct Connect walkie-talkie service for phones that are capable of that. And it includes unlimited text, picture, and video messaging.
The $89.99 per month offers all this with 900 minutes of talk time. And the $99.99 Simply Everything plan includes unlimited voice minutes in addition to these other services.
The bottom line: There is no discount for customers subscribing to a feature phone instead of a smartphone, but feature phones can provide savings in the upfront cost of buying a new phone. So for consumers who don't feel like shelling out $200 for a Palm Pre or a BlackBerry, they can get a device with similar functionality for $50 or less.
*** T-Mobile USA ***
Samsung Gravity - $30 with 2-year contract and rebates
Samsung Gravity
(Credit: CNET)The Samsung Gravity is a thick candy-bar-style phone with a slide-out QWERTY keyboard. Features are on the lower end, with a 1.3-megapixel camera, stereo Bluetooth, a basic music player, and not much else. But its keyboard design is great for typing out text messages, and its affordable price makes this a great texting phone for the budget-minded. It also supports instant messaging for all the major IM services (AIM, ICQ, Windows Live, Yahoo), and e-mail from AOL, Yahoo, Comcast, Gmail, Mac, Verizon, and more. More advanced users will like the stereo Bluetooth, voice command, and the wireless Web browser.
T-Mobile Shadow - $149.99 with 2-year contract and rebates
T-Mobile Shadow
(Credit: CNET)The T-Mobile Shadow is considered an entry-level smartphone that uses the Windows Mobile operating system. It comes in a sleek slider design. And it features Bluetooth and Wi-Fi; a 2-megapixel camera; and various messaging capabilities. Positioned somewhere between the T-Mobile Sidekick family and the T-Mobile Dash, the Shadow (made by HTC) is for customers looking to make the jump from a regular cell phone to a more full-featured handset that can keep up with their social and professional lives without being too serious, according to CNET reviewer Bonnie Cha. Since the phone was introduced before T-Mobile had its 3G up and running, the device runs on the slower EDGE network.
The Shadow supports POP3 and IMAP e-mail accounts. And T-Mobile has included separate wizards for all the popular e-mail clients, including AOL, Gmail, Windows Live, and Yahoo. Since the device is a Windows Mobile 6 smartphone, it also ships with Microsoft's Direct Push technology out of the box so you can get real-time e-mail delivery and automatic synchronization with your Outlook e-mail, calendar, tasks, and contacts via Exchange Server. It also supports instant messaging clients from AOL, ICQ, Yahoo, and Windows Live Messenger apps.
But the real beauty of this phone is that even though it's technically a smartphone, it doesn't require the $34.99 smartphone data plan, and is able to use a much less expensive plan from T-Mobile.
Similar phones from T-Mobile USA: (Listed pricing is for phones with a two-year service contract and also reflects the price after any rebates or special Web offers.
Samsung Memoir: $199.99, MOTOZINE ZN5 $99.99
Service plans: T-Mobile offers its myFaves program that allows unlimited calling to five phone numbers on any network. Its basic service plan, that includes the myFaves option, starts at $39.99 for 300 minutes. Subscribers can then add additional data and messaging services. For non-smartphone/non-Sidekick devices and the T-Mobile Shadow, subscribers can get unlimited Web access, which includes personal e-mail for $9.99 per month. A bundle that includes unlimited Web and domestic MMS and SMS messaging is $19.95 per month. If subscribers want smaller packages of texting service it's $4.99 for 300 message and $14.99 unlimited messaging.
For most of its smartphones and Sidekicks, T-Mobile requires a basic voice plan. The data plans it offers for these devices cost $24.99 for unlimited Web usage and e-mail and $34.99 unlimited data with unlimited messaging.
The bottom line: T-Mobile offers some of the best deals on data services and voice services with its myFaves program. For consumers willing to spend $150, the Shadow is a good entry-level smartphone that won't take a big bite out of your wallet. But even the smartphone data pricing coupled with the myFaves voice plans is a good value when compared to the competition. The downside for T-Mobile is its coverage. The carrier doesn't have nearly the coverage that AT&T, Verizon Wireless, or even Sprint Nextel has. And its 3G network is not yet complete.
Net neutrality advocates got a boost of support Wednesday from the Obama administration when it released grant guidelines for spending the government's $7.2 billion broadband stimulus package.
Companies winning grants to help build new broadband infrastructure will have to follow the Federal Communications Commission's Internet Policy statement, which prohibits companies from deliberately blocking or slowing Internet traffic on their networks.
Proponents of that concept, Net neutrality, have been pushing the government to pass laws or set stricter requirements to ensure that consumers get access to content they want and that competitors are not run out of business by network operators.
The phone companies and cable operators have opposed such legislation, a sentiment that seemed to be shared by the Republican-controlled FCC under the previous presidential administration. But now that Democrats are in charge, Net neutrality advocates have been looking for indications of how the new FCC led by recently sworn-in Chairman Julius Genachowski will handle the issue.
It is still too early to know whether Democrats will push for new laws. But it's becoming more clear that protecting access on the Internet is an important issue to many.
Consumer and advocacy groups, such as Public Knowledge and Free Press, applauded the decision to make Net neutrality a condition of the grants.
The Obama administration released guidelines Wednesday for companies and other groups applying for the first of three batches of grants that will be distributed to promote broadband as part of the economic stimulus package passed by Congress earlier this year.
The first batch of funds is about $4 billion and represents more than half the $7.2 billion that the government has allotted to fund broadband infrastructure investment over the next two years. About $4.7 billion of that money will be doled out by the National Telecommunications and Information Administration for grants to build broadband infrastructure in unserved or underserved areas and to further develop public safety as well as stimulate demand for broadband. The remaining $2.5 billion will be allocated by the Department of Agriculture (USDA) to provide loans to service providers building broadband infrastructure in rural areas.
Other important aspects of the rules that came out this week include the government's definition of broadband. The rules for the grants define broadband transmission speeds to be no less than 768Kbps downstream and at least 200Kbps upstream to end users. These speeds hardly seem like broadband to most consumers used to cable model services and other high-speed Internet services like Verizon's Fios service.
But the lower speed definition is to ensure that companies addressing rural markets that may only be able to be served by slower DSL connections or wireless services can still receive grants. In an effort to promote higher speed services, however, the government will give preference to companies planning to deliver high-speed services.
The government also outlined what it means when referring to an "underserved" region. Areas where less than 50 percent of households have no access to broadband will be considered underserved and eligible for grants.
More specific rules to help companies write grant proposals for getting these funds will be released next week.
Worldwide cell phone sales fell in the first quarter of this year, but smartphones continued to grow, despite a deepening recession, according to a report published by Gartner Wednesday.
The news shouldn't come as a big shock. Cell phone manufacturers, such as Nokia, had reported disastrous earnings for the first quarter. But the growth in smartphone sales, which were up 12.7 percent compared to the first quarter of 2008, provides some hope for the industry.
Touchscreen devices seem to be leading the pack in terms of device growth, with Apple's iPhone 3G doubling its market share in the first quarter compared to the first quarter last year. Apple shipped 3.9 million iPhones for a market share of 10.8 percent.
In terms of the overall cell phone market, manufacturers sold about 269 million cell phones, which was about 14.5 percent fewer than were sold during the fourth quarter of 2008 and about 9.4 percent lower compared to the same quarter last year.
Nokia continued in the lead with about 36 percent of the market, a 3 percent dip from the same quarter last year. Samsung's sales grew and it is now the second largest cell phone maker with 19.1 percent of the market. This is up from 14.4 percent during the first quarter last year. LG, Motorola, and Sony Ericsson make up the rest of the top five cell phone makers.
While Apple saw the largest amount of growth on the smartphone side, Nokia managed to hold onto to its position as the world's largest manufacturer of smartphones. The company has 41.2 percent of the smartphone market. But its marketshare has been slipping. At the end of 2008, the company had 45.1 percent of the market. Aside from Apple, Research In Motion also had a big quarter. Its BlackBerry devices made up nearly 20 percent of all smartphone sales in the quarter.
The boost in smartphone sales is particularly good news for companies like Palm, which is banking on the success of upcoming Palm Pre. The phone, which goes on sale June 6, will initially be sold exclusively on Sprint's network. The device was announced in January at the Consumer Electronics Show in Las Vegas and has been hyped ever since. Sprint's CEO Dan Hesse said this week he expects shortages when the device goes on sale in a couple of weeks.
Even though smartphones sales continue to grow, they still only make up about 13.5 percent of total mobile devices sales. This figure is up from 11 percent a year ago, but it still represents a small portion of the overall cell phone market.
The fact that the smartphone market is growing at all during the current recession says a lot about the pent up demand for higher functioning devices. But hefty service fees could derail growth if the economy doesn't pick up or people lose their jobs.
However, there are signs the market is stabilizing. Mark McKechnie, an analyst with Broadpoint AmTech, published a research note earlier this week stating that early indications suggest that Nokia's sales could be up slightly up in terms of total units for the second quarter. Still, even though the market looks like it might be stabilizing, most analysts don't see a recovery until well into 2010. Until then companies will be crossing their fingers that consumers' love affair with smartphones continues.
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Correction: Virgin Mobile began selling its $50 unlimited plan in April after the first quarter had ended.
Competition in the prepaid cell phone market is heating up, making it more difficult for companies, like Virgin Mobile USA, to hold onto subscribers in an increasingly crowded market.
Virgin Mobile USA, a longtime player in the prepaid cell phone market, reported Monday it had lost a total of 133,292 net customers during the quarter to end the period with 5.2 million subscribers. Even though subscribers were up 2.8 percent compared with last year, the company's losses during the quarter point to growing competition in the prepaid market.
The market appears to be especially competitive when it comes to flat-rate, contract-free wireless services. Regional players Leap Wireless International and MetroPCS, which have long offered cheap flat-rate services, reported strong subscriber growth during the first quarter, as they each expanded into new markets. And Sprint Nextel's Boost Mobile, which began offering its $50 unlimited plan in January, also added about 764,000 new subscribers in the first quarter.
Virgin Mobile, which had been successful in the past selling pay-as-you-go service in the U.S. market, lowered the price of its all-you-can-eat plan in April to $50 a month, as well. The company also launched the Pink Slip Protection program, which offers customers who have lost their jobs free service for three months.
Virgin Mobile has managed to improve its churn rate, or the rate at which subscribers leave its service. The company reported that its churn fell to 4.8 percent from 5.1 percent during the same period a year ago.
The company sees the $50 flat-rate plans and other "hybrid" plans, which offer a set number of minutes at a standard price without a contract, as its growth engine for the future. Chief Executive Dan Schulman said that 55 percent of the gross customer additions during the quarter came from "hybrid" plans, according to the Wall Street Journal.
This makes sense given that consumers say they are considering prepaid cell phone services as a way to reduce costs and avoid lengthy carrier contracts.
If you were wondering how bad things have gotten for the mobile handset market, just take a look at Nokia, the world's largest maker of cell phones.
The company on Thursday reported a 90 percent fall in first-quarter net profits as the global recession took a big bite out of demand for mobile devices.
For the first quarter, which ended March 31, Nokia said that net profits fell to 122 million euros ($161.3 million). A year earlier the company reported net profits of 1.22 billion euros. Analysts had expected the company to report net profits of about 306 million euros.
The company's sales fell to 9.27 billion euros from 12.66 billion euros last year. This was also below analyst expectations, which were counting on sales of around 9.80 billion euros.
The first quarter was hard on profits for Nokia, but the company found some cheer in sales of its touch-screen 5800 XpressMusic device.
(Credit: Nokia)Nokia said that it shipped about 93.2 million handsets during the quarter, a decline of 19 percent from a year earlier and down roughly 18 percent compared to the fourth quarter.
"The inventory already in the sales channels decreased substantially during Q1 due to extensive destocking by operators and distributors," Nokia Chief Executive Olli-Pekka Kallasvuo said in a statement. "This adversely impacted our sales volumes in the quarter. However, it has also resulted in the demand picture becoming more predictable as we enter the second quarter."
The company reiterated that it expects sales to fall at least 10 percent this year based on 2008 levels. But much of the decline is expected in the first half of the year. The company said that it expects sales volumes in the second quarter to be flat or slightly up from what it saw in the first quarter.
The company also said that it has held its 37 percent market share, which it had predicted in January. But pricing on individual handsets fell to 65 euros from 71 euros during the previous quarter.
The sharp decline in sales and net profit is a direct result of the financial meltdown that has plagued the world market over the past two quarters. And as the economy begins to recover, Nokia's fall is likely to bottom out, too.
But now the company has other problems. While it has managed to hold onto its overall market share, the company is still losing ground at the high end of the market to companies such as Apple, with its iPhone, and Research In Motion, with the BlackBerry. And competition is only expected to intensify as others, like Palm, enter the market with new devices.
That said, Nokia says it is seeing great success with its "budget smartphone," the touch-screen 5800 XpressMusic. The company claims it shipped 2.6 million units during the first quarter. The device has a touchscreen and is specifically designed as a music player.
Virgin Mobile USA is offering laidoff consumers a little relief in this tough economy.
The cell phone operator is offering a "Pink Slip Protection" program that essentially picks up the tab for three months of service for customers who have lost their jobs. To qualify for the three free months of service, users must subscribe to one of the company's monthly service plans, which cost $29.99, $39.99, and $49.99. New subscribers will be automatically enrolled in the program and existing customers can also enroll for the program.
Virgin said it will pay bills up to $90 a month, including taxes and surcharges. Subscribers must have the Virgin monthly service for two months before they are eligible for the benefit. To qualify and verify that subscribers are indeed laid off, Virgin is requiring that users show proof of state unemployment benefits.
Virgin is a low-cost cell phone provider that actually uses Sprint Nextel's network to resell wireless minutes.
The recent economic downturn is proving to be a boon for low-cost service providers, like Virgin Mobile. Many consumers looking to cut their monthly cell phone bills have been turning to prepaid wireless providers. And companies like Cricket, MetroPCS, Virgin Mobile, and Sprint's Boost Mobile have seen an increase in the number of new subscribers.
These low-cost providers have been offering cheaper plans to try to attract cost-conscious customers. Boost Mobile recently introduced a $50 all-you-can-eat monthly plan that offers unlimited voice, data, text messaging, and wireless Web access.
LAS VEGAS--Wireless industry executives at the CTIA Wireless 2009 trade show here say that despite the economic meltdown, the cell phone industry remains strong. And they're confident that it will be a driving force in pulling the nation out of the current financial crisis.
Verizon CEO Ivan Seidenberg
(Credit: Marguerite Reardon/CNET )Verizon Communications CEO Ivan Seidenberg and Robert Dotson, CEO of T-Mobile USA, which is owned by Deutsche Telekom, took the stage on Wednesday, the opening day of the trade show, with a similar message.
These executives said that despite the economic troubles facing the nation and the world, the wireless market is thriving and innovation is flourishing. They also agreed that as the nation moves through the current crisis that the wireless industry could play a significant role in the economic recovery of the country. But they also warned that reluctant investors and overzealous regulators could stunt its potential and harm the recovery.
"I do not mean to minimize the challenges we face--as an industry or a country--as we try to get our economy going again," Seidenberg said during his speech. "But wireless innovation has been a foundation of our country's prosperity for the last 25 years, and I'm confident that this great and vibrant industry will continue to be a leader as we put our economy back on the path to growth."
Indeed, Seidenberg went so far as to say that the rest of the economy could take a lesson from the wireless industry. Instead of companies and investors pulling back and hoarding their money as they've done thus far, he said that businesses should be continuing to invest.
"I wish everybody in America could taste the wireless special sauce," he said. "It seems the rest of the country has forgotten how to grow, but the mobile industry keeps reminding us."
Seidenberg emphasized that the way the communications industry has done this is by investing in building new infrastructure. Verizon Communications, which has a majority stake in Verizon Wireless, has already begun spending billions of dollars to lay new fiber for its fiber-to-the-home broadband service known as Fios.
And now it plans to invest in improving its wireless network. The company is about to embark on another major infrastructure project to build a new 4G wireless broadband network. The wireless operator announced its network suppliers and strategy for building the network in February at the GSMA Mobile World Congress in Barcelona, Spain. It plans to start testing the network this year, and it will have 4G wireless deployed in 25 to 30 markets by the end of 2010.
"Our country can't afford to slow down growth and momentum," Seidenberg said.
Even though Seidenberg emphasized the need for investment, he tried to quell worries that the company is over-spending. During a press conference after his speech, he insisted the investments the company is making to build its 4G network are not much more than what the company was already spending to upgrade and maintain its existing 3G network.
"It's not that expensive," he said. While he wouldn't get specific about the company's spending plans for the new network, he said the overall budget would not be increased too much. Instead, he said that spending would shift from the current network, known as EV-DO, to the new network.
Dotson, T-Mobile USA's CEO, had the same message during his keynote speech. Dotson said that the wireless industry must be the driving force to get the economy moving again. And he urged the financial community to open its wallets to keep innovation moving. He also warned the new presidential administration to not over-regulate the industry.
T-Mobile USA CEO Robert Dotson
(Credit: Marguerite Reardon/CNET )"Now more than ever we must make certain that financial fuel flows to the wireless innovators, entrepreneurs and the garage geniuses, who will drive the next economic business cycle," he said during his speech. "In these times of needed financial regulation, we should be united to ensure the light regulatory touch that has successfully guided this highly innovative and vibrant industry for the past 26 years continues."
Seidenberg added that the government should reduce taxes on wireless services. And he called for a five-year moratorium on adding new taxes to wireless services so that the industry can work with local and state authorities . He said that from 2003 to 2007, taxes on wireless services rose four times faster than taxes on other goods and services. And he said that in some states taxation on cell phone service is over 15 percent.
"All of us understand the pressures that policymakers face in an era of big deficits and slow growth," he said during his speech. "But we need to be very careful that government does not to try to fix short-term needs at the expense of long-term growth, which happens every time it raises taxes or imposes new regulations."
Still, the wireless industry is facing its own troubles. Handset manufacturers, in particular, are hurting. Nokia, the world's largest maker of cell phones, has drastically reduced expectations for 2009 and has already begun laying off workers and shutting down production facilities. Motorola, which was already on shaky ground, is also suffering, as are other manufacturers such as Samsung and LG.
But the operators themselves have actually fared much better. AT&T has laid off some employees and Verizon has admitted that it is shedding workers who have worked on its traditional landline businesses. But these companies saw big growth in their wireless businesses during the fourth quarter of 2008. And that growth is expected to continue.
Seidenberg pointed out during his speech that more people are buying higher-end smartphones and signing up for more expensive data plans that allow them to surf the Net, check e-mail and connect to social-networking sites. And he said the new innovations around application stores, for example, would only help the industry become more efficient. He also emphasized the need to consolidate standards and operating systems to make the industry even more efficient.
But he admitted things could be better.
"My guess is that the industry as a whole is doing fine," he said during the press conference. "But if GDP were at 5 percent, we'd be that much better."
Consumer advocates are reigniting a debate over Net neutrality by insisting that the government require recipients of the government's $7.2 billion broadband stimulus package to adhere to special rules to ensure traffic on the Internet flows freely.
Consumer groups and Internet service providers faced off at a public hearing in Washington, D.C., on Monday set up to discuss how money from President Obama's economic stimulus package should be allocated. Public interest groups believe that the government should require companies receiving funds to adhere to special Net neutrality rules that would prevent them from discriminating against traffic traversing their networks. Service providers, on the other hand, believe that no conditions should be imposed that could hinder innovation or stifle their ability to manage their networks.
The U.S. departments of Commerce and Agriculture have been directed to disperse the broadband funding, which is supposed to help bring high-speed Internet services to underserved areas.
Ben Scott, policy director for Free Press, argued at Monday's hearing that the government program is not meant to be a "charity" for broadband providers and that taxpayers should expect nondiscrimination conditions to ensure that Internet service providers don't take advantage of the funds by blocking certain kinds of traffic or choking off new and competing services.
But the phone companies and cable operators that provide broadband services have long argued that Net neutrality regulation essentially ties their hands and doesn't allow them to innovate or manage their networks properly.
The debate over Net neutrality started to heat up about three years ago, when congressional leaders first started holding hearings on new laws to ensure that Internet service providers couldn't monkey with traffic. The discovery that the nation's largest cable operator Comcast, had slowed down certain kinds of peer-to-peer traffic on its network, flamed the fire and sparked public outrage over such practices.
But the fight to create new laws to protect Net neutrality quieted down a bit after the Federal Communications Commission, which regulates the communications industry, publicly admonished Comcast for violating its Net neutrality principles. These principles aren't regulation and the FCC is somewhat powerless in imposing any real punishment for violating the rules, but the public slap on the wrist coupled with public outcry was enough to get Comcast to change its practices.
For many folks in the industry, the FCC's handling of the situation and the public response seemed to be sufficient. And support for passing new laws or regulation that might later have unintended consequences, appeared to wane.
Congress has already rejected at least five bills that would impose Net neutrality regulations.
But during the presidential campaign, Net neutrality supporters got a lift when then-candidate Obama said he'd support Net neutrality regulation and laws. And now that he is president, these supporters are once again pushing for government action. Tying regulation to stimulus funds appears to be a logical way to get such rules in place, some advocates believe.
"I can't imagine a better time, when the government is doling out $7.2 billion, to have this conversation," Gigi Sohn, president of Public Knowledge, said during the hearing.
Many of the nation's largest phone companies and cable operators have already said that if such restrictions are put into place they might not be able to ask for money from the government to fund network build-outs to rural and underserved areas. And without additional government funds, it's unlikely that big players would accelerate plans to build broadband infrastructure in rural and underserved areas.
But Sohn said she thinks that with or without the big phone companies and cable operators, the infrastructure in those hard-to-reach areas of the country will still get built, since many smaller providers will be happy to get the money and will abide by the rules.
"There will be other people beating down the doors," she said.
