FCC Chairman Julius Genachowski laid out his priorities for the wireless industry at the CTIA IT event last Wednesday. He wants to:

• Bring more spectrum to market to handle rapidly increasing demand for wireless data
• Remove red tape to allow wireless carriers to expand networks faster
• Conduct the regulatory process at the FCC more openly and on a fact-based, data-driven basis
• Codify and enforce net neutrality with special considerations to wireless

I am sure the wireless industry is welcoming the first three priorities of the new Chairman. They represent a welcome and overdue recognition of the situation we are in – more than 270 million American wireless subscribers and more than 42 million of them using smartphones to access the Internet. While the discussion continues about the need for the codification of net neutrality for wireless, it is very encouraging that Chairman Genachowski has recognized that wireless networks deserve special consideration.

Some examples:

1. Wireless data networks that are available to most Americans have only modest throughput.
   Today’s technology allows CDMA network operators (Verizon Wireless and Sprint) to provide a theoretical maximum throughput of 2.4 to 3.1 Mbit/sec and UMTS carriers (AT&T and T-Mobile) a combined theoretical maximum of 3.6 Mbit/sec. For simplicity sake, let’s assume the throughput of a particular cell site sector to be 3.6 Mbit/sec. This theoretical maximum is achievable if only one person uses the cell sector and is standing next to the antenna. The farther the person is from the tower or the more mitigating circumstances there are in between, ranging from interference from other sectors to mundane circumstances like leaves on trees, the less throughput available to an individual.
2. Wireless networks are a shared resource.
   The throughput is shared among all people actively using the network at any point in time.
3. Adding capacity is not always possible due to limited spectrum availability.
   Unlike wireline, where you can always put another fiber cable in the ground or light up another strand of fiber already laid, wireless service providers can’t manufacture more spectrum.

For most applications this does not pose insurmountable problems because a subscriber uses the bandwidth for only a short period of time, the duration of a call or while loading a web page. Such usage patterns are easily sustainable on current networks and are generally described as “bursty” traffic.

Complications start when we move from bursty traffic to streaming. With streaming, a constant amount of throughput is needed by the subscriber to maintain the connection and enjoy a satisfactory quality of service. The constant throughput cannot be used by anyone else. Streaming audio from an application like Pandora or Rhapsody typically uses about 40 kb/sec and can support around 90 concurrent users (a theoretical best case scenario of 3.6 Mbit/second divided by 40 kb/sec) in a cell sector. Wireless carriers allow and even sell streaming audio, which would indicate that there are significantly fewer than 90 concurrent listeners in a cell sector.

It gets difficult when the mobile subscriber uses streaming video in general and with an uncapped video frame rate in particular. Take the Slingbox, a popular device that lets people watch their home television service away from home on a laptop or mobile device. The quality of the picture depends on the uplink speed from their home Internet provider (between 384 kb/second and up to 10Mb/second) and on the download speed of their wireless carrier., In the best case scenario nine people (3.6Mbit/second divided by 384kbit/second) can watch TV concurrently via their Slingbox, effectively preventing any other activity. Without the ability to manage the amount of throughput allocated to these nine individuals, other mobile users in the sector will be out of luck. Currently, wireless network operators do not throttle data throughput, but this exposes them and consumers to a negatively impacted user experience caused by only a few heavy users. Traffic shaping could safe guard against the general slowdown of the data throughput in a cell sector for every consumer, but negatively impacting the viewing pleasure of nine subscribers to enable all users in the sector to receive service. This dynamic, real-time dance of RF engineering would be a forbidden under a purist net neutrality approach.

Another implication of a purist net neutrality rule that would negatively impact wireless subscribers’ service is if one person uses their wireless modem to power their web server – and yes it has happened.

How big is a cell sector? Anywhere from the size of the city block that houses Madison Square Garden in Manhattan, to the size of Capitol Hill in Washington DC to several square miles of corn fields in rural Nebraska.

Considering the relatively fragile nature of RF networks and the reasonable expectation of a majority of subscribers that they can make and receive calls and download the applications they are paying for, it is only a matter of fairness to the majority of wireless consumers that carriers be permitted to allocate network throughput in a fair and equitable manner among all customers.

Over the past few months, the government’s interest in the practice of handset exclusivity has intensified. On the heels of Congressional hearings in July, Verizon Wireless agreed to dial back its exclusive deals with cell phone manufacturers to accommodate smaller carriers. This week the FCC, which has already begun a review of handset agreements, has made the issue a focus of its regular monthly meeting. But no matter what the setting or circumstances, whenever U.S. lawmakers and regulators discuss competition in the wireless industry, the elephant in the room these days is almost always the iPhone.

Since Apple first gave AT&T exclusive rights to carry its groundbreaking device in the United States, concerns about unfair competitive advantages have become a hot-button issue. Apprehensions increased as AT&T sought to extend the deal beyond the 2009 deadline, and reached a fever pitch when Apple rejected a Google Voice application earlier this summer.

Nonetheless, many both inside and outside the industry question the need for more government intervention.

Indeed, before the iPhone came along, far fewer consumers (or lawmakers and regulators for that matter) cared a great deal about handset exclusivity, because most cell phones were utilitarian at best. According to Nielsen’s Mobile Insights report, which surveys 300,000 wireless users every year about their opinions and behaviors, in Q3 2006 – a full year before the iPhone launched – “device” was only the seventh most important factor in choosing a wireless carrier. The percentage of respondents on device has since increased from 2.9% to 6.4% in Q1 2009, yet the category remains in seventh place.

There is no doubt AT&T has benefited from the arrangement. New subscribers between the first quarters of 2008 and 2009 who signed up for “a phone not offered by my carrier” (i.e., the iPhone) jumped from 11% to 23%, and the company has reported that 40% of its iPhone customers switched from other services.
Still, the mobile industry is home to many operators who sell a wide variety of handsets. Currently, there are more than 100 different phones offered by the nation’s “Big 4″ service providers in their retail store, plus hundreds more from the large carrier’s websites and the more than 100 smaller carriers that are operating in the United States.

Even if every handset were required to be accessible across all four networks, only the largest of manufacturers could invest in the infrastructure necessary to produce identical products with different technologies. Neither legislation nor regulation could nor should be expected to change that situation.

It can be argued that exclusivity actually enhances innovation and creates more choice. If, for example, Apple’s iPhone or Motorola’s RAZR were initially available on all U.S. carriers, there would have been minimal incentive for handset manufacturers to create rival products. Though competition would exist, the options would be considerably less diverse.

What is more, the iPhone’s significant technological lead over virtually every other smart phone would probably have virtually destroyed the market for the other handset manufacturers. T-Mobile, like several other carriers, would have had less reason to invest in the development Android-based devices. Palm would not have been able to build the Pre and sell as many as it did in the first few weeks without the support of Sprint. In fact, Palm would have likely died without the Centro, which was custom built for Sprint under an exclusive pact that has since expired.

Beyond the iPhone’s distinct technological advantages, AT&T’s infrastructure would almost certainly limit competition as well. Early on Apple had decided to build its phone on a GSM technology path, the most popular standard for mobile phones in the world. But in the United States there are but two GSM networks – AT&T and T-Mobile. Were the iPhone originally available on both, consumers would pick their carrier based largely on price and coverage. Since pricing can be easily matched, T-Mobile’s nascent footprint would have a hard time going up against AT&T’s more built-out network.

In time – perhaps as early as next year – Apple will likely drop its AT&T exclusivity and build an iPhone in the U.S. that can be used across other wireless technologies. That is about to happen in Europe, where the company is reportedly moving away from exclusive deals because it can now derive greater profitability by not having restricted relationships with only single providers. At that point, new and current iPhone users will migrate to carriers that makes that the most sense for them – still driven by the factors other than “device.”

A version of this article also appeared at FierceWireless.com.

Today, the Big 4 national carriers are increasingly challenged by regional carriers that exclusively sell unlimited plans. These “All You Can Eat” (AYCE) carriers offer unlimited service in the $40-$50 per month range. Their services lack many of the capabilities of the Big 4’s offerings, but for budget-challenged consumers who don’t travel frequently, they are an attractive option.

The largest AYCE carriers, MetroPCS and Cricket, serve 13 and 78 metropolitan markets, respectively. Boost Mobile, a subsidiary of Sprint, recently launched a similar service nationwide. In total, there are only 12.1m subscribers on AYCE plans in the US or 5% of the total wireless market. However, because the AYCE carriers only provide service in certain markets, the national subscriber numbers don’t tell the real story.

Nielsen measures subscriber counts and market share in each of the top 75 metropolitan areas in the US via its Subscriber Flowshare Metrics service, and tracks growth of AYCE carriers to analyze their long-term impact on the category. One of the most interesting markets is Las Vegas, where both Metro and Cricket launched over a year ago. Boost launched its unlimited service there in January 2009.

Across the U.S., AYCE services still claim a relatively low 6% of total market [chart]. However, AYCE carriers have been gaining subscribers [chart] (positive net additions) for each of the last 12 months while the Big 4 as a group have lost subscribers (negative net additions) for every month except during December’s holiday push.

Why Does It Happen In Vegas?

There are several reasons Las Vegas is an extra attractive market for AYCE carriers. It has been hard-hit by the recession. Its flat topology allows new carriers to build network coverage cost effectively. It is an insular market without any closely adjacent metropolitan areas, making local-only wireless service more attractive.

However, even considering these local factors, subscriber growth in AYCE services in Vegas has been impressive and the message for the Big 4 is cause for concern. Both Cricket and Metro acquired significant amounts of new spectrum aiding their reach. T-Mobile is clearly concerned that what happens in Vegas may not stay in Vegas. The smallest of the Big 4, T-Mobile began offering an Unlimited Loyalty plan that provides unlimited calling for $49.99 to subscribers with longer than 22 months tenure.  Most recently, TracFone has launched its Straight Talk service on Verizon’s network at $30 per month for 1,000 minute, 1,000 text messages and 30 MB data, clearly aimed at the more budget-conscious buyers of the AYCE target audience. This offer is a competitive response from Verizon to increase the pressure on AYCE providers in their existing markets and scorch the earth in their expansion markets.

So what’s driving the data? There are no doubt a multitude of factors: exciting games, compelling storylines, and perhaps even the economy. But one that may go unnoticed is the NBA’s two year old advertising campaign: “Where Amazing Happens.”

Debuting in 2007, the “Where Amazing Happens” commercial spots featured still photos of NBA action accompanied by a signature piano riff. The ads were also supplemented with internet banner ads, print and outdoor extensions and are streaming on Youtube, NBA.com and other online video sites.

This season, “Where Amazing Happens” commercials evolved into CGI replays of some of the most memorable moments in NBA history. By slowing down the action, the commercials highlight the drama embedded in professional basketball that may occasionally go unnoticed with the game moving at such high speeds.

According to Monitor-Plus, Nielsen’s advertising tracking service, the NBA ran more 30-second spots within nationally broadcast games than any other advertiser. The league used this inventory, which is negotiated into the network contracts, to promote “Where Amazing Happens” and is expecting the promotion to help increase viewership and deliver more eyeballs to its official sponsors and network advertisers.

Whatever the reason for the ratings renaissance, a Nielsen Sportsquest survey finds that buzz in the NBA is definitely surging. As of April 2009, interest in the NBA was at it’s highest point since July ‘07, with 33% of total persons aged 12+ identifying themselves as avid NBA fans. The data also revealed that NBA fan interest is spilling over to increased awareness for their sponsors: NBA fans are 50% more likely to name official wireless sponsor T-Mobile as a cell phone provider and 37% more likely to have a favorable opinion of Nike.

Viewership is also higher among patrons of Nike and T-Mobile. Nielsen’s MRI fusion data shows that in Q4 2008, NBA viewership on TNT, ESPN, and ABC, was 47% higher among Nike Shoe wearers, and 23% higher for T-Mobile subscribers.

In a day and age where advertising campaigns often come and go very quickly, the NBA has stuck with “Where Amazing Happens” and its persistence looks like it’s paying off for the league and its partners.

Nokia: the name is synonymous with mobile phone innovation and leadership everywhere in the world but in the US.  Its handsets comprise about 40 percent of the worldwide marketplace. It has not always been this way.  Once the leading brand of phone in the US, Nokia’s share of the market has dropped to about 10 percent.  Brands such as LG, Samsung, Blackberry, Motorola and Apple’s iPhone tend to lead in market share and mindshare respectively.

But cell phones have evolved a great deal since Nokia was a major player in the U.S.  It’s a rare person these days whose cell phone is used only for calls; texts, e-mails, calendars, digital music players, cameras – the list of applications is practically endless – are standard now on most handsets.

One way Nokia hopes to get its phones in more American hands is with the launch of the 5800 Music Xpress handset, which is rumored to include its “Comes With Music” (CWM) service sometime this year.  The 5800 Xpress Music handset is selling for between $350 and $399, and features a touch screen, 3G speed and a host of other features similar to the iPhone.

Services such as CWM are reshaping the music landscape. The music industry has largely concluded that it will not be able to be profitable at the levels it deems necessary with a la carte song purchases. The only viable solution, which also conveniently will solve other issues, is to persuade music lovers to purchase an unlimited subscription to the music.  CWM enables a subscriber to download an “unlimited” number of songs from its vast library to the handset (as well as one PC) and keep the songs after the subscription expires. Based on an analysis of the service in the U.K., where it launched in October, CWM costs about £80 per year (or about $113 at 1.42 dollars to the pound) compared to an identical phone without the CWM service. Compare this to other similar services already available in the U.S.:

• Rhapsody — Approximately $180 with Verizon Wireless ($15 per month); handset free
• Napster – AT&T ($7.49 per month for 5 song downloads; $1.99 song thereafter)

And of course, iTunes offers subscribers songs for 99 cents each.

In the U.K., where the handsets are contrary to the folk lore in the United States, often subsidized by carriers, oftentimes given free with a one-year or longer contract, “initial sales had been okay, but not earth shattering” according to an unnamed source quoted in the Financial Times.

While the pricing for the service appears competitive, Nokia faces two huge challenges: the cost of the handset in a market where consumers are not used to pay anything close to the true value and cost of the phone and the potential lack of a carrier agreement that would enable it to subsidize those costs.  Of the major U.S. carriers, T-Mobile is the most likely to partner with Nokia on CWM, given AT&T’s alliances with Apple and Napster and Verizon’s partnership with Rhapsody.  The T-Mobile partnership would be a win-win for both companies; T-Mobile would be able to provide another innovative service to its younger customer base and Nokia would get major US carrier distribution.

Despite this growing female audience, 35 percent of the commercials are still targeted towards male viewers. In fact, during the 2008 Super Bowl telecast, men generally seemed to have enjoyed the commercials more than women.

According to Nielsen, approximately 25 percent of all commercials were “better liked” by men than by women; about 7 percent were “better liked” by women than by men, and the rest were “gender neutral.” Even during the various entertainment awards shows – where advertisers presumably make a concerted effort to to target women viewers – these proportions are about the same.

The most popular commercials among male viewers that aired during the 2008 Super Bowl were Bud Light’s “ability to breathe fire” and cavemen spots, Audi’s “Godfather”-themed spot, Victoria’s Secret, GoDaddy.com, and Tide’s “to go” spot featuring “the talking stain.”

Among female viewers, popular commercials included eTrade’s baby spot, T-Mobile’s spot featuring basketball star Charles Barkley announcing he’s added fellow hoopster Dwayne Wade to his favorite “five” on his mobile phone, and CareerBuilder.com, featuring a woman whose heart pops out of her chest.

At The Tailgate… Pass The Wine?

While football fans are known for their love of beer and chips, Nielsen data suggests that more fans are developing a taste for wine. In fact, avid NFL fans spent 14 percent more on wine in 2007* than in 2006, outpacing the U.S. growth in wine by 14 percent.

Also, spending on skin care products (which includes but is not limited to acne remedies, face cleansers, and hand & body lotions) by the average avid NFL fan increased 19 percent from 2005 to 2007:

• During 2007, head of households who identified themselves as avid NFL fans purchased $36.10 in skin care, an increase of $2.30 from 2006 and $5.70 from 2005. This resulted in total sales in the category reaching 1.3 billion – up 23 percent from 2006.
• Overall, avid NFL fans outpaced total U.S. spending in skin care by 74 percent from 2005 to 2007.

*Latest database available. 2008 information to be released in February 2009

Read Nielsen’s complete pre-Super Bowl report.

Hybrid Ads include customized ads, branded promos, vignettes, interstitials, and micro-series where sponsor messaging is combined with program or entertainment content.

Recall refers to the percentage of television viewers who can recall, within 24 hours, a hybrid ad’s sponsor.

A hybrid ad’s “recall score” is the percentage of television viewers who can recall, within 24 hours, the sponsor of a hybrid ad they were exposed to during the normal course of viewing primetime TV on broadcast and major cable networks.

Recall scores are indexed against the mean score for all new hybrid ads during the time period to calculate an ad’s “recall index.”

A recall index of 100 indicates average recall.  A recall index of 279, for example, means that a hybrid ad has proven to be about 2.8 times as memorable as the average new hybrid ad during the four-week time period.

For its part, the iPhone 3G has maintained strong growth, with a steady flow of mobile subscribers switching to AT&T for the iPhone in the two months since the device launched in mid-July, Nielsen Mobile reported Thursday.

Between June and July, the number of customers switching to AT&T for the iPhone increased by 97%.  Postpaid network adds for AT&T grew by 70% during the same period, according to Nielsen.

So far, the iPhone 3G has been especially popular in San Francisco and New York, where the number of mobile subscribers switching to AT&T for the device surged by 137% and 183%, respectively, in June and July.  The mobile industry as a whole averaged a switch rate of 113% during the same period.

View the full media alert.

Read coverage of Nielsen’s findings in Wired and Media Post.