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Live from Austin, Texas: Gillott’s crystal ball

May/June 2001

Educated as a programmer, British-born analyst Iain Gillott’s perspective is technical, seasoned by his experience as manager of International Data Corp.’s wireless research group. He established his own iGillottResearch last year and travels the world advising clients on strategy, market analysis and technology choices. Wireless Internet Magazine’s executive editor, Phil Carson, spoke with Gillott in a freewheeling conversation on the wireless landscape.

WIM: How do you size up the wireless industry?

Gillott: A TDMA system in Latin America is very similar to a TDMA system in North America. GSM handsets, despite frequency differences, are much the same all over the world. So, in terms of technology, you don’t see a lot of differences in what’s being implemented by carriers. Therefore you tend to find that they have similar problems–the economics are very similar, driven by the cost of spectrum and equipment, how much territory they’ll cover and how many subscribers they can get onto that network. The variances are cultural. I live in Texas, where there’s no public transportation. Wireless use is governed by lots of driving, long distances, high speeds. In London, public transportation is common–most people get to work on the Tube, or by bus. There, you’re moving at slow speeds, sitting in a jam or standing in a queue. Right? The way you use a mobile device varies by culture. The Japanese are a great example of this. Everyone raves about the Japanese market and what they’ve done with wireless data. But they’re downloading cartoons! They have a fascination for devices, so it’s worked for them. That may not happen anywhere else in the world!

WIM: So it’s technology and local culture... How do you slice the technology?

Gillott: The way to split it is packet and non-packet networks. Europe has GSM, circuit-switched data, right? Nine-dot-six kilobits. For your little WAP server, initially. Relatively slow, long connect times, etc. You have to be a fairly patient person to use it. But in reality, it gets down to networks. And what they’re rolling out over there is GPRS, which gives you 20 kbps per user, on average. But it’s packet data. That means quick connect times to the Internet and they can charge by the packet–you pay for the information you download, not the time you’re connected. As Europe moves to GPRS, that’ll provide the difference between 9.6 and 20 kbps. That’s twice the speed, but not appreciably faster. We’d be doing well to tell the difference. What it’s going to give you is a cheaper way to connect and for operators to price things more effectively.

Going forward there will be a differentiation based on speed. It’ll all be packet-based, but in a few years’ time, you’ll be talking about what speeds are available where, and what sort of coverage you get, what rate plans are offered, etc.

WIM: Elsewhere you’ve expounded on packet data’s ability to target intensely segmented markets...

Gillott: We used to split the world into consumers and business users. My view is kind of humorous: You get up in the morning and you’re a consumer. You’re a moron! You won’t spend any money. You have your breakfast and go to work. During that commute you become intelligent, willing to spend and have the funds to do so. You’re a business user now! But you’re the same person. So, don’t segment by business and consumer users. Packet data will allow us to segment the market at a much finer level than we’ve ever done before–down to fine details of geography, behavior, age, etc.

Of course, we’ve been saying this for a long time. But now it’s even more important. This draws on the need for flexible billing systems. There are systems now that could do this. The big guys. But in terms of putting it into place, it’ll come with third-generation technology–3G isn’t just new air interfaces and packet networks, it’s sophisticated new billing systems. One device, two accounts. The business professional is the customer, and the consumer is the customer. The user is the same person. It shouldn’t be necessary to have a separate device for each role an individual plays.

The flexibility must be there so you can recognize the value of the nature of the transaction, as well as the size of the transaction. I can see data pricing structures based on location, time of day, behavior, past history and who you are. If you’re with a famous soft drink maker and have a national deal, obviously you’re going to give the big company a better rate. But if as an individual I do the same thing at the same time every day for five days in a row, perhaps the carrier offers me a preferential rate to continue.

WIM: CTIA is pushing a four-point policy on privacy before location-sensitive services hit the market. How important is it to have policies adopted prior to the market really starting?

Gillott: It’s hugely important. It’s not important right now because people have no experience with it yet. One or two incidents–a case of stalking or something ugly–and the market is gone. The other side is, if you over-secure it–require a blood sample–people will say, “No. I don’t want mobile banking.” Others will be satisfied with the use of a PIN code. The only person who can decide that is the user. Online profiles allow you to say, yes, I want my location passed to vendors when, say, I’m out of Austin and it’s a business day. But don’t pass it to these five vendors because I don’t like them.

To me, nothing is completely secure. I can go to the bank and deposit some money. The teller knows what I’m doing. You can lose your wallet. There are always points of exposure.

WIM: What criteria should enterprises apply to determine if they can benefit from wireless data?

Gillott: There are people in the enterprise who don’t need wireless access. Identify the applications that make the most sense and divorce yourself from the idea that you need high bandwidth. There’s a notion that to be valuable, it needs to have multimedia. You can do valuable applications by linking an inventory database to a FedEx Web site to tell your mobile sales force when something has been shipped–you can do that well at 9.6 or 19 kbps and a small screen. Identify who benefits most. It tends to be field service and sales. You’re looking for information that’s location sensitive, timely and small. If a salesperson is making a stop, he can check the status of an order he knows he’ll be asked about. There’s this misperception that you have to mobilize your entire Web site. People also feel they have to replace all the devices out there. Smart enterprises, as they deploy applications, put out a list of devices they’ll support, so when folks go to buy their own new device, they’ll be able to access the application. Something like 30 percent to 40 percent of users upgrade their device every year, so there’s a natural evolution there.

WIM: MVNOs are on the tip of everyone’s tongue now. Is this simply expanding successful brands into the wireless space to attract otherwise untapped market segments?

Gillott: What the old reseller did was approach the carrier and buy, say, a million minutes over the coming year. Then they sold those minutes. If they bought them from a particular carrier, they got that carrier’s services. The user experience would look and feel like the original carrier, only it would be branded differently. So there was no differentiation between the reseller and the serving network. The MVNO says, “Hey, I want access to your network, and X amount of minutes, or bandwidth. I’ve got my own switch, my own HLR [home location register], my own billing system, my own customer service. All I need is access to your network.” So all they’re really buying is the airtime, everything else is theirs and they can differentiate themselves. So you’ve hit it on the head. An MVNO is really a brand. People like Nike, Ford, BMW, Coca-Cola, Sears, Mountain Dew can create one and send promotional messages that offer benefits, like more airtime or products you already offer.

WIM: If a brand attracts its constituency, it creates a backdoor route to mobile advertising...

Gillott: Sure! In the U.S. market carriers are concerned about what MVNOs could do to them. I argue that it’s just a way to penetrate new markets. So carriers could say they’re strong in certain demographics and not in others. Do a deal with an MVNO who is strong in those other markets. Ultimately–and this is heresy–I’m not sure we actually have carrier brands at all. Why would I buy anything from a carrier when I can get it from a brand I’m associated with? For instance, in Austin, I buy my long-distance service from AOL, which gives me a deal. They buy it from someone else, who buys it from AT&T. Does AT&T suffer from this? Perhaps, due to the customer services they support. You may see a shift away from carrier-based stores, sales force, billing systems. They may just end up being really good at technology and at running that network and developing and supporting applications. And my brand partners will do the branding and marketing. I can see this happening with data. What’s wrong with being a dumb pipe? A dumb pipe is only dangerous when you carry all the overhead of a retail operation and a sales force, all those channels.

WIM: That means carriers cede that revenue growth to others...

Gillott: Ultimately, yeah. That’s a huge shift in mindset. And none of the carriers would admit to thinking like that, because their share prices would plummet. In some cases, perhaps the carrier has such a strong brand that it does maintain a strong position. I can see that in the United States. But my argument on MVNOs is, if you’re not doing it, and someone else can do it, why not partner? You’ll benefit in the long run. If you’re not going to partner, do it yourself.