The company’s angst, I believe, stems fundamentally from the fact that Apple and other vendors have come to understand that increasingly mobile phones are a consumer purchase decision, and not a corporate one.  And when people can choose, they choose the products they fetishize.  And no one has captured the consumer market’s imagination like Apple, with the iPhone and iPad.  But you, dear reader, already know all of this.

I firmly believe that any turnaround involves deep pain and difficult choices, and I have not seen any sincere effort by the co-CEOs (and now co-COOs) of RIM to make these decisions and brace for the sting.  In fact, judging by their actions it’s not even clear that Messers Balsillie and Lazaridis actually agree with the prevailing notion that there actually is anything wrong with their company.  These layoffs and strategic pronouncements feel mostly like lip service.

At any rate, in the unlikely event that I were to suddenly become the CEO of RIM, a company that is about 1,300 times larger than my own modest startup, here is what I would do:

1. Split the company in two.
   RIM is really the composite of two companies — network and messaging services for carriers and consumers, and smartphones which we users decreasingly hold in our hands.  For the majority of RIM’s lifecycle these two components were strategically and inextricably bound — cool devices with unique features drove demand for the services carriers needed to obtain in order to be able to fulfill that demand, and thus sell more devices — however now that RIM’s infiltration of the carrier market is largely ubiquitous that delta into the mobile network needs to be taken in two directions.  The devices and the network services are now loosely coupled, and the need to tie them together feels more like an albatross.  In order to progress on both fronts these cannot be constrained by the need to support the other’s objectives.
2. Kill the Playbook.
   I’m really not sure why anyone would enter a race not intending to take a stab at winning it.  We have lived with the PlayBook for months now and it still doesn’t have an email client — akin to BMW selling a car without an accelerator pedal.   It is clear to all that aside from the potential for limited enterprise and government sales there is very little chance for the Playbook market to expand.  It has no raison d’etre; no killer app; no je ne sais quoi.  Apparently RIM doesn’t sais quoi either, as the Product Manager for the Playbook and the one of company’s VPs of Marketing have just quit — not a good sign.  As far as branding and marketing is concerned, the Playbook is an attention and messaging sinkhole; and it almost certainly has distracted R&D, preventing RIM from building an iPhone competitor that we could get behind.
3. Focus on 3rd-party developers.
   It would be impossible to deny that much of the demand for iOS is driven by the myriad things that one can do with an iPhone or iPad.  In fact, the iPhone is actually quite a terrible telephonic device, with a bad chipset choice and terrible RF engineering, and it’s consistently suffered supply chain problems as Apple struggles to keep up with demand.  None of these issues matters.  Most iPhone apps suck.  But they suck a lot more on Blackberries, where they exist there at all.  Developers have to run a gauntlet of a horrifically bad developer ecosystem, fragmentation (the need to have multiple versions of each app) that reminds most of us of J2ME, a distribution system which is spotty, and even an enterprise policy shield which allows IT managers to lock down phones and prevent apps from being installed.  If I see an iPhone in someone’s hand I know I can get the ONE version of our app onto it.  If I see a Blackberry in someone’s hand the odds of that user being able to get and run our app may be as low as 3 in 10.
4. Understand that BlackBerry Messenger, and messaging, is the company’s strategic future and open it up to other platforms.
   RIM fears cross-platform messaging apps like Kik and WhatsApp enough to take steps toward actively blocking them.  However nothing could possibly be more powerful, or useful, than a cross-platform BlackBerry Messenger network.  This could subsume the lowly phone number as a primary identifier for communications, and subvert the wireless carriers in a way that Apple has actually been executing on much more poorly than you’d expect.  As part of this strategy I would help the company understand that messaging is not simply “WHAT R U DOING LOL” messages flying back and forth, but also includes Push Notifications for apps, call setup requests, and social networking.  As part of this strategy I would acquire Urban Airship, a modestly-funded private company that could be bought for <$100M and would become a catalyst for radical change within RIM, again leveraging the company’s delta into carriers.  Messaging is the one thing RIM has going for it that is hugely viral, and they’ve got a massive critical mass to build upon in the existing BlackBerry market that they simply need to unlock.
5. Stop dicking around with cheap plastic phones, and own the keyboard.
   One area in which Apple has exhibited significant leadership is the use of real materials, such as glass and metal, in their devices.  This gives them a stronger and indeed perennial feel, while the plastic on most BBs tends to fade in colour and begins to look tired and damaged within a few short months.  Everything about the BlackBerry needs to feel solid — including the keys.  Speaking of which, the domain of the keyboard is an area that the iPhone is unlikely ever to tread upon.  Use this to differentiate the BB and shame Apple.  There are many many users (among them women with long fingernails) who will NOT give up their keyboard for a touch screen, and a generation of teens who have known text messaging as their primary means of communication for more than a decade.  The focus on the keyboard is one of RIM’s core strengths.

I’ve purposefully attempted to avoid reading others’ prescriptions for RIM so I apologize in advance if any of these represents overlap.

I’ve been a shoulder to cry on for colleagues from Telus and Cisco often enough to not want to witness the death of what may well be the last great Canadian telecom company.  Even as recently as 5 years ago, RIM was lauded for its culture of innovation and relentless aggression.  However, the current wave of layoffs and strategic pronouncements are nothing more than hackneyed Wall Street pandering — a movie we’ve seen before at other declining giants that have never recovered — and these moves have already killed that culture.  I have seen what this kind of short-term management thinking and denial can do to a company’s culture, nurturing an internal environment where lifers sandbag their turf and the company’s former wunderkind rest and vest.  Neither behaviour is conducive to the kind of thinking or the can-do attitude that gets companies turned around quickly.  And really, who would want to be CEO and lead that sort of army into battle?  Not me.

Conspicuously absent this week from Amazon’s announcement on the list of international markets where the Kindle would soon be sold in a host is a little backwater known as Canada.  Theories abound as to why this is:  some blame Heritage Canada, which I think is a bit of a lark.  For one thing, Heritage Canada is not a regulatory body in the sense that it enforces no laws, and has no specific jurisdiction over the publishing industry in our country apart from administration of the Copyright Act.

No, the politics involved in preventing the Kindle from reaching the grubby hands of Canadian consumers is probably the same old culprits we always pick on around here:  Canada’s wireless carriers.  This article reveals a bit of a crack in the story.  While the Domestic US Kindle is using the Sprint EVDO network, Amazon is not working with local wireless partners in each individual country for the International version… the company has done a single deal with AT&T Global Networks, which in turn has gone out and negotiated low-cost data roaming agreements with carrier partners all over the world.

The Kindle, you see, downloads books and connects via AT&T’s 3G Data Network.  But it is a unique proposition for the wireless carriers, because the Kindle subsumes the carrier’s network and buries it behind Amazon’s brand.  As a result the customer is completely unaware of which network the Kindle is running on, never receives a bill from AT&T, and never calls AT&T for support.  It is a complete inversion of the traditional wireless carrier model.

In Europe some carriers embraced this, as has AT&T Global, and pitched Amazon on providing the network capacity for the Kindle.  In Canada, however, the concept of becoming a bare pipeline has likely met with a far chillier reception from the omnipotent stewards of our wireless spectrum.  While AT&T may have negotiated decent wholesale rates for its customers roaming on Rogers in Canada enabling affordable world data roaming, Rogers may have (knowing their personality well) stipulated that this wholesale rate not be resold in any way apart from direct-to-consumer.

And just as Rogers resisted Apple’s will to gradually subsume them as a carrier, and is now paying the price by being the first iPhone operator in the world to officially lose iPhone exclusivity, Rogers likely isn’t enthusiastic about Amazon taking over the customer relationship.  The irony is they probably should be — their quality of service and customer support is so absurdly poor that they could do no better than by washing their hands of the customer relationship entirely.

SMS costs in Canada are already disproportionately high versus the unrealistically high costs for SMS across the entire wireless industry. This article suggests that SMS costs are, in the aggregate, 4x higher than getting data from the Hubble space telescope. Global SMS revenues are larger than the Hollywood movie, music and video game industries combined.

The quote from the Telus spokesperson is hilarious:

“The growth in text messages has been nothing short of phenomenal,” wrote Telus spokeswoman Anne-Julie Gratton in an e-mail to The Globe and Mail, “This volume places tremendous demands on our network and we can’t afford to provide this service for free any more.”

The same article refers to the latest statistics from the Canadian Wireless Telecommunications Association that pegs the number of text messages sent in Canada at more than 45.3 million per day. According to recent reports from IEMR the number of wireless subscribers in Canada was 20.4 million in 2007, and wireless subscribers in the UK (which has roughly double the population of Canada) for the same year numbered 71.7 million. Sweden, with a third of the population of Canada’s has better than half as many subscribers. Canada is trending remarkably behind nearly every comparable western nation.

These stats are great, in that they illustrate the problem with subscriber growth that shareholders and analysts are presently appreciating. There’s clearly something wrong with the wireless business in Canada, and it’s not something that the recent spectrum auctions are likely to quickly address.

Allow me to translate Ms. Gratton’s TelecomSpeak in a way that more accurately reflects what went down in the boardroom:

“The growth in text messages has been nothing short of phenomenal,” said Telus’ Business Development Manager, “This is an unprecedented opportunity to exact greater revenue from the customer base without spending a penny on service development!”

The Canadian wireless market has been infantilised by the greed and short-sightedness of our wireless carriers and the mismanagement of our asleep-at-the-wheel regulators. Whereas (according to Wikipedia) the average user in the Philippines sends 10-12 text messages a day, doing some quick math from the stats above reveals that the average Canadian use of text messaging is far lower at 2-3 messages per day.

Still, this 45.3 million SMS messages per month business must be creating a stress on the Telus service network, you’d think. Right?

Well, if you send 45.3 million SMS messages all at the maximum size of 140 characters, you’ll get almost 6 Gigabytes in total storage volume – or, roughly the size of the hard drive I had on my IBM Thinkpad in 1999. That’s a lot of data to store (in 1972, that is). At the end of the day, this means that the entire Canadian SMS relay network has to be able to sustain about 144Kb/s of data transfer (thanks to Gersham for helping me with the math). My Mac Mini has a 1GB/s ethernet interface and is ultimately connected to a (for Canada anyway) smokin’ 30MB/s internet pipe this means that I could personally store-and-forward all of Canada’s SMS traffic myself via my Novus broadband in Yaletown, and it would have limited impact on my BitTorrenting.

SMS uses the signaling overlay path of wireless carrier networks, and from the wireless perspective SMS messages ride in the carrier byte packet. As such it costs the network exactly nothing and uses no bandwidth that isn’t already in use — traffic load is the same on the network even if no SMS messages are being transferred. The networks themselves need to invest in this infrastructure anyway, so there is perhaps an added provisioning and data processing impact created by SMS for wireless carrier network planners, but it is not substantial.

For TELUS to suggest that this traffic is in any way meaningfully impactful to their operating costs suggests that either they’re lying, or perhaps they should go back to operating mechanical switches.

This is a cash grab. Pure and simple. But then, you knew that…

Telus and Bell have confirmed they’re in merger talks, after BCE earlier announced it was mulling over its options earlier this Spring. Both companies are weakened by declining landline revenues as competition from Wireless and the Cable Guys and, to a lesser extent pure-play VoIP contenders, is heating up. This makes a lot of sense, but probably not for the reasons that your average reporter would think.

It has been known for some time that CableCos would move into the voice business, which thanks to VoIP and their co-ordinated efforts through PacketCable, was almost trivially easy to accomplish. Both of Canada’s major telecom service providers find themselves in a major uphill battle.

This slide, from Telus’ August 2006 Q2 investor conference call tells the story:

Things are not looking good on the home front. To make things worse, and while Telus contends that the wireline side is “stabilizing”, revenues are still dropping and this slide from the Q1/2007 investor call shows:

While it did indeed show that SkaterBoy is in fact Rocking it With IP (say hi Jill Schnarr!), what’s easy to see is that the base is eroding, both in terms of subscriber count and revenues. Their Broadband penetration is not so good, either. Bell Canada, with its larger service area and more densely-populated markets, appears to be doing better when compared to Telus, according to LightReading (see charts below), but they are at present weathering the storm .. not lighting the world on fire.

By comparison to Bell’s numbers here, Telus’ Broadband Internet subscriber base is a claimed 949,000 users as of the end of Q1/07.

Both companies are looking to data and wireless to grow the business. Wireless is a growth industry, of course, but I would contend that, when it comes to wireless subscription growth, we are in a bubble. Saturation has already caused wireless subscriber growth to begin to taper off, and as in the telecom bubble of the late 1990s, that drives up customer acquisition costs (since these companies would sooner pay more $$ for users than innovate in order to attract them). Perusing the Telus Investor Slides linked above reveals exactly that. Data is growing, but likely only within their existing base of wireline subscribers. And if that base continues to churn as fast as it is, that market will reach true saturation a lot sooner than wireless.

Launching broadband as a service is one thing. Broadband is, however, a commodity — as are residential and business subscriber lines. Telus, Bell, and all other ILECs are presently learning what happens when your basic services remains.. uh.. basic, and your only foils against competition are pricing and bundling. Furthermore, service innovation within the ILEC world has totally stagnated, insofar as new service development is concerned, as they’ve focused on pink elephants like IPTV (which, this author contends, won’t work) and Verizon’s IOBI (which suffers from huge capital costs for minimal incremental benefit). The fundamental problem for the Incumbents is simply making things scale on the telecom network. It wasn’t built for that, and even with IP upgrades grafted and forklifted into place, it still doesn’t have the bandwidth for compelling services. The Cable Guys have their own problems, but they get a free ride for now thanks to the fact that their delivery of TV entertainment is broadcast easily down their plain old copper wire — including High Definition.

The Incumbents need to bite the bullet and implement FTTH to get themselves out of this hole, but some analysts estimate the cost to be about $9650 per subscriber. That’s a purchase order that I would not be excited to sign, and more than a few pundits think that Verizon’s $23 Billion bet to wire up 18 million homes will kill the company.

So, while Canada’s two big incompetents incumbents are struggling with a sharpening decline in their base, the Shaw and Rogers folks are starting to kick ass, seeing growth on all fronts. Shaw, which started late in the telephony game, has been growing all of their services, with about 2M cable subscribers, 1.5M internet subscribers, and around 100,000 telephone customers. They’ve added the latter service with minimal cost impact and a very low customer acquisition cost, and the ARPU of a Shaw HD Cable customer with High-Speed Internet and one phone line is very near $200/mo. This is the holy grail of residential telecom. And while they start from a smaller base of customers, their capital cost to deliver multiple services is a lot lower.

So, what does this all mean? Current default logic in the Telecom arena is that all of the players need to be at least a Triple-Play and arguably a Quadruple-Play in order to grow their services and revenues, and defend their userbase. I think that I’ve presented a straw-man case illustrating that the Cable Companies, because their networks already do the harder thing (distributing realtime entertainment cost-effectively) with relative ease, have a decisive advantage leaping toward this, particularly because Rogers Communications already owns a wireless Service Provider.

Telus and Bell should and probably will merge in order to cost-optimize, lay off a bunch of redundant workers, and debt-finance the building of Fiber-To-The-Home. They will need to do so before they are, over the course of the next decade, eclipsed by the more nimble and more entertainment-oriented Cable companies. It will not be easy for Canada’s two incumbents to recognize their lot at the moment as dumb-pipe carriers, and the only network which it has been established can reliably and scalably deliver realtime entertainment and content is Fiber.

Cable Guys ultimately need to get there, too, as we’ll increasingly want to Time-Shift our media, but PVRs and HD are stop-gaps which are saving them from needing to make an early, costly, network upgrade. Besides, Cable Companies needed to upgrade their networks substantially for broadband, and did so during the 1990s, delivering Fiber to the neighbourhood (FTTN). Making that next leap, while costly, will not kill them.

Which leads to the following hypothesis:

Is now the time to merge Shaw and Rogers? As the only major Service Provider in Canada without a Wireless business unit, Shaw is the clumsy kid at the prom in the powder-blue suit. Definitely the smallest of the four, Shaw doesn’t have as diversified a business as any of the other three but has stuck to its knitting. It has also been busily snapping up smaller Cable Companies in the West, including my friends @ Whistler Cable. Mark Evans thinks this is a possibility, too, for the record, and the companies have a history of collaborating to achieve efficiencies. Jim Shaw and Ted Rogers, while officially rivals, often reveal a friendly candor and mutual respect. The idea is alluring.

The reality is that if Telus really wanted to cement its future, it should buy Shaw. But this would create a physical monopoly in the West, rather than the defacto monopolies which exist today, and the CRTC and Industry Canada would never allow it. But one other opportunity may lay on the horizon: If Telus and Bell merge, they will have to release some of their wireless spectrum back to the regulators. If this occurs, then the market may open up for another major wireless carrier to emerge in Canada: one funded by that quiet kid in the Powder-Blue suit. If the Quadruple-Play hypothesis is correct then this will allow Shaw to compete on a level playing field with a merged or non-merged Telus and Bell, and maintain parity with Rogers. And while it’s probably not a great idea to have wireless this consolidated over the long-term, this could allow Jim Shaw to build up some value in Shaw Communications prior to the inevitable merger with Rogers.

Convergence freaks tend to assume that all roads ultimately lead to all of your myriad services being delivered via a fibre-optic cable straight into a hub in your basement (or storage closet) regardless of whether your Service Provider came from Cable or from Telecom. I don’t disagree, but I do contend that its a twisted, heavily contentious road that’ll get us there. And fortunes will be made or destroyed in the process thereof.

Indeed, the telecommunications arena these days is looking like a terrible investment.

Oh, wait. Didn’t Skype sell for .. $2.6 Billion? Doh. Oh well, there goes that theory.

So .. what’s the difference?

Simple. Successfully monetizing a new technology requires a new approach. It means a different business model, a different market approach, and a different kind of brand-building strategy. Thus Gaboogie. When Lags built his internet-scale conferencing server he didn’t begin nipping at the heels of Bell Canada or Telus, or lesser evils like AllStream. In other words, he didn’t set out to create an equipment vendor. Instead, he understands that he has a service with intrinsic value that is easy for a target customer group (ie. you and me) to understand, and that he doesn’t need the permission or support of big slow unwieldy service providers to get to you and me. And conference calling, as a business, happens to be one with big fat margins ripe for the picking that are catered to by slow, lumbering, highly proprietary companies.

The key features of Gaboogie are appealing: aAfter-the-fact publishing of your calls via RSS, and the fact that Gaboogie calls you versus you having to dial in and remember an obscure password and conference identity. These are huge features which you’d think would be simple to implement, that is, until you look into the architectures (designed in the mid 1990s) that drive many of the conferencing services out there. Bellheads, it turns out, will not save the earth with $2000 4GB hard drives that are ISO certified.

How come Gaboogie doesn’t have any competition, you say? Well actually… they do. But sizing up the field of other market entrants, I’m really not worried.

-Ian.