It’s almost 6 years to the day since Qualcomm first told the world about its MediaFLO mobile TV broadcasting technology and not long after announced that it had bought spectrum which would mean it could build its own network, using MediaFLO in the US. Now, 6 years on, and almost $1 billion later, Qualcomm CEO Paul Jacobs is admitting that the US network is a failed bet and has confirmed that it is for sale, at Qualcomm’s annual investors conference.
We know how stubborn Qualcomm can be on the subject, and this admission of failure, may itself be a false dawn. It’s a great way to get investors off its back if Qualcomm says that the failure is up for sale, and the move may in fact give it more time to succeed. Which is perhaps why, in the same week that Jacobs was making this confession, the US network business was announcing a new deal with Discovery Communications to carry its TV channels.
Jacobs when questioned said that he wanted to see the FLO network continue as a FLO network, and that Qualcomm would prefer to sell to someone who want it for that, and not just for the spectrum.
As a 5 MHz national slice of UHF spectrum it has a definite value, but it is a value that would rankle on Qualcomm staff, as it would mean that the company’s recent build out of something approaching $300 million of antennas, transmitters and digital exciters, along with all the switching, backhaul and civil and tower permissions that go with that, would never be recouped and would just sit there as a separate investment, having to be sold off piecemeal. However selling the spectrum would almost certainly give it back most of the $1 billion that it has invested in total, especially if it was for delivering wireless broadband using LTE, whereas selling FLO as an existing network might be harder for any buyer to justify.
None of this comes as a surprise to Faultline readers. We have pointed out that the claims of MediaFLO as a technology, with its improved outer FEC and Qualcomm’s insistence that it is half the cost or has twice the reach of DVB-H, which is hotly disputed by past DVB-H doyens. But now no-one cares about DVB-H, so the comparison, right or wrong, is no longer relevant. We have always said that MediaFLO ‘ a broadcasting solution for mobile TV – is DVB-H, designed three years later with all the improvements that brings, but more or less it copies the same idea.
Mobile TV can be delivered to a handset in a number of ways ‘ streamed over the cellular network, which means that bulky video competes with established voice and web traffic; broadcast over a new network (DVB-H and MediaFLO), broadcast over an existing broadcast network (ISDB-T, ATSC M/C and T-DMB to some extent with DAB networks) or sent as HTML traffic over the internet, whether that’s on the data portion of a cellular or WiMAX network (like Clearwire) or over an offload network like Wi-Fi.
There is enough confusion in the mobile TV market that building out a special network, often with several hundreds of millions of dollars ($200 million in Italy) spent on equipment and more on the building process, leads to having to charge for service, so it becomes a pay mobile TV service. It has been well established in Korea and Japan that free to air TV is the only way the public will accept mobile TV in the millions. And that fact alone makes it the preserve of broadcasters, who can at least try to get their money back through advertising.
Unlike one or two other major technology firms, such as Microsoft, which is content to hold loss leaders such as Mediaroom and Xbox on its books for years and years, Qualcomm has seen the financial sense of getting out of FLO, and should be applauded for it. Also appointing a CEO to the US network operation such as Bill Stone, which joined in January last year was something of a signal that FLO might go up for sale at some point.
Stone’s last adventure was Amp’d Mobile, a music based MVNO which failed, and although he has worked at GTE, AirTouch and Vodafone it was at Handango where he last ran a mobile content business. He is more in the mold of an entrepreneur than most Qualcomm execs and it looked to Faultline that Qualcomm was bringing in someone from outside to run FLO, so that when it was sold it didn’t lose any of its established stars. Stone doesn’t think like Qualcomm, and since he has been around he has made outlandish claims for the US network, such as it would have 10 million devices by the end of 2010. But at the same time he has signed better and better content, recognizing that for a pay TV operation, the content simply wasn’t good enough.
As recently as last month Stone said he would sign up sports programming either to be broadcast or clipcast. The clipcasting side of FLO technology is really quite a simple idea and one which should have sold FLO. The idea is that goals or home runs or hits or baskets from US sports could be cut into neat clips and downloaded over the network overnight. That would be fine if all phones could receive these signals, but they need a specialist MediaFLO chip in them. After all, the real reason for Qualcomm to be in this business is to sell chips. Qualcomm has created its own miniature TV player and could easily drop the chip into a laptop or handset dongle to receive the broadcasts and drop the content into any handset.
To do that cellular operators would need to open up clipcast services and given their failed experiences with Mobile TV services, we can’t see that happening. But at least Stone is prepared to try something new, which is the mark of an entrepreneur and perhaps FLO TV needs to break with Qualcomm, which has always, rather conservatively, put the cellular operator at the heart of everything it does. There will be other ways of using FLO TV’s broadcast offering to offload data traffic and ease congestion on cellular networks and this could become its main business.
Stone has also defied all the previous holders of the FLO TV crown and said that he would introduce DVRs on devices, something that Qualcomm said it would never do until it could fix any flawed broadcasts using IP updates over cellular.
We would expect FLO in the US to fade away, and that Qualcomm will be unable to offloaded it for sufficient money to avoid a write down. One way around this is to offload part of it and become a minority stakeholder and hope that a future public floatation will recoup the rest. Here it might seek the help of private equity groups, but we can’t see for the life of us why any of them would take on that high a risk.
Qualcomm continues to push the idea that the MediaFlo technology is NOT dead, and goes on about a national license being sought in Japan by KDDI. The best thing that the Japanese regulator could do is turn down KDDI’s request, because even in a country where more than 70 million have free to air broadcast mobile TV, there is likely very little call for paid broadcast programming to a handset ‘ VoD is another matter.
As for claims that there are still opportunities for it in Taiwan, Malaysia, Latin America and other international markets, these appear about as sound and believable as the people telling us that DVB-H will take off any day now. We believed it for years but always warned that it had just 5 years to make its mark or else it would be replaced by broadband wireless delivered video. Well it never made it and now DVB-H, like MediaFLO is a joke. So watch out for FLO TV to be quietly dismantled and sold as spectrum for LTE, in about a year.