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December 21, 2011

Verizon's controversial decision to ask Google for Wallet-less builds of Samsung's Galaxy Nexus might be debatable, as hackers have discovered that the Wallet functionality is there none the less, and that it's still fairly easy to hack into the devices.

Hackers have managed to gain access to the Google Wallet functionality in the Galaxy Nexus smartphone, allowing Verizon's subscribers to buy different small items with a tap of the phone, despite Verizon's many objections. The Galaxy Nexus phone is Google's flagship Android mobile handset, and supports NFC (Near-Field Communications) technology for wireless payments as well as other proximity applications. But not the Verizon equivalent, which comes without Google Wallet at the request of the wireless carrier.

However, it would now appear that the Wallet is still there and can even be accessed without having to root the phone, though users report varying degrees of success while attempting such a feat.

Google Wallet uses the secure element embedded in the phone and under the control of the Chocolate Factory to authorise bonk-banking using NFC technology. And there's an important detail here that must be taken into consideration. Verizon is a member of ISIS - the US-operator consortium that promotes use of the SIM-embedded secure element (under the control of the network operators), so it has a genuine interest in preventing Google Wallet being used by its own customers.

ISIS has only just decided who'll be running the backend for its service, but still says it will be handling about 68 percent of all payments in the U.S. by the time it's up and running, assuming Google Wallet doesn't monopolise the market first. So yes, this comes down to a race against the clock by Google and Verizon, and the stakes are very big in deed.

And the pressure group Free Press in the United States has complained to the FCC that Verizon is "abusing its power to act as a gatekeeper and blocking applications developed by rivals". The operator, however, claims the decision is based on the interests of its customers, who lack confidence in the security of Google Wallet - presumably they're waiting for an operator-backed service like ISIS.

But now anyone less concerned about security can have a go at installing Google Wallet, even on a Verizon handset, as the blocks put in place at the operator's request don't seem to be working.

One can't help being reminded of Verizon's attempts to switch off Bluetooth functionality, back in 2005. That was justified on similar grounds, but widely believed to be motivated by fear that users exchanging content would dent the operator's picture-messaging revenue.

It looked a bit strange at the time, but the inherent control over the customers' wallet is another thing entirely. Once ceded to Google it's quite unlikely that Verizon will be able to get it back and you can understand why a wireless carrier would go to some lengths to prevent that from happening.

In other mobile news

It's now official-- AT&T said publicly yesterday that it was nixing its merger plans with T-Mobile USA. Most wireless industry analysts were expecting the deal to flop under mounting pressure from Congress, the FCC, the FTC and various consumer groups that said the merger would create a duopoly.

The proposed merger would also reduce comsumer's choices and raise costs for the users. And for its part, T-Mobile's parent company, Deutsche Telekom, could be losing out on $39 billion in cash from its failed attempt to merge with AT&T, but on Tuesday the company gave a bit more details on its breakup fee and various other goodies.

AT&T said yesterday it decided to pull the plug after it became clear it could not persuade the FCC and regulators of the benefits of the merger. While the dissolution of the deal leaves AT&T without much-needed spectrum to keep up with the growing demand for wireless data services, it will leave T-Mobile with the fruits of one of the largest breakup fees associated with any merger.

The fee includes a cash payment to Deutsche Telekom of $3 billion, which is expected to be paid by the end of 2011. It also includes a large chunk of wireless spectrum and a long-term agreement on UMTS roaming agreements within the U.S. for T-Mobile, all of which is worth about $1 billion.

Deutsche Telekom made public the spectrum arrangement in a press release today. As part of the breakup deal, T-Mobile USA will get wireless spectrum in 128 markets, including 12 of the top 20 markets in the United States. These markets include Los Angeles; Dallas; Houston; Atlanta; Washington, D.C.; Boston; San Francisco; Phoenix; San Diego; Denver; Baltimore; and Seattle.

As for the roaming agreement, T-Mobile will be able to roam onto AT&T's network for up to and including January of 2019. Deutsche Telekom said this will allow T-Mobile to significantly improve its footprint in the U.S. and offer better broadband coverage.

Specifically, the company will be able to increase its network coverage from 230 million potential customers at present to 280 million. "As a result of the agreement with AT&T, coverage will be extended to many regions of the U.S. in which T-Mobile previously had neither its own high-speed mobile communications network nor the associated roaming agreements," Deutsche Telekom said in a statement.

In a separate blog post, Jim Alling, chief operating officer of T-Mobile USA, assured customers that T-Mobile is committed to continuing to provide its service.

"Our focus is unchanged: make the latest mobile products and services affordable for everyone," he said in the blog.

But even with the additional $3 billion in cash, which can be used to help pay down T-Mobile's growing debt, and the additional spectrum that will fill some holes in T-Mobile's network, there is no question the wireless carrier is still in trouble, nevertheless.

And while other major wireless carriers have been adding customers over the past year, T-Mobile has been losing them, and in some cases, loosing them fast.

Not only is the company finding it difficult to keep up with the bigger AT&T and Verizon Wireless, it's also getting squeezed on the low-end by smaller players, such as MetroPCS and Leap Wireless. These smaller companies offer prepaid service plans targeted at the same price sensitive customers as T-Mobile's base.

Hal Singer, managing director at Navigant Economics in Washington, D.C., says it's these low-end providers that are driving T-Mobile to lower its service plan pricing. And despite the Justice Department's and Federal Communications Commission's hopes of a strong fourth or even fifth player in most markets, he doesn't see a way for T-Mobile to survive on its own, even with the $3 billion breakup fee it will get from AT&T.

"The assets and the cash don't make an effective strategy alone," he said. "What T-Mobile needs is a backer that is committed to investing in its future, which includes a 4G LTE network which T-Mobile desperately needs."

He added that he doesn't see T-Mobile's parent company, Deutsche Telekom (DT), stepping up to make further investments. DT's chief executive, Rene Obermann, acknowledged that T-Mobile needs more investment.

But the executive stopped short of promising reinforcements from the parent company. "With the spectrum we're getting, we have a better chance of expanding the network in many markets. And that's not a final solution. In the long term, we need more wireless spectrum and more network capacity and more bandwidth. We are working on that."

In other mobile news

You could say that Android is gaining some market share and that the trend looks like it's increasing as of late, but Apple's iOS still remains the top revenue-generating operating system for app developers this year, according to Distimo's year-end review.

Both the Apple App Store for the iPad and the Apple App Store for the iPhone still beat the Google Android Market in terms of the total revenue generated by the 200 highest grossing apps in the last 3 months. The Apple App store for the iPhone generates about 4 times the revenue that is generated in the Android Market.

While Apple’s App Store bested everyone in terms of revenue, Distimo says that the number of downloads in the Apple App Store in the U.S. has been declining for nearly all of 2011.

The lowest point coincided with the moment when the anticipation for the new iPhone was at its height in September. A rise in downloads occurred immediately following the release of iPhone 4S in October, and the number of downloads in the Apple App Store for the iPhone reached its highest peak this year in November.

Nearly all of the app stores more than doubled their number of available apps in 2011. Windows Phone 7 Marketplace showed the largest relative growth of all stores with more than 400 percent year-on-year growth. When combined, the seven major app stores now offer more than one million mobile apps of all sorts.

App developers depended more on in-app purchases than ever before this year. Half of the revenue of the 200 top grossing apps in the Apple App Store for the iPhone is now generated by “premium” apps. And over at the Android Market, fully 65 percent of the revenue from the top grossing apps is generated by premium apps.

According to Distimo’s official count, the Apple App Store for the iPhone finished the year at right around 435,000 available apps, while Google’s Android Market topped out just below 350,000 total apps. Users of Microsoft’s Windows Phone 7 (WP7) had approximately 35,000 apps to choose from, while RIM’s BlackBerry App World topped out at approximately 50,000 available applications.

And Rovio’s Angry Birds was the year’s top downloaded app across all platforms globally, followed by Facebook and then Skype.

In other mobile news

Facing strong and relentless resistance from several levels of the U.S. government and Congress to its $39 billion bid for T-Mobile, AT&T today officially cancelled its months-long plans that would have created by far the largest wireless carrier in the United States.

The decision was largely expected by most wireless industry observers and didn't take many people by surprise

AT&T warned that consumers will be worse off because of the Federal Communications Commission and the Department of Justice's successful moves to block the deal.

But as could be expected, there are many that didn't agree with AT&T and the merger would have created a duopoly, reduced competition and would have meant higher costs for the average wireless user.

AT&T claimed that the merger was necessary because of a nationwide wireless spectrum crunch. As smartphones and tablet sales have soared, consumers' demand for data-- and the wireless spectrum that carries it, has grown exponentially.

"The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage," says Randall Stephenson, AT&T's CEO in a statement. "In the absence of such steps, customers will be harmed and needed investment will be stifled."

Since spectrum is a rare asset, the wireless industry is scrambling to consolidate, with larger companies buying up smaller companies with big spectrum allotments. Verizon earlier this month bid $3.6 billion for spectrum held by a consortium of cable companies, and just today announced that it is buying wireless spectrum from Cox Communications for $315 million in cash.

For its part, Sprint agreed to throw its partner Clearwire a $1.6 billion lifeline. And AT&T's plans were much grander in scale. The nation's second-largest wireless provider would have purchased the fourth-largest, creating a megacompany with well over 120 million wireless subscribers, something that deeply worried regulators the very same day the proposed merger was announced several months ago.

The FCC and the U.S. DoJ both sought to block the deal, citing the likelihood of higher prices, worse service, less consumer choice and massive job cuts across the U.S.

Realizing it would not gain the approvals it needed to acquire T-Mobile, AT&T ended its bid but hinted that it will be forced to acquire something else soon, nevertheless. AT&T will have to pay a $3 billion penalty to T-Mobile's subsidiary Deutsche Telekom (DT) in Germany as part of the initial deal drafted several months ago since the deal is being cancelled by AT&T. However, the wireless carrier still would have had to pay the same penalty to DT even if the deal wasn't cancelled by AT&T itself but instead would have been nulled by the U.S. government or the House of Representatives.

"Adding capacity to meet these needs will require policymakers to do two things," Stephenson said. "First, in the near term, they should allow the free markets to work so that additional wireless spectrum is available to meet the immediate needs of the U.S. wireless industry."

"Secondly, policymakers should enact legislation to meet our nation's longer-term spectrum needs." AT&T will also allocate $1 billion worth of spectrum to DT before the year's end. AT&T also plans to enter into a roaming agreement with T-Mobile, which will allow customers of both networks to make use of the other's network.

The enormous deception in AT&T not being able to acquire its rival T-Mobile was clearly detectable and understandable, given the very high stakes involved, the $3 billion breakup fee it must pay to DT, all the many lost opportunities, the time and effort that the company has invested in the proposed merger, lawyers and court fees, etc. etc.

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Source: Verizon Wireless.

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