<font color=GREEN>PRICING - Royalties and Minutes
[click on by Jon!]
Tom, good points! Yes, in the introductory stages, when CDMA had clunky handsets with poor battery life and high costs in setting up new networks, GSM continued to succeed [to some extent anyway].
It's also true, as you say, that different standards compete - so GSM, GPRS, EDGE and OFDM [stand still or park your car to connect to avoid needing Q! patents] would offer competition. But they are either so far away from reality or so uncompetitive, that they are not serious competitive threats as the technology matures. We are only just up to the MSM3300 coming out. That's just the beginning. HDR with the expected 10 megabits per second with very high capacity compared with competing options will leave competitors bemused and hopeless.
Like so much, the problem is one of timing. In 1990, with CDMA breaking the laws of physics, and no money and little support, royalties and licences were cheap.
In Y2K, with the technology proven, with demand booming, with WWeb demand booming, with all the advantages that CDMA has and Q! controls, backed by the most powerful legal, political and military system which has ever existed, royalties and licences should match the value of the technology which is being sold.
Sure, old contracts can't be abandoned, but as Motorola agreed, their early agreements would stand, with the happiness of the cheap rates, but the new technology Motorola buys will be at the new, realistic rates.
Nokia has 1990 agreements, but they have agonized over buying rights to the full-blown CDMA story.
I don't know the optimum to maximize Q! NPV [net present value] but I bet it's a lot higher than 5%. I suggested 100% just to get people to realize that there is no 'industry standard'. The value depends on the technology and competing options and subscriber demand.
The pretence that Q! technology is not needed has stopped. The VW40 attempts to screw the price down continue. Q! is not totally stupid, so they will spin off SpinCo. They will charge what the market will bear. I hope! That price has increased dramatically over the past 5 years. Now proven by the spectrum auctions.
The starting point has to be "How much per bit will subscribers pay and how much will they pay to have those bits delivered really fast?" Q! [Irwin Jacobs] has correctly figured out that subscribers are speed demons. The auctions have proven [via the service provider judgement of demand] that they are pixel-greedy too.
So we have billions of pixilated speed-demons who want WWeb and they want it now! CDMA is the ONLY means of delivering. That means Q! gets paid big $$ as the creator.
Q! does not control the pixel-price. This is very important to understand. The pixel-price is determined by the number of pixels which can be squirted through the CDMA pipes and the demand which subscribers have for those pixels. If the aether is fully-loaded, how much will a new subscriber pay to kick somebody else off? Or, more accurately, how much will the lowest ranked user pay to avoid being kicked off? The service providers are betting that they can fill the aether and the pixilated person at the bottom of the heap will hang on at a price sufficient to justify umpty billion $$ for spectrum, large amounts for infrastructure, some amount for handsets and a diddly amount for royalties.
Whichever of those items; the infrastructure, the spectrum, the handset, or the spectrum, can be made cheaper, doesn't affect what the service provider will charge the pixilated-person scanning the WWeb. If Lucent produces infrastructure for $1 a pop, the service provider won't lower the pixel-price. They'll just pocket the difference. If Q! lowers their royalty rate, the service provider won't lower their pixel-price, they'll continue to sell it for whatever the person lowest on the totem pole will pay to avoid being kicked off. If Q! doubles the royalty-rate, the person on the bottom of the totem pole won't pay any more, so the service provider would have to eat the difference, or, bid lower on the spectrum.
Now to the price plan! Or how the service provider can maximize their income [NPV]. There they are with $30 billion in spectrum, $10 billion in infrastructure, $10 billion in handsets and a 10 million customers deciding whether to sign up. They make their money when the system is loaded and the bottom-most pixilated person chooses to drop off rather than pay the pixel-price. Until they get it loaded, they are operating in the doldrums. They have to fill the sails and get to top speed and do it fast.
The way to do that is sell the pixels at a market-clearing rate. That means cheap to start. Too cheap and there won't be enough handsets and the second-hand market will make diamonds look cheap. So, the right price is cheap enough that millions of people are attracted to producing electrical gizzards, batteries, screens, buttons etc instead of making cars, televisions and hamburgers. The clamouring to get into the business should fill the media with job advertisements, high salaries, parts shortages with ebay auctions.
The parts shortages for handsets which people have grizzled about will become a joke!
Then, as the last pixel is squeezed through the pipe, the pixel price will become just a bit too high for the poorest pixilated WWeb user and they'll sadly log off. Profits then will be immense!
The poorest WWeb user will be able to log back on later, when the spectrum empties out as people go home and go to sleep. Yes, I know the WWeb will be always on and people won't "log-off", but you know what I mean = they will refrain from sending or receiving bits to convert to pixels or voice until off-peak times when prices would slide enough to keep the system fully-loaded.
If Q! is cornered with previous contracts and can't raise royalty rates, then that's just bad luck and the governments will enjoy the windfall profits of people not understanding the value of CDMA in the early days. In that case, the spectrum bids are the measure of market inefficiency = some company [Nokia or Ericy] should have bought Q! in 1994 when they had the chance. It's direct proof of inefficient markets and that there are always hugely valuable jewels lying abandoned around the trading floors. For example, Globalstar, which has been lying around for a while now, held in contempt because it allegedly breaches the laws of market demand.
That's my theory!
I'll do the long version tomorrow.
Meanwhile, I hope that answers the questions.
Mqurice
PS: Pixilated = dictionary.com
So a pixilated WWeb user is, well, us [crazy, eccentric WWeb users who ignore 3D in favour of cyberspace]!
Pixelated = converted to pixels, in which case a pixelated person would be one converted to pixels and transmitted over the WWeb. |
