China's Champions Face Growing Skepticism

Monday December 17, 2012 – Greg Scoblete

The rise of China is the one of the most discussed topics in geopolitics, but its rise is no less significant in the smaller corner of the network infrastructure world. And just as China's rise has ruffled the feathers of established powers like the U.S. and Japan, the growing global presence of Chinese telecommunications firms isn't sitting well with the West.

Two of China's telecom powerhouses, Huawei and ZTE, have run into trouble with U.S. and European regulators. Both firms make a raft of network and consumer products, including routers, switches, mobile phones and set-top boxes. In October, the U.S. House Intelligence Committee declared that both companies posed a security risk and advised U.S. companies to avoid doing business with them.

The fear is that the close collaboration between both ZTE and Huawei and the Chinese government could open up U.S. communications networks to spying. This may sound paranoid or reminiscent of Cold War-era distrust, but there's reason to be concerned. China is notorious for its industrial espionage and the linkages between ZTE and Huawei and China's ruling communist party are opaque. (To be fair, the U.S. is no slouch when it comes to the espionage game either).  

Questions regarding both firms have bubbled up in Europe as well, although there the concerns center around price-fixing. The executive arm of the European Union recently concluded that both ZTE and Huawei were guilty of dumping wireless infrastructure products into Europe at below-market prices to gain share and disadvantage European firms. A report in Forbes also noted that concerns have spread into markets typically friendly to Chinese firms, such as India (where a state agency recommended banning both firms) and Australia (which forbid Huawei from bidding on the building of a broadband network).

Competitors have been quick to pounce on the wounded firms. Cisco, for instance, wasted no time in bashing both firms publicly and cutting ties with ZTE.

Still, business marches on and neither company looks likely to be permanently derailed by their setbacks. ZTE recently gained access to Nagra's set-top box customers, giving them a broad spectrum of European cable customers to market to. Moreover, the firm's positions in IPTV middleware and set-top boxes is likely to strengthen as pay TV growth accelerates in Asian markets.

For its part, Huawei has just opened up an R&D facility in Helsinki (following a massive investment in the UK) and will be employing more Europeans in the coming year - facts which will surely weigh on the minds of European Union regulators as they plot next steps for dealing with the allegations of market manipulation.

Nonetheless, for both companies, close association with the Communist party may prove to be a liability if geopolitical tensions spill over into commercial considerations.

Where's My OLED HDTV?

Monday December 10, 2012 – Stewart Wolpin

For awhile, it seemed, we were free from 1980's-style vaporware from major equipment manufacturers.

Apparently not.

At last year's CES, Samsung and LG elbowed each other over "first-ever" recognition for their respective 55-inch, pencil-thin next-generation OLED HDTVs. Each company intimated, if not outright promised, we'd be knee-deep in OLED HDTVs before the end of this year.

For instance, LG was quoted in myriad publications as late as a month ago it's intention to start selling its 55EM9600 this year in Korea and maybe in Europe "by Christmas" for $10k.

Personally, I never believed the whole "OLED available in 2012" rhetoric. But it's disturbing that otherwise responsible entities forgot the vaporware lessons of the last century and promoted the whole "OLED available in 2012" possibility.

My cynicism was confirmed by reports that both Samsung and LG have delayed OLED production until next year.

For one thing, it's doubtful there's even a market for a $10k OLED HDTV with today's sets selling for less than a fifth of that figure.

Yes, the picture on an OLED is superior to that on a plasma or an LED LCD. But subsequent generations of new high-resolution products rarely are successful only because  of higher quality. There has always been a mitigating convenience or pricing factor that leads to consumer acceptance. Marketing higher-quality has nearly always doomed next-generation products.

Plus, OLED HDTVs for 1920 x 1080p viewing may already be obsolete. Myriad TV makers including LG, Panasonic, Sharp, Sony and Toshiba exhibited advanced 3840 x 2160 pixel 4K HDTVs at both CES and at the IFA show in Berlin in late August. Not that the public is clamoring for 4K, either, but…

Yield, legal and leaking problems

Aside from marketing issues that must be obvious to OLED executives, OLED has suffered manufacturing and legal setbacks.

Not surprisingly for a new display technology, both Samsung and LG are suffering low manufacturing yields, the primary reason behind the delay.

But the two Korean giants have been trading lawsuits over OLED technology as well.

First, Samsung sued LG over OLED patents. LG snapped back with its own patent infringement accusations. Then Samsung slapped a countersuit, asserting LG's patent claims were nonsense.

On top of these ping-pong lawsuits, OLED technology from both companies has reportedly been leaked to Chinese copycat manufacturers, which could result in a flood of cheaper OLED sets.

I'm sure both Samsung and LG will put on the brave faces as they optimistically exhibit the same OLED models they did at IFA. But it's hard to imagine executives promoting the same confidence in OLED as they did a year ago.

Why 'Quality' Content May Not Save the Traditional Pay TV Industry

Monday December 3, 2012 - Greg Scoblete

While the pay TV industry has appeared to have side-stepped the threat from "cord cutters" there's a new threat looming on the horizon: "cord nevers."

Speaking at a conference on media at the Paley Center, Time Warner Cable CEO Jeff Bewkes said that while the pay TV industry was not threatened by the likes of Netflix or Amazon poaching away existing subscribers, it did face a challenge from young customers who grew up in a world of Netflix and YouTube and may not seek out a traditional pay TV package when (if) they move out into the world. These are the "cord nevers."

But Bewkes, making the case for traditional pay TV, made an interesting statement, as relayed by reporter Jeff John Roberts:

For them [cord nevers], he said it’s not a question of money — “they can afford three Starbucks a day” — but rather different habits and expectations. Bewkes pointed out that the “cord nevers” are not receiving the best content ...[emphasis added]

The implication is that once confronted with "the best content" these cord nevers will see the light and pay up.

Maybe, or maybe not.

In fact, there's good reason to believe that Bewkes may be wrong about the quality vs. convenience argument. Just look what happened in the music/audio equipment business. When the MP3 file was born, purists turned their nose up at compressed audio. I recall many an argument from consumer electronics firms pooh-poohing the lousy audio quality and insisting that people would quickly tire of listening to music through crumby PC speakers or earbuds. Out of this conviction the DVD Audio and Super Audio CD formats were born.

We all know how that story ended.

Or take compact digital cameras. While smartphone photography has vastly improved relative to where it was three or four years ago, it's still woefully deficient next to an inexpensive point-and-shoot camera. Yet the point-and-shoot category is suffering in large part thanks to smartphones.

In both cases, convenience and cost trumped quality.

This matters because, to date, while traditional pay TV firms have a relatively strong hold on "quality" (i.e. content that the vast majority of video consumers want) they are failing on both convenience and cost. Take "TV Everywhere." As Peter Kafka observed, the promise of pay TV access across a range of devices isn't being realized by the traditional pay TV providers. Netflix or Amazon Instant Video subscribers, however, have no such problem and deliver their services at a fraction of the cost.

Chances are most "cord nevers" will tie themselves up with a traditional pay TV provider - particularly if they're sports fan and (more importantly) once the economy improves and they get jobs. Still, until pay TV providers shore up their convenience and cost propositions, they'll remain vulnerable to "cord nevers."