Rumors abound that Qualcomm has cancelled its direct to consumer Flo TV service. Before delving in to the implications of such a decision it is important to note that as of now Qualcomm’s white label service it sells to carrier partners is still intact even if it is next on the chopping block.

Qualcomm’s decision to kill its never commercially viable direct to consumer Flo TV should come as no surprise. Many of the challenges were discussed in a report published in December 2009. The service suffered a number of hurdles to adoption:

1. The cost of FLO TV dedicated hardware
2. The cost of FLO TV service
3. The linear nature of the FLO TV service

The challenge in winning consumers was not unexpected but there are important lessons that carriers can take from Qualcomm’s inability to drive market demand for mobile broadcast TV services if they in fact plan to continue offering mobile broadcast services and most of these challenges are the same as Qualcomm faced in their direct to consumer play.

1. The cost of mobile TV enabled phones. Of the 4 AT&T phones that offer mobile TV service (mostly featurephones with touchscreens) only one is free while the others range in price from $49.99 - $149.99. Compare this to the 20+ free phones available to consumers and the reasons users may opt against mobile TV enabled phones are clear. As smartphones continue to gain momentum in established markets feature phones are attractive to a more communication/cost-centric audience. Therefore an increase in hardware cost to the carrier must translate to an increased cost to the end user. Therefore the increased cost of hardware featuring mobile TV makes the devices less attractive.
2. The cost of the service. Despite carriers testing various models – such as giving away broadcast channels for free or offering free service for a few months – the price of the service remains too high for the value it offers. If in fact the type of user opting for a feature phone is not multimedia inclined even then even a nominal fee – in this case $10 which is more than nominal – could be enough to scare away potential subscribers.
3. The demand for linear TV services. This will always be an issue for Flo services and in the increasingly on-demand world full of alternative video options paid mobile linear services simply don’t make sense for users.

In countries – such as South Korea – where most phones have mobile broadcast chipsets combined with free robust services adoption can even be deemed modest successes and the revenue for content owners in such a scenario remains unclear. But it does so only because it is free. Just because Qualcomm is retreating from the direct to consumer space doesn’t necessarily mean its white label service will also be a failure. One potential albeit unlikely side effect carrier should be wary of is that Qualcomm’s content partners – recognizing the limited opportunity the market offers combined with the limited success of these services could abandon mobile TV limited the amount of content available.

This only underscores the challenges that carriers in developed regions are facing. In an era where the carrier is becoming increasingly marginalized for phone services they must decide where to invest and right now that investment in both development, marketing should be behind their own branded app stores.

Qualcomm on the other hand should decide what other services the FLO spectrum can be used for. One opportunity regularly touted was aftermarket accessories for smartphones that could receive Flo broadcasts – but that too would have inevitably failed so now Qualcomm must go back to the drawing board. After spending a reported billion dollars on FLO technology and spectrum it may be worth Qualcomm considering licensing the spectrum for some other use..

The inevitable movement to tiered pricing which started with Verizon Wireless acknowledging its plans to do so for LTE and has been accelerated with the much anticipated data plan announcement by AT&T this week.  So, what next?

• Will we see significant priced based competition for mobile data among the top US operators?
• Will we see significant movement in share of adds for AT&T as iPhone wannabees are tempted by a plan of only $15?
• What impact will lower data plans for smartphones have on AT&T’s Quick Messaging Devices and Verizon Wireless equivalent?
• How long before we see family data plans and shared usage across multiple devices?

The move by AT&T is a smart play to extend the smartphone momentum as the low hanging fruit of Apple aficionados, multimedia techies and style seekers willing to pay top dollar has been significantly penetrated.

There is no doubt that the iPhone remains the coolest device on the marketplace and the end to end user experience remains easily the best in class. So, reducing the TCO to attract the next 20% of customers to a paid data plans while educating customers about data usage levels and managing the traffic risk is very smart business in my opinion.

The lower price points will help AT&T maintain its current leading share of smartphone users and may be attractive to casual social networkers

• Although the 50 photos allowance is not exactly generous! For casual messenger, and social network status checking and moderate email the new DataPlus plan is quite attractive overall and will likely attract a portion of customers who would otherwise opt for a Quick Messaging Device from AT&T or a competitive offering from Verizon Wireless.

I do expect to see some modest price competition among the big operators

• with T-Mobile most likely to drive prices lower given their need for scale and to protect their predominantly youth centric customer base. but also expect an increasingly strong Verizon Wireless handset line up to compete strongly.

The impact on Quick Messaging Devices is in my opinion likely to be modest

• as a traditional qwerty remains overwhelmingly the input of choice for heavy messengers in the US although there is definitely room for lowering the $10 mandatory data plan on featurephones

Family data plans and data plans which allow access across multiple devices are in the pipeline

• but will probably not make an appearance until 2012+ as part of LTE offerings.

From a device vendor perspective, the move to lower priced iPhone plans is likely to put further pressure on vendors like LG who have yet to make a credible offer in this space as well as RIM who will find more competition in the consumer space.

The lower pricing on data plans will be music to the ears of ambitious new entrants like Huawei, ZTE who plan to bring mass market priced devices to the US & Europe. The lower TCO of smartphones as a result of downward pressure on service prices boost their addressable market.