AT&T's Lurie on taking risks and changing business models

Glenn Lurie, president of emerging devices at AT&Twith Glenn Lurie, president of emerging devices at AT&T

Earlier this month FierceBroadbandWireless Editor in Chief Sue Marek visited AT&T Mobility's offices in Atlanta and sat down with Glenn Lurie, president of emerging devices at AT&T. Lurie expounded on his vision for embedded wireless, how he and his team are breaking down established business models in order to grow the business--while also keeping an eye on the performance of AT&T's network. 

FierceBroadbandWireless: An Accenture study on embedded wireless recently found that the biggest hurdle in this area is finding the right business model.  Do you agree?

Lurie:  I don't agree with that for us. I think what is interesting is that carriers have always done something a certain way. Many carriers have baggage and want to do things the same way.

When we started this group, I sat down with (AT&T Mobility CEO) Ralph (de la Vega) and we went to (AT&T chief) Randall (Stephenson) and I said, ‘Look, you need to allow me go out and change everything we do.' And I attribute everything in that first year of success to our ability to do things differently. We launched 19 devices in that first year. We walked into every deal and we have been very flexible and open to any business model.

I don't think my competitors went about it the same way. And in a lot of deals that we did, they were at the table. We were all there. I attribute this thinking to the Apple deal. We learned with the Apple deal that to do this we had to think differently and take some chances. We are changing the way we do business. 

We took a similar approach with embedded and everyone--Ralph, my CFO  Pete Richter,  Randall--has been very supportive of us doing things differently. That's why Ralph calls us a startup and Randall uses that term too inside of AT&T.

Everything is different: the customer experience, activation and the business model. Some carriers won't do that.

FierceBroadbandWireless: All the carriers are saying they are open, but what does that mean? It seems to mean different things for every operator.

Lurie: When I say open, I'm talking about being open to new ways of doing business. When we announced the iPhone deal, we got battered by the media. People said we were giving up the UI (user interface); they said we were giving up the browser and people thought we were crazy for doing it this other way. But we saw an opportunity with Steve (Jobs) and his team and we knew that he was building an innovative device. There are times when I walk into CFO Rick Lindner's office with some crazy stuff, but we focus on incremental OI (OBITDA, or Operating Income Before Interest, Taxes, Depreciation and Amortization). It's incremental revenue and income to the business that we are looking for. It doesn't matter if it's $1 per month. It doesn't matter if it's $10 per month. What matters is that we raise shareholder value.

Our thought process is that without worry about ARPU and churn and the old metrics, we have the flexibility to cut a deal with someone like PanDigital for a picture frame that we hope is going to be a very exciting new device and we are selling the bits and bytes.

I think the idea of wireless behind the scenes like what Amazon did with the Kindle is a great model. People don't care how they get wireless, they just know it works. They made it simple.

FierceBroadbandWireless: But there is still an HSPA vs. CDMA hurdle. Companies are conflicted over what technology to embed in their product.

Lurie: Most of these folks want to build a device for the world. If you are building your first device and you want to penetrate around the world then GSM is your choice.

We tried to make it so simplistic to do business with us that companies have a clear choice. The knockout punch is that we are GSM and most companies, like Garmin, want to be a world player.

FierceBroadbandWireless: Are you concerned about Verizon and the Verizon/Qualcomm joint venture nPhase and their partnership with Vodafone? In February the companies announced an alliance to make it easier for M2M firms to have connectivity across Europe and the U.S.

Lurie: I'd say that at this point in time the advantage we have is that we have great relationships with our partners. We work with trusted partners like Jasper Wireless and we want to talk to everyone. We listen, we don't dictate. You have to have the flexibility and the business model and you have to find the win/wins for both sides. 

FierceBroadbandWireless: But doesn't it matter if those partners succeed or fail, i.e. a TomTom or a Garmin or another embedded device firm?

Lurie: It does matter. They have to succeed.

FierceBroadbandWireless: But you don't have control over their product or business model.

Lurie: Yes, it's a wholesale agreement, but even in the sense of a wholesale agreement you want to be a good partner and you want to have good partners. We try to give them good feedback. Ultimately it's their decision, but my team is going to be in the middle of it and they are going to try to help.

FierceBroadbandWireless: So if you are approached by a product that you don't think will work you will turn it down?

Lurie: Let's just look at one aspect. Just taking a device from someone who has never built a wireless device and helping them build it and getting it into IEEE and getting it certified costs us a ton of money. Our investment is huge in every device launched and, yes, I really want every device to succeed --because every device costs us money.  

Every device costs us time, people time and money. More importantly, I'm a good partner. If you are an OEM and we are sitting down, we have to be able to both look at each other and say that this is going to be a good device. I've had some sit-downs with some CEOs and I've had to say that I don't think something will work. But we are willing to do things--invest in consumer research--to help make it work. We want to put in the effort to make sure we understand what will happen. And I'm willing to take risks.

FierceBroadbandWireless: What about network capacity issues--with all these additional devices on the network, will that put additional strain on capacity?

Lurie: I think the capacity issue is different in this space. Bottom line is we have seen all this growth and we have learned to handle the network. The reality is our network is working well and our plan is working well.

But there are two pieces: There is signaling issue and the capacity issue. Most of the devices that we put on the network are not heavy capacity devices. They are bursty but not thirsty. They cause signaling because they are on the network, but in those cases those are pretty easy.

When you get into netbooks and computing devices, tablets, those are heavier. The way we do it is very simple. We have a forecast as a business and we understand what we are building and all the variables of the network, and we forecast what we think all the devices will do that we are adding to the network. And we are very comfortable with our forecasts and with our network.

FierceBroadbandWireless: But didn't you do forecasts with the iPhone?

Lurie: The iPhone was more about volume and less about what the device could do. Obviously we had great success, which is wonderful. When you look at the ebook--whether it is Amazon, Barnes & Noble or Sony--and look at the usage of an ebook, we are pretty good at predicting how they will perform on the network.

We signed all these deals this year and many of them were with big companies and all of them dug into our network, our forecast, our plan and everyone signed a deal with us over our competitor.

FierceBroadbandWireless: No matter how many times you explain it, people are still confused and concerned about how customer service will be handled with these devices. 

Lurie: It works. I use the iPhone as the biggest and best example. There are millions of customers that know Apple. And they know we are behind it. Believe it or not the vast majority call the right place the first time. If they have an iTunes issue or a handset issue, they call Apple. 

FierceBroadbandWireless: But is Apple really the best example? Their customers have a huge commitment to their products.

Lurie: We are behind Amazon's Kindle too. And we have a study from a firm that studied the ebook readers and it's amazing. Whether you are Barnes & Noble, Sony or Amazon, we are behind the scenes. When you open the box, you don't see AT&T anywhere. There is a number to call if you need help and it's Amazon's number. But we still have people walk into our stores and say they need help and we will always help them. But it's not an issue. The key is you set the expectation with the customer up front. We focus on this.

Have you heard the term LBGUPS? It stands for Learn, Buy, Get, Use, Pay and Serve. When we sit down with a product, I'm diligent when we are about to launch a product and I make my staff explain to me the customer experience at every point of LBGUPS. The thing I like about it is it forces you to think about how the customer will learn about the product, how they will buy it, get it, use it and pay for it, etc. If we are not right on one of those steps we will fix it. 

Right now, if I were to look the top issues in this space, customer service is not one of them.

FierceBroadbandWireless: So what is?

Lurie: The No. 1 issue by far is the cost of module. Right now, WiFi is being thrown into everything. Why? Because it's $5. When you talk about a HSPA multiband chip, and putting it in a low-end device, the chip is almost as expensive as the device. The cost is too high. The only way you get that down is volume. What comes first?

We have been working with Qualcomm, Ericsson and others to get that down in price to the range of $20 to $25. That is the biggest concern I have in this space.