The Zer01 Story: Lots Of Buzz, But Is It Actually Real...?

from the evidence-lacking dept

A disruptive mobile phone company claims to have launched on July 1. It's called Zer01, and if on the level, would radically incite price competition in the US cellular market. Zer01 is an MVNO or MVNE (depending on when you spoke with them), and they say that they can offer cheap unlimited service by the 3G GSM cellular data network of a national partner, which they will resell. Voice services would be delivered as data using VoIP. Zer01 launched with unlimited voice, text, and data plans for $79.95 a month - including tethering your laptops all you want, and with no contract. The problem is: there is no evidence that this service actually exists. Nancy Gohring at ComputerWorld digs in to the story, and found a lot of reasons to be suspicious about the company. Added all together, it looks pretty shady, and reminds us of the Gizmondo scandal back in 2005.

But a few people in the comments of Gohring's article said Gohring pulled a hatchet job on a legit young company. They argue that many young companies start out looking rough around the edges. "Where was Microsoft's headquarters when they launched?" Perhaps some young companies do look this sketchy at the onset, but not the hundreds of startups that I've seen and evaluated in my career! And certainly not any company that has a serious shot at taking on the national Tier-1 cellular carriers, head-on. If you want to battle with Verizon Wireless, nationwide, for data, voice, and support services, your business needs to look a far sight more established than a startup with a mailbox in a Vegas strip mall. If you claim patented technologies, devices, a customized On Device Portal, then you should have a team of engineers on staff somewhere, and the USPTO should be aware of your patent. SK Telecom and Earthlink launched an MVNO, Helio, which failed at taking on the big carriers despite the track record of being the #1 carrier in South Korea, and a decent kick off investment of $440M, then $200M more, then $270M more. But OK, let's suspend disbelief just a bit longer: Maybe a small, scrappy company is just shrewd enough to win where others have failed. I want to believe, too. But after interviewing Zer01, I just can't buy into the dream.

I interviewed Zer01 CEO, Ben Piilani at CTIA this year (April Fool's Day). I was lured by their PR release about their plan, which sounded incredible. But after our half-hour interview, my parting words were "Good luck to you, but sign me up as skeptical." During our chat, Piilani said lots of things that struck me, as an experienced telecom analyst, as... um... wrong. Here are just three parts of the interview:

1. Piilani told how, in delivering wireless data to phones, the wireless part of the connection is the easiest part to handle, and since ZER01 uses its own fiber backhaul network, but only uses the Wireless Carrier for that easy wireless jump, host carriers don't mind the impact because there is ample capacity. I thought, "Wha? That doesn't fit with all the research coming out saying that wireless capacity is being pinched. Nor does it jibe that the carriers just spent $Billions at the spectrum auctions for access to more cellular channels." But then Piilani went on, "You know that in Europe, data is basically free. You can show up in the airport and buy a SIM card, slap it in your phone, and the data is unlimited." Um... I thought, "I was in Europe last month for MWC, and at least once a year for the past 10 years. And as a wireless data analyst, I've bought about 20 of the SIM cards he's talking about. I'm pretty sure I would know if there were an unlimited data, SIM-only option."
   
   As anyone in telecom knows, there is not. I thought to myself: "How odd that he would say such an absolute falsehood. And odder still that he does not know enough about the cellular industry to understand how obviously false he sounds."



2. I wanted, most of all, to see the proof in the pudding. I wanted to make a call over the company's VoIP over 3G solution. I asked Ben if I could make such a test call, and he said sure, and hooked me up with a Product Manager at the end of our interview. I asked if we could place a call, but the PM began instead by showing me the phone's fancy looking On Device Portal (ODP) UI running on WinMo. He was explaining the great UI and all the apps that were to be included. So I said, "Click on one or two of those nice-looking icons and show me the apps." I picked the icons, and behind every one was an "under construction" response. He picked a couple, and there were some deeper pages. But the ODP was basically window dressing with nothing inside.



3. So I pushed, and said, "Mr. Piilani sent me over here to make a phone call on your device. Let's call my phone." He replied, "Oh, sorry. Our PR firm told us not to make any calls on the show floor, because the wireless signal here is so unreliable with so many people using it." Odd that Mr. Piilani wasn't aware! I said, "Sure, but the carriers have all put COWS onsite, and no one is having signal problems this year. Look there's one guy talking on his phone right there, and my phone is four bars." He said, "Well, PR told me not to." I thought, "Fail."

I left with serious doubts about Zer01's ability to deliver on their promises, and some suspicion that they might not be on the level. Piilani and his team must have impressed someone, though, because they ended up wining a Best In Show award from Laptop Magazine, and getting praise from some analysts, even while at least a few others were more suspicious. Gohring's much more thorough recent investigation pretty much blows the top off of this story, though. Gohring suggests that Zer01 bears some resemblance to a pyramid scheme, where the real money comes from an ever growing network of distributors or "e-affiliates" who pay money for the right to resell the service. In fact, Zer01 is sold through a network of "e-affiliates" using a Multi-Level Marketing (MLM) setup managed by two other companies, Buzzirk and Global Verge. The Buzzirk cost of entry and compensation schemes incent distributors to join in at $150 the first month, and then $100 monthly thereafter. There are lower join levels, but they don't offer the MLM revenue benefits. For their money, distributors gain the right to a lookalike e-affiliate website that appears... ahem...bush league, and the right to sell the phones... which haven't actually appeared yet. Zer01 itself claims a network of 50,000 distributors. Assuming that is so, MLM revenues could be over $7M in just the first month -- but that's got nothing to do with actual service revenues.

For an example, check out "Robin and Jerry's" e-affiliate website, replete with photos of the phones they haven't touched yet. The pictures are of standard Windows Mobile devices, and it's interesting to note that the UI shown is either MSFT generic, or the product of (totally legit) German software company Spb Software House. Funny that they're using Spb's images to sell Zer01 instead of actual Zer01/Buzziker screens. Since the phones aren't available, the only thing the MLM websites really sell is a position as a distributor, lower down the food chain.

The MLM world is infamous for its own jargon. Buzzirk is no exception with a "3x9 matrix with vertical and horizontal compression." Most of the distributors defending the scheme at scam.com were saying they would find vindication when the "Triple Diamonds" got the phones. Triple Diamonds are those e-affiliates who have recruited at least 25 active e-affiliates under them, and they are the elites who are expected to get the phones first, and can finally validate whether there is any reality to the story or not. So far, the Triple-Diamonds are only getting delays from Buzzirk and Zer01.

So, is this whole thing legit? Will there be phones? Is it a pyramid scheme, or just MLM?

In the US, a pyramid scheme is illegal, and is defined by an utter lack of product, and a focus on the recruitment of additional distributors instead of product sales. But since Zer01 is a separate legal entity from the MLM distribution companies, they can't be accused of a pyramid scheme -- they simply sell their phones to 'entirely separate companies'... with similar office locations. Meanwhile, Buzzirk and Global Verge, despite recruiting their e-affiliates with a focus on the mobile phone offering, also are clear that they offer other products that their e-affiliates can sell, such as a "water saver," a "power saver," and "identity theft protection." Thus, it is possible that the phones will never arrive, Zer01 will say "Sorry, just couldn't pull it off," and blame it on Ma Bell. Buzzirk and Global Verge can say, "Sorry, e-affiliates, no phones. Thanks for the fees, but stick around to sell the water saver," thus, engaging in legal MLM, not a pyramid. This paragraph is certainly just speculation, but cautious investors might want to investigate further whether the mobile phone service is just an oasis to lure them into an expensive "water saver" MLM franchise.

I've seen all forms of wacky claims made by Zer01 re-sellers while researching this post. I've read how it roams from AT&T, to T-Mobile, to Rogers, to TELUS (with no mention of the fact that TELUS uses CDMA networks not supported by the phones they offer). I've read that it will work in airplanes, that "it's got the 2100MHz speed," that you can download a movie to your laptop in 3 minutes, that it includes SMS MasterCard mobile payment, and that it uses "the proprietary patented technology that Zer01 has that allows your phone to switch from GSM, Tri-Band, Quad-Band, Wi-Fi to connect to the VoIP," that it's 4G, that it's 5G and that it offers 20Gbps on a private FTC-licensed 2100MHz network. The claims range from the improbable to the technologically incoherent or both. The company leaders suggest that this is caused by confusion, and overzealous distributors. Perhaps some clear, correct, and well-presented franchiser information would abrogate the need for the creation of falsities? When so many of the e-affiliates are lying, I think the company at the center still deserves at least some of the blame. Besides, much of the gibberish is right off the Buzzirk franchised website, like "Internet speeds will range across GPRS, EGPRS, EDGE, and even 3G when available." Someone should have told these telecom experts that EGPRS and EDGE are exactly the same thing.

There will surely be Zer01/Buzzirk/Global Verge defenders popping up in the comments, some from the companies, others that just disagree, and some from the 50k "distributors" who have already been convinced to re-sell Zer01. There is a whole army of people out there who, once fooled, have pride, cognitive dissonance, and personal financial interest in defending Zer01. Comment away, call me a hack, and exercise polite free speech. But please also make your case: offer your telecom credentials if you have any, tell us where the Zer01 engineers are, what the special technology is, where the towers are erected for that proprietary 2100MHz network, who the network provider is, how standard HTC phones can push 20 Gbps of data with just a SIM card upgrade, where the claimed patents are, with whom Zer01 has Mobile Network Operator contracts, and if you have used one of the Zer01 devices personally and can vouch that they exist, and work (and aren't just AT&T SIM phones with an ODP).

Filed Under: mlm, mvno
Companies: buzzirk, global verge, zer01

Thin Skin: SMS Political Jokes In Pakistan Can Get You 14 Years In Jail

from the can't-take-a-joke? dept

It would appear that the typical late-night TV comedian in the US would face serious jailtime in Pakistan, were he based there. MK alerts us that President Asif Ali Zardari of Pakistan is so annoyed by people passing around jokes about him via SMS that the gov't has started threatening to charge people for passing around such jokes, as "slandering the political leadership of the country" under a vaguely worded Cyber Crimes law, that could lead to 14 years in jail. It seems that should only lead to more jokes. How does one get to be a political leader with such a thin skin?

Filed Under: criminal, jokes, pakistan, sms

RIM Pays Out Again Over Patents

from the how-dare-you-try-to-do-wireless-email dept

The patent battle between RIM and NTP is considered something of landmark in alerting politicians and the general public to just how ridiculous the patent situation is these days. There was, however, an interesting sidenote on this. As part of its attempt to show that its own patents were valid, NTP convinced a couple other companies to "license" the patents -- except the details showed that NTP "invested" in each of these companies at the same time. That certainly looks like NTP paying a company to license its patents, just to make it looks like there were some legitimate licensees. Two of the companies that NTP did this with were Visto and Good Technology. Having licensed NTP's patents, Visto, at least, took a lesson from NTP and became an aggressive player in the patent lawsuit game, trying to mimic NTP's success by suing RIM as well.

There is no way to describe this other than sour grapes. Visto tried to play in the market and was a pretty big (and massively expensive) failure. RIM, on the other hand, was able to create a product that people wanted and build a good business on it. This wasn't by copying Visto's (or NTP's) ideas, but better understanding the actual market and creating a good product itself. Visto failed to do that. So, in turn, it just sued and demanded cash from the company that was able to innovate. Recently, Visto also purchased Good Technology (another NTP licensee) from Motorola (who had purchased it earlier), likely adding more patents to the portfolio.

Either way, it looks like RIM has finally grown tired of the game and has agreed to pay Visto $267.5 million. It's less than the amount NTP got, but it's still a hefty chunk of change. And, for what? For being the loser in the market place. This is a tax on innovation. The loser in the marketplace forces the winner to hand over a nice chunk of profits. It's bad for everyone (except some lawyers and Visto shareholders).

Filed Under: innovation, patents, wireless email
Companies: good technology, rim, visto

The Reality: Not As Many Actual Apps In The iPhone App Store As You're Told

from the pumping-up-the-numbers dept

Years ago, when I worked for a company that was trying to do digital distribution of software apps, we had a competitor that used to claim that it had agreements to distribute 300,000 apps. We, on the other hand, had agreements for more like 3,000 apps, which certainly made us look at lot smaller. The problem? There weren't even 300,000 apps out there at the time. The other company had done some deals with clip art providers, and the counted each piece of clip art as an "app." But, in the numbers game, it really looked good (and bad for us).

I'm reminded of that story as Om Malik digs a bit into Apple's claim of 65,000 apps in its iPhone App Store, and points out how misleading this is, because a few providers are uploading bulk apps. These are really one app but they're differentiated by pulling different content from the web in each implementation:

These are typically local search or travel apps written by a single publisher. Molinker is one such example. It pulls content from Wikipedia and Flickr for a country or travel destination and renders it for viewing offline. Molinker offers more than 800 of such applications, at 99 cents a pop. Another bulk apps provider is GP Apps; it has 380-plus apps, each of which essentially takes a search word and marries it to Google Maps.

In reality, each of these is one app, with a single distinct instruction concerning what content to pull. But Apple gets to count them as a separate app to puff up the numbers (which is useful, given the growing competition from other phone app stores). But Om is correct. Such apps should be counted as a single app and the numbers of apps in the store should reflect that. Otherwise, someone could (for example) create an RSS-reader type app, where each one pulls a specific RSS feed. Then upload each one with the millions of different RSS feeds out there, and you could boost the app store's app count to million in no time. But that would be incredibly misleading.

Filed Under: app store, counting, iphone

The Problems Of A Legacy Business: Verizon's Union Freaks Out That Verizon Wants To Look Forward

from the what-a-shame dept

It's really sad to see some of the struggles that legacy businesses go through in trying to adapt to a more modern world, but not all of it is the fault of those businesses themselves. Look, for example, at what's happening with Verizon. Subsidiary Verizon Wireless -- which is 55% owned by Verizon -- began a marketing campaign pushing people to ditch their landline phone and go completely wireless. That's not a bad marketing campaign (and, in fact, might be a very good marketing campaign these days). So what happens? The union that represents Verizon's landline telco workers flips out and accuses the company of trying to undermine the union by helping Verizon get out of the landline business, so it can get rid of those workers. Seriously. First of all, there's little evidence to suggest that's true. Like most traditional telcos, Verizon still sees its basic landline business as a useful cash cow that I'm sure it intends to milk for as long as possible. Chances are, since VZW is a separate company, the marketing plan had nothing to do with the parent's marketing efforts. But, either way, at some point the company should be pushing customers to ditch landlines and other older technologies and embrace better solutions. Not because it puts old union guys out of work, but because it's where the market is headed.

Filed Under: landlines, markets, mobile, progress, technology, unions
Companies: verizon, verizon wireless

The No Responsibility Society: Suing Because Your Daughter Is Texting So Much She Didn't Notice The Open Manhole

from the houston,-we-have-a-problem dept

A bunch of folks have been sending in various versions of this story -- and I have to admit, it sounds so ridiculous that it reads like an urban legend. I was hesitant to even write about it at first, but with so many mainstream media sources covering it, perhaps it really did happen. Basically, a girl who claims she was so focused on text messaging while working fell into an open manhole in Staten Island. Now, that should be embarrassing enough, but the really crazy part is the claim that the girl's parents are planning to sue the city for not adequately protecting their daughter from herself. At least they're not suing the mobile carrier or mobile device maker as well...

Filed Under: responsibility, suing, texting, walking

If AT&T Mobile Broadband Banned TV Streaming, Why Does It Allow MLB Streaming?

from the net-neutrality? dept

Earlier this year, we covered AT&T's back and forth over its terms of service, concerning whether or not services like SlingMedia's place shifting (streaming from your TV to a phone or laptop) was allowed. Some had noticed that AT&T's terms of service appeared to forbid it -- but then AT&T said it was a mistake and took it out, only to change its position a little later, and reinsert the language. Because of that, Sling had to disable its own player from working when an iPhone is connected via the 3G cellular network, rather than a WiFi connection.

Yet, recently, Major League Baseball's digital arm, MLB.com announced that it was going to start streaming video of games to its iPhone app, even on 3G connections -- and AT&T seemed fine with it. However, this differential treatment is leading to charges of favoritism and discrimination, even bringing out the dreaded charges that "net neutrality has been broken." The specific question is why AT&T gets to choose which streaming video apps are allowed, and which are not. If your regular ISP told you that you could watch Hulu, but not YouTube, there would be quite an outrage.

AT&T's response is disingenuous, at best, claiming:

AT&T said the MLB app streams video from MLB's website, while SlingPlayer streams from the TV set-top box Slingbox. AT&T also said the company is only trying to ensure all users on its network get the best possible service.

"We're certainly not crippling any apps," an AT&T spokesman said. "This is an issue of fairness.... While we would like to support all video services across our network, the reality is that wireless networks simply lack the capacity to support customers streaming hours of cable, satellite or IPTV video programming to individual users."

While this -- once again -- highlights the point that mobile cellular services are nowhere near legitimate competitors for real broadband services, note that the AT&T person never actually answers the question. The fact that Sling streams from a settop box and MLB streams from MLB's website is functionally meaningless to the iPhone. To the iPhone user it's the same thing. It doesn't care where the server is placed -- it's just receiving a video stream. So AT&T is not being honest or upfront about this at all. If the network is a problem, then it shouldn't allow video at all. Picking and choosing who gets to run video certainly smacks of discrimination and favoritism -- exactly the sort of thing the FCC claims is not allowed.

Filed Under: fairness, mobile, net neutrality, streaming video
Companies: at&t

Mythbusters' Adam Savage Discovers Insane Roaming Fees: $11,000 iPhone Bill For A Few Hours Surfing

from the BUSTED dept

Every few months or so there's an article somewhere about an insane phone bill that someone gets because they took their phone out of the country without recognizing the insanity that is international roaming rates. This time, it appears to be Mythbusters co-host Adam Savage, who's been doing a bit of traveling lately. He was recently up in Canada, and used his iPhone to do a little web surfing. And now he got the bill. Apparently AT&T wants somewhere around $11,000 for Adam's surfing and have turned off his phone until he pays. Now there will be some who say that he should have read the fine print, but considering just how often these sorts of stories pop up, at some point it's worth noting that the fine print isn't working. And... even if you grant the "fine print" premise, it's hard for anyone to figure out how these international roaming rates make any sense whatsoever. They're so far off the charts as to be unbelievable.

Anyway... next week on Mythbusters... the insanity of mobile phone bills? Can we see Jamie and Adam try to decipher hidden fees, while Grant, Tory and Kari search for the elusive accurate mobile phone coverage map? Maybe Buster can figure out what the real limits are on unlimited data plans? Hmm... maybe not.

Filed Under: adam savage, data, international roaming, mythbusters, roaming, text messages
Companies: at&t

Court Says Anti-Telemarketing Law Covers Unsolicited Text Messaging

from the this-is-a-good-thing dept

Via Michael Scott we learn that the 9th Circuit Court of Appeals has found that the Telephone Consumer Protection Act (TCPA) also applies to unsolicited text messages. The TCPA covers certain kinds of commercial marketing over telephones, and has a rule against the use of "automatic telephone dialing systems," but it wasn't clear if text messaging was an automatic telephone dialing system. The court has now said yes.

Separately, the case looked at whether or not agreeing to a basic terms of service also represented "express consent" which is needed under the TCPA. In this case, the woman had purchased a ringtone, but did not believe she had consented to commercial text messages. In buying the ringtone, the woman agreed to an extremely broadly worded terms of service that was probably purposely designed by lawyers to cover a wide swath of potential other things -- such as allowing the company to let others market things to the user. The question was whether or not other companies, who purchased the phone number from the ringtone company, could then market to the woman. The court here finds that dubious as well, noting that "express consent" is "[c]onsent that is clearly and unmistakably stated," which the court feels was not the case here, since the consent was only for the ringtone company to market messages, not anyone else (even though the marketing company -- in this case Simon & Schuster -- noted that the text message was "powered by" the ringtone company): "Thus, Satterfield's consent to receive promotional material by Nextones and its affilliates and brands cannot be read as consenting to the receipt of Simon & Schuster's promotional material."

This ruling isn't the final say on the matter -- as the appeals court was just reversing a lower court's summary judgment, and telling the lower court that it needs to actually go further in paying attention to the case. However, the points raised above are certainly important ones that I imagine will start showing up in other cases as well. Finally, it's also worth pointing out that the defendant in this case is Simon & Schuster, rather than Nextones. This does raise some interesting questions. Simon & Schuster believed that it was purchasing the right to contact these phone numbers legitimately via a marketing company partnered with Nextones. It had no idea that the "agreement" may be faulty, but it may now be liable for breaking the law. If that moves forward, you would have to think that Simon & Schuster has an argument to sue either Nextones or the marketing company it worked with for misrepresenting the "explicit consent" on those numbers.

Filed Under: spam, tcpa, telemarketing, text messages

Less Well Known Artists Make Use Of Mobile Platforms To Interact With Fans

from the an-artist's-an-artist,-no-matter-how-small dept

When talking about the success of musicians adopting business models around the economics we discuss here, people often complain that it "only works for big artists" or "only works for the little guys," so much so that someone dubbed the exceptionalism as "Masnick's Law." I admit that it was easy to feel this way when Trent Reznor launched the Nine Inch Nails iPhone app. How many less well known artists would benefit from (or be able to develop) their own mobile app? Well, a company called Gigdoggy recently launched a mobile "Fanteraction" platform that lets bands easily create mobile websites for their gigs. In a blog post chronicling a show in which the platform was used and promoted, the first artist to play didn't really push it, but the second artist, Greg (one of the creators), made a point of explaining it to people. Basically, by queueing up each song on the site, an artist is able to provide lyrics and additional information that the audience can access via a mobile device while enjoying the performance. It's web-based, so it's accessible from different platforms without the need for downloads (or the risk of getting banned by Apple). Greg was able to get some people interested and following along. One audience member even prompted him when he forgot the lyrics to a verse! The platform is in its early stages, but it'll be interesting to see how it develops and what people do with it. At the very least, it's a good illustration that you don't need to be playing in stadiums to find a use for this sort of thing.

Filed Under: connect with fans, fanteraction, music, musicians
Companies: gigdoggy