Evidence from around the world is overwhelmingly against a profitable standalone business case for pure 3G services

Well written piece. Highlights very well what I have been mentioning on this blog for a long time. The 3G game is India is currently more for the capacity benefits 3G offers in view of the plethora of operators many or most plagued by severe 2G spectrum shortages

Evidence from around the world is overwhelmingly against a profitable standalone business case for pure 3G services

(Tony Worthington is the Global Head for Telecoms, Media & Technology at Standard Chartered Bank. The opinions expressed are his own)

The process for the auction of 3G licences in India kicks off in January 2009. What valuation levels are likely to be achieved?

The key point to understand with regard to the 3G licence process is that there are two distinct forces at work. Firstly, there is the business case for 3G services in India.

Secondly and most importantly, there is the issue of spectrum scarcity in the country.

Let me address the business case for 3G services first. In simple terms I do not see a profitable standalone business case for pure 3G services for any operator in India. Evidence from around the world is overwhelmingly against such a 3G business case.

In Europe in 1999 and 2000 many bankers, including me, were scratching our collective heads and attempting to work with consultants and operators to build 3G business cases. These business cases resulted in licence costs of in excess of $8 billion in the UK and Germany.

Coupled with the bursting of the dotcom bubble, these excessive valuations drove the telecoms sector into a period of remission for the next three to four years.

Operators were overgeared and the business case for 3G -- which included real-time football and cricket matches, online gambling and adult entertainment - just never materialized.

Part of the problem was a lack of available 3G handsets. This is very different today, but 3G handsets are still typically over $250, well beyond the reach of the substantial majority of mobile users in India.

The specialist 3G company 3, owned by Hutchison, quickly realized to its credit that it had to change its business case to a 2/2.5G company. Finally 3 is having some success in the UK with around 5 million subscribers.

Is there any hope for the pro-3G advocates? Well let’s look at Hong Kong, the city with the perfect environment for 3G.

For the first time Hutchison now has more WCDMA (3G) subscribers there than GSM. Sadly all of the other operators' 3G subscribers are lagging their GSM subscriber base significantly.

If Hong Kong cannot be a 3G dominated market then most other markets have no chance.

India's main structural issue in mobile telecommunications is not users wanting to view real-time IPL on their expensive 3G handsets. It is a chronic shortage of spectrum availability in many circles at peak times. This is a problem largely unique to India.

We currently have operators busy modelling their investment and business cases. But 3G services are not the key issue in these models. Rather a detailed analysis of capital expenditure and revenues through additional 2 and 2.5G subscribers are at the forefront of operators' thinking.

Of course there will be a limited number of high-profile, high ARPU 3G subscribers. But these will be in the significant minority.

So look at the recent 2G spectrum process and resulting M&A transactions for clues on the licence values likely to be achieved. Two start-ups (Swan and Unitech) were able to generate valuation levels for their business in excess of $1 billion and over twice the cost of the spectrum initially acquired. This sets reference points on a pan-India basis for the spectrum in the 3G licence process.

The 3G licence process in India will be a success. But the underlying reason will be a 2G one.

eMarketer makes bearish projection for social network ad spending

Social networks are likely to be affected in the given slow down given that advertising formats they offer are more experimental than time-tested formats such as search advertising.This is likely to stymie innovation and experimentation. Facebook, in particular, has been experimenting with a variety of new ad formats, including ads that appear in news feeds and ad “pages” emphasizing user engagement. These formats may prove profitable in future years but advertisers are likely to pull back from them for the time being because they currently cannot always demonstrate a proven return on investment.

eMarketer makes bearish projection for social network ad spending

Eric Eldon | December 10th, 2008, Venture Beat

Marketing research firm eMarketer has lowered its projections for social networking company ad revenue this year and for the the forseeable future. The reason, unsurprisingly, is that the firm expects advertisers to cut back spending due to the recession. Social networks will be affected, the firm believes, because the advertising formats they offer are more experimental than time-tested formats such as search advertising.

Advertisers will spend $1.2 billion total on social networks this year, the firm estimates, cutting the projection of $1.4 billion it had made in May. Next year will see a sharper drop in total spending: the firm has updated its previous estimate of $1.8 billion in spending down to $1.3 billion.

The firm highlights cuts at the largest social networks in the world, MySpace and Facebook. MySpace will bring in $585 million this year, not $755 million; Facebook will bring in $210 million, not $265 million. Facebook, in particular, has been experimenting with a variety of new ad formats, including ads that appear in news feeds and ad “pages” emphasizing user engagement. These formats may prove profitable in future years, but eMarketer believes advertisers will pull back from them for the time being because they “cannot always demonstrate a proven return on investment.”

Of course, eMarketer itself doesn’t have an inside look at what’s happening in social network companies’ bank accounts, as they’re mostly privately owned. Both MySpace and Facebook have been working on new ways to target ads, so it may be that these companies are demonstrating a better return on investment.

First Turn-By-Turn Navigation App Comes to Android & Free

Will developments like this erode the value of map and navigation software makers ?

Here's a free turn-by-turn navigation application for Android, AndNav2 (AndNav stands for Android Navigation System). AndNav2 will provide full audible turn-by-turn realtime route-guidance. AndNav2 has unique features, like Text-2-Speech, an accessibility-study (aka 'Where can I get in 30 minutes') or avoiding customizable areas, i.e. a traffic-jam or a broken bridge on natural disasters.

It is enabled by the free mapping data from OpenStreetMap (OpenStreetMap.org), which is crowd sourced, and has the potential to feed onto itself as users of AndNav2 become part of the OpenStreetMap community by feeding GPS-Traces to the OSM project and uploading navigation info such as street names and points-of-interest. So when you have driven an unknown route, expect it to be no more unknown from a day to a week later.

First Turn-By-Turn Navigation App Comes to Android
By John HerrmanM on Fri Dec 19 2008

AndNav2 is Android's first turn-by-turn navigation app, marking one of the first instances where Android's wide-open apps policy has put it at an advantage over the iPhone. At least, in Europe

http://www.youtube.com/watch?v=5LM5ju-6pnU&eurl=http://gizmodo.com/5114080/first-turn+by+turn-navigation-app-comes-to-android-hates-america

Since the software is based on the OpenStreetMap mapping data, the app will be more useful in some areas than others, as the map information is, at least in part, crowdsourced like Wikipedia. The app itself, though, is polished. The search and directions functions will be familiar to anyone who has used a satnav unit (or even Google Maps) before, and the turn-by-turn functionality seems solid.

The main issue with AndNav2 is availability, as their site lists versions for Germany, France, Denmark, the United Kingdom, Spain, Switzerland, Italy, Austria and Ireland, but not the US. This could be an exclusion based on insufficient mapping data for the country, but in any case there's no reason that you couldn't install the British version and at least try it. The alpha release of AndNav2 is available here.

UPDATE: Nicolas Gramlich, the man behind AndNav, got in touch to let us know why there's no US version: logistics. Opening the app to running routes through North America would require a much larger server than the one they're using right now, for which the developers are trying to secure donations (you know, from you). And honestly, the app is free, so settle down, quit yer whinin', etc. [AndNav via MobilitySite]

DoT releases details of Indian 3G bidding

This is going to be interesting given the global economic slowdown and limited spectrum availability.

Other challenges clearly are - (i) Roadmap for additional spectrum allocation (given that each operator initially we be given only 5 MHz and its unlikely that but for two operators to get a pan-India allocation) and (ii) non-incumbent winners would also need to pay additional license fee towards an universal access license (which the incumbents have and which works out to ~ $400 Mn for a pan-India license) without any guarantee of related 2G spectrum (which is on first come first serve basis with a very long waiting list)

Leads me to believe that some players, particularly incumbents who lose out on the 3G spectrum, might adopt a GSM/WiMax play

DoT releases details of Indian 3G bidding

India’s Department of Telecommunications (DoT) has finally released details of its 3G licensing process and will begin its 3G auction on January 16th, followed by the auction of WiMAX spectrum two days after 3G bidding closes. Prospective 3G bidders must submit their applications by January 5th and the DoT will announce those bidders that meet its eligibility criteria by January 9th.

State-owned operators BSNL and MTNL have been guaranteed spectrum nationwide but the chronic spectrum shortage has meant that only two 3G licenses will be issued to private operators in Delhi and only four licenses to private operators in Mumbai - which will create fierce bidding conditions in the two key markets. Most of the country’s 23 operating circles will have four private 3G licenses allocated but spectrum shortages in Gujarat and Himachal will see only three private licenses issued and only two private licenses will be issued in Uttar Pradesh West and only a single license in West Bengal. In addition, Telecoms secretary Siddhartha Behura told local press that the DoT remained unsure on how much spectrum could be allocated in Rajasthan and northeastern India.

The DoT hopes to issue spectrum to successful 3G license winners within 30 days of the auction closing and has set the starting auction price for a nationwide 3G license at INR20.2 billion(US$422 million). In terms of WiMAX spectrum, the DoT has stated that it hopes to issue at least three WiMAX licenses to private operators in all 23 operating circles.

3GPP freezes LTE, paving way for deployment

While Long Term Evolution (LTE) technology is seen by many as the natural evolution path from HSPA, we have also seen a few recent announcements regarding the interim deployment of HSPA+ by certain operators like Telecom Italia Mobile.

TIM’s HSPA+ service will offer download speeds of 21Mbps, increasing to 28Mbps in 2H09, according to reports.

TIM’s decision to upgrade to HSPA+ indicates that the operator sees the necessity of upgrading its HSPA network before it launches LTE. At the same time, the move will buy the operator time before it has to deploy LTE, deferring the required costs by several years.

Two main strategies are emerging as operators determine their next-generation-technology paths, with some
looking to upgrade to HSPA+ and others looking to adopt LTE as soon as they can, possibly as early as 2010.

Although LTE offers better speed, theoretically enabling data rates above 100Mbps, compared with 28.8Mbps for
HSPA+, some see the investment that will be required for LTE as too great to make the technology sufficiently compelling. Thus, operators are putting more and more pressure on infrastructure vendors to deliver on the
promises of LTE: namely, lower IPR and equipment costs.

3GPP freezes LTE, paving way for deployment

Standards body the 3GPP has approved the functional freezing of LTE as part of Release 8, a “landmark achievement” that will enable operators to deploy the technology early the standards body said.

“LTE is aimed at providing the true global mobile broadband experience for users but also places high priority on improving spectral efficiency and reducing cost,” the 3GPP said. “As equipment development continues to accelerate, 3GPP will now focus on fine-tuning the standard to ensure optimal performance.”

Some operators, such as Verizon Wireless, are targeting late 2009/early 2010 for initial LTE deployments.

Vodafone, T-Mobile International, TeliaSonera, Telefonica Spain and China Mobile are also among the operators that will be the most aggressive with their LTE rollouts. All of these operators are looking to launch LTE in 2010.

Many operators worldwide, including CDMA operators, have already committed to launching LTE, meaning the only

technology that will be competing with it for operators’ 4G investments will be WiMAX, which many in the industry

say is more accurately compared with HSPA technology.

Targets for LTE are to have average user throughput of three to four times the Release 6 HSDPA levels in the

downlink (100Mbps) and two to three times the HSUPA levels in the uplink (50Mbps). Although LTE offers better speed, some see the investment that will be required for LTE as too great to make the technology sufficiently compelling, in the near term at least.

More than a decade after the Internet revolutionized how we shop, innovation in e-commerce has hit a wall.

Yet somewhere along the line the big players just stopped changing the online shopping game. Think about it: Is your experience shopping online any different now than it was 10 years ago? Same old user interface, same promotions on the home page, same shopping cart, same too-long checkout process.

Time for E-Commerce 2.0

Not much has changed in e-tailing in the past 10 years. Here are five ways to make online shopping fun and easy

By Sarah Lacy, Businessweek

December 11,2008

Every time I check my e-mail, there's another one: "ONE DAY ONLY!!! Save an EXTRA 50%"

"First time ever! TRIPLE INCIRCLE POINTS + Free gift wrap + Free online shipping at any price."

That's a sampling of the missives I get multiple times a day from Neiman Marcus, whose online store I use so infrequently that I have no idea what "Triple Incircle Points" are. The all-caps and exclamation points make me wonder whether a teenage girl is writing the copy. How long before smiley faces?

But as frenetic and frequent as the e-mails become, they're not getting me—or many other consumers—to do more online shopping. In the 12 months through October, e-commerce grew a meager 1%, compared with 20% a year earlier, according to ComScore.

Game Stopped Changing

And don't blame it all on the recession. More than a decade after the Internet revolutionized how we shop, innovation in e-commerce has hit a wall. Make no mistake: Online shopping is still amazingly convenient and the best way to comparison shop. Who doesn't like buying gadgets in their underwear?

Yet somewhere along the line the big players just stopped changing the online shopping game. Think about it: Is your experience shopping online any different now than it was 10 years ago? Same old user interface, same promotions on the home page, same shopping cart, same too-long checkout process.

E-commerce is at a crossroads. The industry can delude itself that growth will pick up once the economy rebounds, or innovate its way to higher sales. Public companies aren't the best innovators, so I'm betting that it will be scrappy entrepreneurs who use the downturn to start a new e-commerce upheaval.

Amazon Continues to Innovate

I'm not alone in my wagering. Danny Rimer, of London-based Index Ventures, has already made a fortune by betting early on promising companies, including Skype, which was bought by eBay, and MySQL, now owned by Sun Microsystems. He says Amazon.com is among the few e-commerce companies that have been pushing the innovation envelope, a view shared lately by several analysts and investors.

But e-commerce has a long way to go, Rimer says. "It's one of those areas that's underpenetrated and needs to be reinvented," he says. And now, he's putting his money where his mouth is, scouting for niche sites that do a good job of selecting just the right items. He recently funded a women's jewelry site called Astley Clarke, saying that there's a big untapped market in luxury brands—a category that has traditionally eschewed the Internet. Astley Clarke, he says, is "razor-focused on making it easy and enjoyable to shop online."

I'm no rock-star venture capitalist. But I do love to shop via the Web. And here are five ways I say online retailers could get me to do a whole lot more of it.

• Checkout: It is still way too hard to buy something online. On some sites, as many as 80% of shoppers abandon carts midway through the checkout process, research shows. Even sites that wisely use e-mail newsletters, microblogging tools, or online advertising to lure you still make you whip out a credit card and spend 15 minutes to complete a transaction. By the fourth page of checkout, spontaneous shoppers start to wonder, "Why did I need this new dress again?" Force me to sign up for a user name and password to check out and you better have one-of-a-kind inventory, because we're beyond password fatigue.

A few sites get the checkout religion. One is Amazon, with Amazon Prime, a loyalty program that offers free shipping and one-click purchasing. Sure, it requires a user name and password, but it also provides great benefit. With its purchase of PayPal, eBay has also taken a small step toward making checkout easier. As part of its attempt to make buying easier, Google created Google Checkout, which is easier to use than PayPal and has fewer fees. But few sites use it yet.

• Do unto others: It is the Christmas season, so remember the Golden Rule. Platforms such as blogs, social networks, and user-review sites make it easy for consumers to broadcast dissatisfaction quickly. Little wonder Web 2.0 sites overcommunicate any changes to their users and over-apologize for anything that goes awry. Such coddling is one reason devotees love these sites so much.

But e-commerce was born during the Web 1.0 era and in general has approached users with the attitude of, "We're giving you a bargain and convenience and that's enough." It's far too hard to handle such tasks as returning an item or—heaven forbid—contacting customer service.

Not so at Zappos, which sells clothes, accessories, and a handful of other product types and focuses keenly on customer experience. With surprise upgrades to free overnight shipping, a U.S. call center with highly paid employees, and free and easy return policies, Zappos has created thousands of loyal users. But perks don't come cheap. Zappos is barely at breakeven despite $1 billion in gross merchandise sales. Still, CEO Tony Hsieh isn't done building his vision yet. Think of it as a brand investment that no amount of advertising—not even multimillion-dollar Super Bowl commercials—could equal.

• Make it social: Charlene Li, of market research firm Altimeter Group, is one of those special kind of geeks who wakes up at 6 a.m. the day after Thanksgiving to wait in line at RadioShack. "It's where my fellow geeks are," she told me in a recent interview for Yahoo's (YHOO) Tech Ticker. And it's not so much to buy whatever gadget she's eyeing as it is the experience of standing in the cold, holding warm coffee, and finding out what everyone else is buying.

Increasingly, online shoppers want interaction, too. They use social sites like Yelp, Twitter, Facebook, or blogs to replicate social aspects of online shopping. But there's no reason the e-commerce sites themselves can't participate. Build a Twitter feed into your page, or let your users install an application or widget that lets them buy from you even when they're on another site.

Li suggests that e-tailers watch a person's shopping habits and then tailor the experience. If someone always abandons a shopping cart when they're asked to enter a user name and password, give them an opt-out option, or an extra incentive of free shipping at that point.

• Concentrate on concierges: When Red Envelope filed for bankruptcy earlier this year, I had one panicked thought: How am I ever going to come up with gift ideas for my parents and in-laws? Red Envelope got the concept of a concierge, adding that extra touch of service. The company kept selection limited to a browsable amount of eclectic gifts and wrapped its signature red boxes in elegant white bows. My impossible-to-shop-for father-in-law loved the cuff links made from wood from the bleachers at Dodger Stadium; I wouldn't have found them if not for the Red Envelope concierge service. And no, I don't care about the extra shipping fees, or even the comparatively higher cost of some of the gifts. That's because Red Envelope wasn't just making a sale, it was solving a problem.

• Delve into discovery: Think of discovery as telepathic search. Instead of you knowing what you want and entering it into Google, the Web studies your surfing habits to show you what it thinks you might like. Mediocre discovery doesn't do anything but annoy people. But done right, discovery delights customers, fosters loyalty, and gets people to spend more. To date, Amazon has done this better than anyone, although Netflix is a close second.

The perfect candidate for rolling out a discovery-based user interface is eBay. Its search is horrific and the sheer total of its inventory makes browsing nearly impossible. And eBay bought StumbleUpon, one of the first Web 2.0 companies to build a business off discovery, by showing users Web sites, videos, or photos they might like, based on what they've previously shown an interest in and what comparable users have liked. But last I talked to StumbleUpon founder Garrett Camp, there was no intention of applying its technology to eBay's larger UI.

That's too bad for eBay, because undoubtedly a smart startup will.

For that matter, newcomers are likely to come up with a host of innovations that turn e-commerce on its ear in the coming years. And as someone who loves to shop, I can't wait.

Influence has a shelf life, too. And it's probably getting shorter as the cycle of change accelerates.

The core characteristics of influence are unchanged, whether it's inspiring a loyal following, spawning big ideas, or building up mammoth market share. What has changed is how players achieve it. A company's physical assets are less important now than the force of its ideas. In the age of blogging and instant communication, consumers are less the recipients of corporate influence than powerful actors who help shape it.

The World's Most Influential Companies

In a year of loss, they're building market share, upending their industries, and changing consumers' lives

By Jena McGregor, Businessweek

December 12, 2008

"Power lasts 10 years," goes an old Korean proverb. "Influence, not more than a hundred."

In a year that brought the mighty to their knees, some of the biggest players in business have seen their power whittled away. The once-venerated Lehman Brothers filed for bankruptcy in September. American International Group now bows to government officials after nearly collapsing under a web of risky bets. Even the blue-chip General Electric found itself going hat-in-hand to Warren Buffett.

As the proverb points out, influence has a shelf life, too. And it's probably getting shorter as the cycle of change accelerates. Companies that once wielded a seemingly unshakeable hold over their industries—General Motors, Sony, Microsoft—now find themselves following the lead of more nimble players such as Toyota, Apple, and Google. "There's no standing still," notes veteran strategy guru Gary Hamel. "Influence is like water, always flowing somewhere."

The core characteristics of influence are unchanged, whether it's inspiring a loyal following, spawning big ideas, or building up mammoth market share. What has changed is how players achieve it. A company's physical assets are less important now than the force of its ideas. In the age of blogging and instant communication, consumers are less the recipients of corporate influence than powerful actors who help shape it. "We're coming to realize a brand is not just what the manufacturer says it is," says Shelly Lazarus, chairman and CEO of Ogilvy & Mather Worldwide, "but everything that the consumer or the customer experiences." Think of the community built around Apple products.

With that in mind, BusinessWeek developed a list of the World's Most Influential Companies. We chose 10 companies that have devised winning strategies in their industries. They are the ones with the game-changing ideas, the greatest impact on consumers, and the bold tactics rivals emulate. None is infallible or without controversy. And our choices were more art than science. But we believe each company played a major role in business over the past year and could shape the corporate landscape for years to come.

In honing the list, BusinessWeek worked with an advisory board of 14 academics, consultants, and industry leaders worldwide. Several themes emerged. For one, the developed world is no longer the sole repository of influential companies. Nearly a third of the board's suggestions were for companies based in emerging markets, where a vibrant workforce and global capital play a vital role.

LATECOMERS

And forget about first-mover advantage. Google was not the first search engine, just the simplest and most technologically advanced. Apple, though late to the cell-phone race, has revolutionized the industry with its iPhone. Futurist Andrew Zolli notes that these latecomers don't "just define, but redefine, the terms of competition."

A company's ability to exert power beyond its own people often reflects the strength of its relationships. Roger Martin, dean of the University of Toronto's Rotman School of Management, notes that "influence today is about how sophisticated, how broad your network is." Facebook may not yet make much money, he argues, but it's creating a new way for companies to reach customers. Wal-Mart, meanwhile, is leveraging its ties with Chinese suppliers to exert influence over mainland environmental practices. While its motivation may be as much about saving costs as saving the planet, that initiative could help the retailer leave its biggest imprint yet.

The influence of talent farms—companies revered as much for their management bench as for their products—could be changing, too. Whether it was marketing savvy at Procter & Gamble or the "Get me a CEO from GE!" refrain of the 1990s, certain companies have been deified for their management skills. But University of Michigan professor C.K. Prahalad argues that the assumed superiority of such alumni hasn't always been borne out. The entrepreneurial cultures at Home Depot and 3M struggled under the rigorous management systems brought in by GE veterans Bob Nardelli and Jim McNerney. Best practices don't always travel well. Poaching from marquee names "was perfectly legitimate when everybody used to run similar manufacturing-oriented, cost-oriented businesses," says Prahalad. With today's need for innovation, he says, it's the "unique person you want to look at, not necessarily whether he had this or that experience at P&G."

Don't conclude that influence today is more ephemeral or harder to measure than in decades past. Strip away the fast-moving trends, the flip-flops in consumer behavior, and influence still comes down to what Munich-based strategy consultant Roland Berger sums up as "impact on society." In the 1950s that meant shaping the needs of a swelling consumer culture. In the decades since, influential companies built everything from air travel infrastructure to the information highway. Today, the best are trying to serve a global customer base while finding profitable ways to solve a range of societal ills. It's a daunting mission at a time when the world seems overwhelmed. Those who tackle it, however, may wield influence for a generation. And, perhaps, for even more than 100 years.

Tech Trends to Expect in 2009

The only other trends I see gaining prevalence in 2009 are - (i) Context based services built around people, places & time, (ii) DRM free music & (iii) P2P communication gravitating towards SN based messaging

Tech Trends to Expect in 2009

Mark Anderson predicts the year's coming developments, from expanded home entertainment to voice recognition to new, lightweight netbooks

By Arik Hesseldahl, Businessweek

December 12, 2008

Don't be surprised if during the course of 2009 you opt for a bigger TV screen because you're playing more video games and going to the movies less often. You won't be alone, says a longtime watcher of tech trends in his predictions for the coming year.

Mark Anderson is chief executive of Strategic News Service, a newsletter circulated to C-level tech executives. Each year he makes prognostications concerning technology and the economy. Last year he predicted a breakout year for ultramobile PCs, and he said Apple would launch one. The computer maker's MacBook Air came close. In late 2006, Anderson predicted the launch of the first PC with solid-state hard drives, which happened in 2007.

Here's a rundown of his expectations for 2009:

More Screen Time at Home

With consumer spending on entertainment slowing down, consumers will happily spend more to improve their at-home entertainment experience instead of splurging on outings to restaurants, movies, and weekend getaways. That means bigger TV screens to connect to video game consoles for family rounds of Rock Band on the Sony Playstation 3, Microsoft Xbox 360, or Nintendo Wii. "People have been investing in bringing these screens into their homes for years, but very few of them are fully gamed up," Anderson says. "So I think there will be a lot of spending by people to get extra entertainment mileage out of those screens at very low cost."

Tight budgets also will foster the proliferation of free or low-cost mobile-phone applications. Case in point: Apple's iPhone App Store on iTunes, where most applications are free—and those that aren't usually sell for $10 or less. Consumers also can get cheap online software for Research In Motion's BlackBerry and phones running the various mobile operating systems backed by Nokia, Microsoft, and Google. "In terms of innovation and investment and purchase, phone applications are it for 2009," Anderson says. "Apple has already made it clear, and it's going to move out to other smartphones, and it's going to be a huge market."

Smartphones are not only going to be running more applications, they'll also be capable of handling ever more complex tasks. Voice recognition will become both powerful, accurate, and common among mobile-phone applications, Anderson says. "After 150 years of waiting, we'll get voice recognition everywhere," he says. Such companies as Vlingo and Nuance will extend their technology into many applications. "By the end of the year, more than a third of mobile users will be using voice recognition without thinking about it," Anderson says.

Personal Assistance

How will tiny cell phones handle all those new tasks? The short answer is they won't. New tools called Internet assistants will help wireless devices send demanding computing tasks via the wireless Web to other computers or to servers—off in what's known as "the cloud." "Someone is going to design a personal assistant—by that I mean a suite of services, customized just for you, that exists on a server farm," Anderson says. Mobile applications such as AroundMe on the iPhone are already pointing the way. "You already see concierge services that tell you, when you land in a foreign city, what the cultural events are in that city, and get tickets for them, and things like that," he says.

Anderson says the assistant technology would combine with tools that track consumer preferences to know what you need, such as preferences when you travel, all triggered by short messages from the user saying something like "business trip, Los Angeles" or "family vacation Miami." "You might have it rent you a midsize car when you travel alone on business, but when you're traveling with the family it might rent a minivan," he says. "You would say, give me a business visit, give me a fun visit, give me a family visit, and it would know what that means." And it all could be done from your mobile phone.

Anderson is also predicting that the wireless industry will coalesce around a new standard known as LTE, or Long-Term Evolution, as it moves to develop faster wireless connections to the Internet.

Mobile PCs will continue to evolve, too, Anderson says. Netbooks, the popular new class of lightweight computers, will grow into an important market segment. "If you're looking for growth rates, the strongest will be in this category, and it will be beyond debate," he says. "Until now, it's been debatable. Everyone will have one. The only question will be what color it is."

Interesting is opening doors to lesser known electronics companies and allowing them to enter the once-exclusive handset market quickly and cheaply. Do Android and akin platforms accelerate the commoditisation of the mobile handset market with the play and differentiation increasingly sifting to the overlay services and related platforms

Is Android opening up the global smartphone market?

10/12/2008 Telecom TV - by Leila Makki

Google's new mobile phone operating system is opening doors to lesser known electronics companies and allowing them to enter the once-exclusive handset market quickly and cheaply. This week, two new Android-powered handsets were unveiled, China's QIGI i6-Goal and Australia's Kogan Agora PRO.

"Android is seeing huge momentum," Geoff Blaber, Director of Devices, Software & Platforms at CCS Insight told TelecomTV. "The fact that players ranging from Asian ODMs like Huawei to established OEMs like Sony Ericsson are adopting the platform underlines its attractiveness for multiple market segments."

Currently, Android lovers can only purchase the G1 phone, made by a once-unknown Taiwanese manufacturer HTC, exclusively on T-Mobile. HTC, a member of the Open Handset Alliance, began as an outsourced original design manufacturer (ODM) before it came to market with its own self-branded products.

However, two additional phones will be on the market soon. First up, Chinese ODM TechFaith Wireless and QIGI, a brand of smartphones have joined forces to launch the first Android-powered mobile phone in China, home to the world's largest mobile phone market and the manufacturing hub of half the global phone market.

The QIGI i6-Goal has a touch-screen, business card scanning and GPS functionality and provides mobile web access that includes Gmail, YouTube, Gtalk. The phone reportedly supports both Android and Windows Mobile, although you cannot run both operating systems simultaneously.

Defu Dong, Chairman and CEO of TechFaith said, "We are proud to launch the first Android-powered mobile phone in China. The QIGI i6-Goal has amazing potential in China because it is not only for making phone calls; it also provides mobile Web access to China's growing customer base. In addition, the launch of i6-Goal is a great example of the success of our strategic alliance with QIGI and its ability to quickly launch products onto the market."

The companies realise the potential of bringing this phone to the Chinese market quickly. "We signed sales agreements with a few well-known mobile phone distributors in China and are looking forward to shipping the i6-Goal very soon," said Enhai Xu, President of QIGI.

Meanwhile, over in Australia, Kogan is releasing two models, the Agora and the Agora Pro. The first Android-powered handset down under features pre-installed Google applications including maps, YouTube and email.

The touch-sensitive screen device has a high-speed 3G network connection, an integrated QWERTY keyboard, GPS navigation capability and a 2.0 megapixel camera.

In addition, the unlocked phone, which arrives in January of 2009, will cost considerably less than other smartphones. The Agora will retail for AU$299 , whilst the Agora Pro will cost $399, and the best part is that both handsets are not restricted to customers in Australia and New Zealand.

Unlike the iPhone, which is a closed system, Android is an open-source mobile operating system enabling any electronics company to get into the mobile phone market without aligning itself with handset manufacturer. With Android, Japanese consumer electronics company Sony might not have needed Swedish telecommunications company Ericsson to manufacture mobile phones.

In fact, Sony Ericsson became the latest member to join the Open Handset Alliance, confirming its intention to develop a handset based on the Android platform. The company claims its membership will complement the company's existing Open OS strategy which is based on the Symbian and Windows Mobile platforms.

"Sony Ericsson is a strong supporter of open operating systems and we believe the Open Handset Alliance offers an exciting opportunity for a new and unique user experience only Sony Ericsson can deliver," said Rikko Sakaguchi, CVP and head of Creation and Development at Sony Ericsson.

Google's Android Gains More Powerful Followers

Google's Android Gains More Powerful Followers

Businessweek, Olga Kharif, December 09

Today is a dark day for Nokia and Microsoft: Telco Vodafone, equipment maker Ericsson and handset maker Sony Ericsson have joined Google’s camp in making rival cell-phone software.

Today, Open Handset Alliance (OHA), a Google-led consortium of companies developing mobile-phone software Android, announced 14 new members, these three huge companies among them. Other impressive additions include AKM Semiconductor Inc., ARM, ASUSTek Computer Inc., Atheros Communications, Borqs, Garmin International Inc., Huawei Technologies, Omron Software Co. Ltd, Softbank Mobile Corporation, Teleca AB and Toshiba Corporation.

What does it all mean? One, that sales of the first Android-based phone, the T-Mobile G1, must be going very well. Only available for sale since this fall, the iPhone-like device made by long-time OHA member HTC is expected to sell around 500,000 units this year. Now, handset makers like new member Ericsson, which plans to release its Android device in mid-2009, want in on the action - particularly since the cost of Android-based handsets is lower than that of phones made with operating systems from Nokia and Microsoft, according to researcher NPD Group. Motorola recently announced it’s going to focus on Android come next year as well.

Second, and most important, carriers and handset makers who’ve just joined the Alliance are, in effect, expressing their dissatisfaction with Android’s long-established rivals, Nokia’s Symbian and Microsoft’s Windows Mobile software. And no wonder. Symbian is going through a major restructuring, and it’s unclear exactly what it will look like come next year. Microsoft has been losing developer interest, sources tell me.

The bottom line: Until today, Android’s future looked uncertain. Only a minor handset maker, HTC, was making Android-based phones. T-Mobile was the only carrier globally to offer G1, and only in a few markets, including the U.S. Motorola’s support helped but not that much, as the company is in a fragile financial state, and its own future is unclear. That’s why today’s announcement is so important. Vodafone’s support is huge. The carrier has 280 million customers worldwide. Sony Ericsson’s involvement is important as well (larger handset makers like LG are already part of the Alliance). Clearly, big guns are joining this game, and lining up their pawns on Google’s side.

A side note: I find it interesting to see Austek and Toshiba in the new members list. It’s long been expected that Android will be used not only in phones but also in netbooks, which are tiny laptops with screens of less than 10.2 inches. Austek is the largest player in the netbooks category, and today’s announcement could indicate that Android-based netbooks may be coming out, and soon.

Nokia LBS: €700m in 2011?

The context space is clearly heating up.

Nokia LBS: €700m in 2011?

GPS Businessnews, December 8, 2008

Last week Nokia held its “Capital Markets Day” in New York City and, once again, “location” was center stage in many of the speaker’s presentations.

In 2009 Nokia Maps will contribute to 50 percent of Nokia’s Software and Services revenue, estimated Niklas Savander, EVP services and software. Over time the share of LBS will decrease as music and game revenue increase. In 2011, Nokia targets Services & Software net sales of €2 billion or more; LBS should contribute to one third of that revenue (about €700 million).

Kai Öistämö, EVP, Devices expects that next year 50% of Nokia’s device portfolio will feature built-in Assisted GPS. In 2010 Nokia expects to ship 300 million GPS-enabled phones.

Location and the Internet
Nokia is putting location as one of the corner stones of its OVI Internet services platform. Niklas Savander, EVP services and software said: “There is a new dimension being constructed to the Internet: it is the one of location. Soon we will know where everything on the Internet is, was or will be. This is a tremendous business opportunity, for us at Nokia and for our partners.”

OVI will be made of five different types of consumer services and content: Music, Gaming, Maps, Messaging and Media. Savander expects two elements will glue together these services, one is the people using them and the other one is location. Indeed, Nokia is working on various ways to link location to these contents and services. One recent example of tying location to content is Nokia Vine, a (beta) software announced 2 weeks ago which allows users to record and share a GPS track associated with various media: picture, movie, and also music - in this case displaying what particular soundtrack was listened at that particular moment/place. Another example is Nokia Chat (also a Beta, released in July) an instant messaging application allowing to share its location with friends.

NAVTEQ
While this Capital Markets Day was the occasion to get more details about OVI and Nokia Maps, we however did not learn much hard facts about NAVTEQ. Now that the Chicago-based company is part of Nokia – despite being run as a separate business - its CEO Judson Green is not very talkative and much of what he said was pretty old news. In addition, his answers to precise analyst’s questions – some of them having covered NAVTEQ in the past - were, at best, vague.

Nevertheless, it remains that, despite the current economic downturn, Nokia keeps a very bullish approach toward building location-based services for the masses. A good news for the industry. 

Vodafone to acquire Wayfinder for $29.4 Mn

Vodafone moves into the LBS space with an offering of its own, probably the first operator to have one, and a potentially large captive subscriber base. The context space gets hotter and more exciting by the day !

Vodafone to acquire Wayfinder for $29.4 Mn

Wireless operator Vodafone announced today a takeover bid on Wayfinder System, a Sweden-based supplier of navigation and LBS solutions, for $29.4 million. The board of directors of Wayfinder Systems AB unanimously recommended the public offer from Vodafone Europe announced the company this morning.

Shareholders in Wayfinder, together holding approximately 44.9 per cent of shares, have given Vodafone irrevocable undertakings to accept the offer. The bid represents a premium of 252.9 per cent compared to the closing price of SEK 3.40 for Wayfinder’s shares on its last trading day prior to the offer.

“Vodafone Group is committed to delivering new revenue growth around a rich set of mobile internet services. Location-based services make up an important part of this commitment, enabling Vodafone Group to offer customers new, exciting services as a differentiator while driving mobile data growth. This acquisition will help to ensure that more of these unique services are delivered to a wider base of customers across the Vodafone group footprint”, said Vodafone. 

New AdWords options for iPhone and G1

Taking a head start in monetizing mobile search - Google is at it again !

New AdWords options for iPhone and G1

Monday, December 8, 2008 

Today, the Google mobile ads team is announcing a new campaign-level option that allows those of you who are AdWords advertisers to show your desktop text and image ads on the iPhone, the T-Mobile G1, and other mobile devices with full (HTML) Internet browsers. The ads can point to desktop landing pages so you don't need to create mobile landing pages or ads in mobile formats. The ads will have many of the same benefits as our standard mobile ads, such as the delivery of mobile-specific calls-to-action and reaching mobile users that are searching with their phones more than ever - especially during the holiday season.

You may have seen ads running on the iPhone and G1 already. That's because Google Search on these devices used to show desktop results pages modified for these phones. Recently, the Google mobile team launched new results pages formatted specifically for the iPhone. Now, advertisers will be able to display ads exclusively on these mobile devices, create campaigns for them, and get separate performance reporting. If you prefer not to show your desktop ads on these phones, you can opt out and show ads only on desktop and laptop computers.

To target ads for G1 and iPhone, go to your campaign settings tab in your AdWords account. Then for the "Device Platform" option under "Networks and Bidding," select "iPhones and other mobile devices with full internet browsers." As additional devices that use full browsers enter the market, your ads will show on those phones, too. You can visit the AdWords Help Center for more detailed instructions and watch my video below for a quick demo. If you currently have an AdWords campaign running, by default your campaign will show ads on desktop and laptop computers, as well as iPhone and G1.

Note that if you're currently running our mobile ads, this new option for desktop ads does not affect your campaign. You can still create mobile ads that show up on other mobile devices like before. For a refresher on our mobile ad formats, check out my past posts on the Google mobile blog and past videos on the mobile blog YouTube channel.

Google Unlocks Its Handset

Broadbasing the funnel by encouraging the developer community - Keeping the entry barrier low in terms of costs and simplicity 

Google Unlocks Its Handset

Unstrung, December 08, 2008

Developers looking to create applications for the Android platform now have the option to buy a completely unlocked G1 handset from Google.

The Android Dev Phone 1 will be very similar to the G1 being offered from T-Mobile International AG but it will be completely SIM-unlocked and hardware-unlocked, according to the Android developer's Web site. For content creators hoping to get their programs into the Android Market, this handset offers an easy way to test applications on a physical device without having to sign up for a wireless service contract.

"The device ships with a system image that is fully compatible with Android 1.0, so you can rely on it when developing your applications. You can use any SIM in the device and can flash custom Android builds that will work with the unlocked bootloader," read the developer's site. "Unlike the bootloader on retail devices, the bootloader on the Android Dev Phone 1 does not enforce signed system images."

Prior to this version, content creators could purchase a contract-free version of the G1 and modify the firmware to enable a bootloader. But that process only works with retail units that have an older firmware, and it has the potential to break the phone if not done properly.

Customers looking to take their G1 onto other GSM networks should be advised that Google said this version is not intended for non-developer end users. Additionally, any unlocked G1 is capable of only using T-Mobile's 3G networks in the United States.

"Since the devices can be configured with system software not provided by or supported by Google or any other company, end users operate these devices at their own risk," Google said.

The move could eventually lead to more compelling applications for the first Android-powered handset, which is facing stiff competition from Apple Inc. 's iPhone 3G and Research In Motion Ltd. (RIM)'s touch-screen Storm smartphone.

The Android Dev Phone 1 also has a unique design on its back cover, and it costs $399 with free shipping in the United States. Users must join the $25 Android Marketplace program to be eligible for the device. 

Another proactive and forward looking step by the European Commission to catalyze Mobile TV in Europe.

EC Issues Guidelines to Get Mobile TV on Europeans' Mobile Phones

Cellular News, December 10, 2008

­The European Commission has taken a decisive step towards the promotion of Mobile TV services within the EU. It has published a set of guidelines for the authorisation of Mobile TV to accelerate roll-out of the service across Europe. The commercial services launched before summer 2008 in some European countries show that there is an increasing consumer demand: in the Netherlands alone, 10 000 users had already subscribed to the service at the beginning of autumn.

"Successful commercial launches of Mobile TV in Austria, Italy, Finland and the Netherlands have proved that efficient authorisation procedures are a key factor for the fast take-up of Mobile TV. In Austria, 5,000 citizens were using Mobile TV within the first weeks of its launch. With predicted growth in sales during the Christmas period, many more Europeans should have the opportunity to watch TV on the go", said Viviane Reding, EU Telecoms and Media Commissioner.

"This is why we want to give Member States guidance on how to allow industry to get these innovative services on track as quickly and smoothly as possible. We stand for a collaborative approach between all actors involved including broadcasters, mobile operators and platforms operators, and we oppose heavy regulation or burdensome authorisation procedures for the introduction of Mobile TV in Europe."

In cooperation with Member States and industry, the Commission has identified the main principles which regulators and governments in the Member States should follow when authorising operators to provide Mobile TV services.

To date, only a few Member States, such as Austria, Finland, France and Germany have adopted legislation for new Mobile TV services. The Commission's guidelines aim to keep up the momentum for Mobile TV at EU-level, in order to create a regulatory environment for take-off and take-up of this new service.

The guidelines say that a straightforward, transparent and non discriminatory procedure for awarding licences is the key to a successful approach avoiding delays. The quality of the service delivered to customers, including indoor coverage and transmission quality, should be part of the award conditions. The guidelines furthermore recommend that frequencies made available for Mobile TV should be withdrawn if the service has not started within a reasonable period of time. They also advise regulators to keep the authorisation process open to all industry players and create conditions which encourage cooperation between telecoms operators (providing the service) and broadcasters (providing the content). Finally, they call upon the industry to make sure that DVB-H based Mobile TV services in every EU country work together. One way to do this is choosing non-proprietary technologies, which all consumers would be able to use without extra plug-ins and regardless of which device they use, to access Mobile TV content.

Light regulation and clear licensing regimes will give industry the legal certainty needed to rapidly launch Mobile TV offers. The Commission will keep a close eye on progress made and will not allow any unreasonable demands to delay progress in Europe. The Commission will continue to promote the exchange of information, experience and best practice between national authorities and other stakeholders. Moreover, the switch-over process from analogue to digital TV and the Telecoms reform will facilitate access to new spectrum, which can be used for the provision of Mobile TV services.

App Store shoppers downloading 2.2 million apps per day

Apple apps store - 10k apps and 300 million downloads in 150 days !

• 60 million in the first month, 100 million in the first 60 days, 200 million in about 100 days and now 300 million in about 150 days
• 10k apps in 150 days
• In contrast, Android which launched end October has only 462 apps (likely due to the limited device traction currently)
  

The Apple apps store has more than proved its value for all key stakeholders - Apple, consumers and app developers. For consumers, key benefits have been on account of content discovery and portfolio (long tail content on account of its depth and breadth with 10+k apps now on the store)

App Store shoppers downloading 2.2 million apps per day

By AppleInsider Staff, December 5, 2008

Though arguably still in its infancy, Apple's App Store has already reached a daily run rate that's seen iPhone and iPod touch users combine to download approximately 2.2 million applications every day.

Apple hasn't announced that figure outright, but CNBC's Jim Goldman drew attention to one of the company's advertisement in the New York Times today that says iPhone users have "downloaded over 300 million" applications from the App Store since it launched in July.

The last time the iPhone maker provided an update on App Store downloads was October 21st, when it noted that users would download the 200 millionth app the following day. That means that in just 45 days shoppers have downloaded another 100 million apps, or well over 2 million per day.

Its probably going to get worse before it improves and that in my opinion is likely not before later next year and with a pronounced lag effect on PE

Private Equity's Year from Hell

As the recession and financial crisis cause debt defaults and bankruptcy filings to mount, private equity investors brace for big losses and much longer waits for promised returns

By David Bogoslaw, Businessweek

The financial crisis has damaged investors great and small, and private equity funds are no exception. These funds, and the investors who plunked down millions to back their deals, appear to be facing big losses as more of the companies that they used leverage to buy—and to take cash out of —are defaulting on their debt and starting to file for bankruptcy. It's only logical that the targets of these leveraged buyouts, with their hefty debt obligations financed at junk-bond rates, are succumbing as the economic slowdown causes cash flows to dwindle and lending terms to tighten.

While private equity sponsors—the people who manage the funds that make the deals—aren't on the hook for the outstanding debt for which anxious unsecured creditors are queueing up in the hopes of being paid, the enormous opportunities sponsors had to cash out on these buyout deals have all but evaporated.

The usual paydays, from refinancings that generated big dividend payouts to initial public offerings and secondary private equity sales, have vanished. That's forced sponsors to delay cashing out of these companies by at least a couple of years and even to put more capital into some that they think have a good chance of surviving the recession.

The Model is Broken

That's a stark change from the golden age of private equity that Henry Kravis, one of the pioneers of leveraged buyouts, declared less than 18 months ago before a gathering of bankers and investors.

The entire private equity model is broken, says Brett Hellerman, chief executive of New Haven-based Wood Creek Capital Management, citing the firms' reliance on leverage that's no longer available, and on easy exits that are no longer viable. "The world's in workout right now. I don't care who you are," he says. "All these investors were expecting cash back on all their private equity investments within a three- or four-year time [frame]. That's been pushed back now, in some cases as far as the 10- to 12-year [goal] of the private equity fund. A lot of these investors are really having liquidity problems" as a result, he says.

Debt defaults are up nearly fourfold this year amid weaker economic conditions and uncertainty about the financial services industry, Diane Vazza, managing director of Standard & Poor's Global Fixed Income Research, said in a Nov. 19 report. And most of them bear the private equity stamp. Of the 86 companies around the world that have defaulted on their debt, 53, or more than 60%, were involved with private equity deals at some point. This year alone, 39 U.S. companies purchased by private equity investors through leveraged buyouts had filed for bankruptcy as of Oct. 7, according to peHUB.com, a Web-based public forum for the industry.

Limited Partners in Trouble

The number of recorded defaults would be even higher had banks refused to waive strict debt covenants in credit facilities they granted companies in recent years, while credit spreads were still tight and lenders worried about losing customers to their competition. Without covenants—which require borrowers to maintain certain financial ratios and profitability levels—it's harder to spot potential liquidity problems and more difficult for senior creditors to accelerate debt payments once a company gets into trouble.

The impact of the defaults and bankruptcies is potentially dire for the backers of the private equity funds, as many of them—known as limited partners—are pension funds and endowments that may now have to wait much longer than they expected to see the promised returns on their investments.

Shareholders' equity gets wiped out when publicly traded companies go into bankruptcy. But for companies controlled by private equity sponsors, the sponsors' losses are limited to their original equity, or cash, investment, which tends to be just a small fraction of the total transaction value of the leveraged buyout. In many cases, their losses have been substantially reduced by refinancing part of a portfolio company's debt and paying themselves a fat dividend.

Rich Dividend Deals

Companies acquired by private equity funds between 2003 and 2007 were particularly ripe for debt refinancings due to low interest rates and tight credit spreads—the same conditions that helped produce the subprime mortgage crisis. "Private equity sponsors often were in a position to take a lot of money off the table" through dividend deals, says Allan Brown, portfolio manager at Concordia Advisors, a hedge fund company in New York that manages $1.5 billion in assets.

The cash proceeds of refinancing debt at lower rates are paid to owners and shareholders in portfolio companies and effectively reduce the amount of capital a private equity sponsor originally contributed to a buyout of a company. A private equity fund sponsor that contributed $300 million in cash and took on $700 million in debt to pay for a company may have cut its potential loss on a company that goes into bankruptcy from $300 million to $100 million if it received $200 million in dividends from a recapitalization or sold that amount of stock back to the company.

To take one example, in 2000, private equity firms CI Capital Partners and Sentinel Capital Partners bought Buffets Holdings, a U.S. restaurant chain, in a leveraged buyout valued at $645 million, of which $130 million was the sponsors' equity contribution. Two years later, in a refinancing of debt, the company made a $150 million distribution, more than covering the sponsors' initial cash contribution, according to CI Capital's Web site. But heavily leveraged Buffets was unable to shoulder its debt burden, and filed for bankruptcy in January 2008.

No More Easy Exits

Sponsors continued to withdraw cash through refinancings on assumptions that portfolio companies would continue to generate strong cash flows that would be put toward interest payments on this debt and that the public equity market would provide easy exits, either through initial public offerings, secondary buyouts, or sales to companies in the same industry.

In trying to determine by how much private equity funds reduced their exposure to losses at a given portfolio company, the key question is how much of the money they took in dividend deals was redeployed to other deals, says Brown at Concordia.

As conditions in credit markets deteriorated and credit spreads widened between corporate bonds and U.S. Treasury notes with comparable maturities, it became harder for private equity sponsors to refinance debt and take money off the table, he says. The total dollar value of recap dividends and stock buybacks plummeted almost 93% between the second and third quarters of 2007— when the effects of the credit crisis began to be felt—from $11.47 billion to $820 million, according to Standard & Poor's Leveraged Commentary & Data.

Getting Through the Holidays

Investors in retailers and other consumer-oriented businesses are expected to be hit especially hard. Specialty retailer Linens 'N Things, which was taken private by Apollo Management, filed for a prepackaged bankruptcy under Chapter 11 in May but went into liquidation in October after not being able to find a buyer to bring it out of bankruptcy as a going concern. Jeffrey Manning, managing director of Trenwith Securities in Costa Mesa, Calif., says that if you look at the company's petition to the bankruptcy court to initiate a liquidation process, you'll see it asked to be allowed to start liquidation before Christmas so as to avoid the rush of other distressed retailers selling off their assets.

Brown says he expects to see a lot more private equity-owned retailers filing for bankruptcy after the holiday season ends, when many companies' fiscal years end. "Most retailers that are having problems desperately want to get through the holiday season because that's the season that generates the most cash for them," he says. They want to file for bankruptcy with as much cash on hand as possible to be in a better position to finance a restructuring, he says.

Diane Sterthous, director of alternative investments at Glenmede Trust in Philadelphia, Pa., says that even at the height of the recent boom, buyout deals were probably levered at six to seven times cash flow rather than the more risky 10 times cash flows of the late 1980s. Even so, "some of the deals were priced to perfection for a rosy economic scenario that's obviously not prevailing right now," she says. "If revenues start to decline, if oil prices start to rise significantly, all of a sudden the arithmetic doesn't work, the projected return doesn't work anymore."

Released from Capital Commitments

While the sponsors won't be able to cash out of their deals any time soon, investors in the funds may get a break, since she foresees the possibility that investors will be released from capital commitments which require them to keep their money in the fund for a specified period, much like what occurred after the tech bubble burst in 2000.

The managers of private equity funds are likely to realize it doesn't make sense to keep putting capital to work and "they want to do right by their clients," she says.

For the private equity funds and their backers, the best returns they can hope for in the current climate may just be a portion of their original stake.