The Bloor Perspective: Pricey Blackberry, Vodafone's Japanese adventure and Consignia

Tis the season of ripening blackberries and, perhaps in an attempt to tune in with nature, MmO2 (formerly BT Cellnet) has finally released its first Blackberry handheld mobile email devices.

The problem it faces are the high costs that could be associated with the devices - so high they may prove a real barrier to success.

AOL has come up with a Blackberry version of its product. In addition there are a bunch of productivity utilities that match the capabilities of other PDAs on the market.

The Blackberry has done pretty well in the US with estimates of around 10,000 unit sales over the summer and it expected to do quite well in the UK.

But back to the cost. A new Blackberry will cost its owner £439 to buy. But that's no good on its own. There has to be a server that co-ordinates the delivery of the messages and that costs another £2,500 for each bunch of 20 users. On top of that, there's the airtime. Over a four-year lifetime (unlikely) the solution is still going to cost more than £600 per year.

We presume there'll be some discount structure for businesses that buy in bulk but, no matter how you look at it, this is going to one pricey PDA.

The thing that really pushes up the cost is most likely to be the Blackberry's key differentiator - the airtime.

In the UK, MmO2 is running the service over its GPRS networks. This means that it will be able to follow up the initial messaging with a voice-based service in the very near future.

And this may make the Blackberry a viable alternative to the mobile phone and go a long way towards justifying the extra cost.

Vodafone goes Japanese

Just as BT is divesting itself of assets as quickly as it possibly can to balance the books, Vodafone, one of BT's closest competitors, is off on a shopping spree.

Vodafone is currently in discussions with the East Japan Railway Company about plans to buy its 15.2 per cent share of Japan Telecom, which is worth Y212 or ($1.8bn) at today's prices.

If the deal goes through, UK-based Vodafone would own two-thirds of Japan's third-largest telecom supplier. This would give Vodafone far more influence over the direction of Japan Telecom including all business decisions, and put it in a strong position to go head-to-head with NTT DoCoMo.

The area of most interest in Japan Telecom is the J-Phone unit that provides mobile services to nearly 11 million subscribers and accounts for 70 per cent of Japan Telecom's revenue.

The announcement comes at a time when NTT DoCoMo, the company that controls 60 per cent of the market, is attempting to reorganise and rationalise its workforce as it faces incurring an extraordinary loss of Y400bn ($3.4bn).

The company is expected to consolidate the Verio data centres and reduce staff by 20 per cent in an attempt to stem the losses. NTT DoCoMo acquired the company last September for Y600bn ($8bn), since which time the slowdown has impacted Verio's data center implementation business.

Elsewhere in the Telecomm sector BT Wireless (soon to be mmO2) is expected to confirm a £3.5bn loan to build 3G networks, the cost of which is to be shared with Deutsche Telekom amongst others.

This news hasn't stopped mm02 from seeing another £1bn wiped from its valuation, originally set for £15bn, then £8bn, and now down to £7bn even though the company will only inherit £500m of BT's £17.5bn debt.

Consignia and the Outsourcing Dreamcoat

Consignia, formerly known as the Post Office, is reportedly considering outsourcing its internal IT to save costs. This is part of a wider restructuring programme to meet new conditions arising from introduction of further competition in postal services.

The restructuring may well be necessary but Consignia should probably ditch the outsourcing option.

There are good reasons for outsourcing but cost-saving isn't usually one of them. If you've got a major restructuring on your hands, then clearing the decks could be a sensible decision.

Other similar cases where the need is to focus resources on some aspect of a business other than IT are also valid reasons for outsourcing. Cost saving, though, is valid as a reason only in a small minority of cases.

One valid example is where the outsourcing agency can make clear cuts in cost through volume of business, where economies of scale come in. That's not often in IT though. In fact, the benchmark for proposed savings through outsourcing should never be existing internal IT costs unless they're at least better than average for a shop of its type.

In reality, though, no organisation is going to admit it's lousy at running IT and many don't want to be bothered with putting much effort into managing it well. So the myth of cost savings persists.

It's not difficult to see how much of a myth this must be if you consider the extra costs that any outsourcing agency must incur. In the first place, it has to aim at a profit. This is unlikely to be less than 10 to 15 per cent and may be more. The outsourcerers may not of course make this but it is bound to be added to estimates of their own costs and included in their quote.

Then, too, the outsourcing agency has to win the contract. The cost of this is a movable feast but a reasonable guess at it might be around 30 per cent of the first year's value of the contract. Plus the cost of the handover, which will have to be paid by the organisation seeking the outsourcing, one way or another.

Add up all these costs and you see how badly run an internal IT shop has to be if it can be run more cheaply by an outsourcing agency.

The point about Consignia's IT operation is that it has had, certainly when it was the Post Office, a reputation for being an extremely well run IT shop. Outsourcing as a means to save costs doesn't make much sense. But maybe other reasons which, as is so often the case, are not being admitted, are behind this proposal.