2. 2—CONSUMER ELECTRONICS DAILY FRIDAY, SEPTEMBER 28, 2012
more than a couple of years. The retailer, which will sell Dish TV and dishNET at 11 of its 12 Jackson-
area stores, removed DirecTV’s already limited presence from its sales floor last week, he said. The re-
tailer’s decision to take on Dish products was mostly because of its strong relationship with Clayton, he
said. The 12th location of Cowboy Maloney’s, in Ridgeland, Miss., is a Viking Store that sells only appli-
ances. Maloney estimated that about 40-50 percent of Mississippi residents can’t access high-speed Inter-
net now, creating a huge market opportunity for dishNET there.
"There’ll be a lot of folks up north that say" broadband isn’t new, said Clayton. "Of course it’s not
a new thing if you live in metropolitan L.A., Chicago, New York and even right here in Jackson," he
said. But he said if you live in "secondary, tertiary markets" — even 30-40 miles outside Jackson — peo-
ple can’t access high-speed Internet service. There are 10-15 million U.S. homes — mostly rural — that
have "at best slow-speed DSL," he said. Those consumers not having good, high-speed Internet service
for entertainment and educational purposes is "simply un-American," he said. Dish is going to provide
such service to these consumers with "faster speeds, lower cost and more capacity," he said. Those were
the three things that consumers in rural areas indicated to Dish that they wanted most from a high-speed
Internet service, said Dish Chief Marketing Officer James Moorhead.
In rural and outlying suburban regions nationwide, dishNET will start at $39.99 a month (plus
equipment fees) for 5 Mbps/1 Mbps download/upload speeds and a data plan of 10 GB, when bundled
with Dish’s America’s Top 120 or higher satellite TV programming packages and with a two-year agree-
ment, Dish said. "Most satellite customers can upgrade" to a 10 Mbps/1 Mbps plan available with 20 GB
of data for $49.99 a month as part of a bundle with Dish TV, it said. As part of a "good," "better" and
"best" strategy, Dish will also offer a high-end plan with 10 Mbps/2 Mbps and 30 GB of data at $69.99 a
month if bundled with Dish TV. DishNET will cost an extra $10 per plan for customers who don’t want
to bundle it with Dish TV, making it $79.99 for the most expensive plan, Dish said. The speeds that dish-
NET provides are "up to 3x faster than DSL," Dish said.
DishNET "seems competitive," Wells Fargo analyst Marci Ryvicker said Thursday. With or with-
out the bundling, the pricing "compares favorably to current service provided" by Starband that offers 0.5-
1.5 Mbps downstream for $50-$100 a month, she said. "We see only upside potential here" for Dish be-
cause the company "will now have a double play product," she said, predicting it’s "likely to expand to a
triple play" product via VoIP. Dish, however, said nothing about VoIP service at the launch.
The speeds that dishNET will be offered at are "fast enough for typical Internet applications," in-
cluding social media, telecommuting, music streaming, online video streaming and VoIP services, said
Dish. But spokesman Dave Arland said the service’s small latency could be problematic for multiplayer
online gaming. Also, while it can be used for movie streaming including Netflix or Dish’s own Block-
buster service, dishNET’s monthly data cap could become a factor for customers planning to view multi-
ple movies each month, he said. They would have to pay for additional data if they go over the cap.
With dishNET, the "14.5 million underserved rural residents" of the U.S. will "no longer need to
wait for broadband build out," Dish said. The service is "ideal for rural residents underserved, or un-
served, by wireline broadband," and offers "4G-level speeds that are about 50 percent faster than the typi-
cal residential broadband connections in American homes," it said. Almost one of four rural U.S. resi-
3. FRIDAY, SEPTEMBER 28, 2012 CONSUMER ELECTRONICS DAILY—3
dents lacks a high-speed connection, so "reaching these underserved markets is vital," said Clayton. Dish
pointed to the FCC reporting in August that 19 million Americans lacked access to high-speed Inter-
net. The FCC highlighted that 23.7 percent of rural residents lacked broadband access, said Dish.
The new service will help "close" the "digital divide," allowing families in rural areas to access
high-speed Internet service," Jackson Mayor Harvey Johnson (D) said at the launch. "This is a very big
deal," said Jeffrey Joseph, CEA senior vice president-communications and strategic relationships, para-
phrasing a comment that Vice President Joe Biden (D) once made about the Patient Protection and Afford-
able Care Act. The U.S. CE industry will ship more than 350 million products with some degree of Inter-
net connectivity this year alone, he estimated. The Internet is a "tremendous growth engine" and "high-
speed access is a super highway," but "sadly, too many of our fellow citizens have been left waiting at the
on ramp," he said. The U.S. now ranks only 18th globally in fixed broadband penetration, he said, citing
the findings of a recent ITU report.
A local family received a preview of the new service ahead of its launch, said Dish. Jeff Thigpen,
a high school athletic director in Ridgeland, Miss., got to try dishNET and the Dish TV service with
Dish’s Hopper Whole-Home HD DVR, it said. His kids go to school in nearby Jackson and frequently
have to use the Internet for homework, but the only way they were able to get Internet access at home be-
fore dishNET was by "tethering" their iPhones to a computer, Thigpen said at the launch. Tethering a
cellphone to a computer is now the only way that many rural U.S. consumers can get Internet service, with
the only other options until now being slow satellite service or dial-up, said Dish.
DishNET represents an expansion of Dish’s satellite services. The focus on bundling dishNET
with Dish TV was designed, at least in part, to avoid it competing with EchoStar’s Hughes Communica-
tions and ViaSat, Vivek Khemka, Dish vice president-product management, said last week (CED Sept 19
p4). "Our objective is to bundle," Clayton said Thursday. In addition to generating more money, bun-
dling "mitigates the chance of churn," he said.
Dish will use EchoStar’s EchoStar-17 and ViaSat’s ViaSat-1 satellites at 107.1 and 115 degrees
west to deliver dishNET, it said. It will use the EchoStar-17 satellite for the Jackson market, Khemka
told us Thursday.
The company will back the dishNET launch with a "multi-million dollar" marketing campaign that
Moorhead said "will surround consumers 360 degrees" with TV, radio, print and online ads, including so-
cial media. There will be "millions" spent on the campaign in Q4 this year, said Clayton. But, unlike past
Dish campaigns, "I’m not going to advertise in midtown Manhattan or downtown Chicago or L.A. or Dal-
las or San Francisco," he said. The focus will be on advertising in "more secondary, tertiary markets," and
the TV spots "will mostly be on our own Dish network," he said.
Cowboy Maloney’s will run its own ads also, including a TV spot that started airing late last week,
said Maloney. The retailer will also run newspaper ads and host promotional events including the launch
event where American Idol contestant Skylar Laine was to sign autographs late Thursday, he said. He ex-
pected a large turnout for the event. DishNET was prominently displayed at the front of the store on
Thursday and he said it will likely remain in that spot "for a long time."
4. 4—CONSUMER ELECTRONICS DAILY FRIDAY, SEPTEMBER 28, 2012
"Our first priority is with residential consumers," but Dish is looking to offer a business-to-
business version of the broadband service also, said Clayton. There would need to be a "higher data cap"
for such a plan, he said. It’s ready to offer such a plan now, but Dish wants to see how much demand
there is for it first, he said.
Regional retailers like Cowboy Maloney’s tend to "provide a greater level of customer service"
than large national retailers, said Clayton. But he told us Dish has had discussions with national retailers
including Best Buy and Walmart to get its products into those stores. If it does get Dish products into
those stores, though, it will "probably" be with different products than regional dealers carry, he
said. "We think we can get into Best Buy probably with something like" the Tailgater antenna and re-
ceiver that enables portable HD TV service, he said. "We have talked to them about that. We talk to all
the major retailers," he said. "It’s tough to unseat DirecTV" because they’ve had a national retail presence
"for a long time," he said. "We’re really looking at different alternatives/methods of distribution," he
said. There’s "ongoing discussions" with Walmart also, he said.
Dish will possibly add dishNET to at least some of its Blockbuster stores, Clayton told us. There
are now 850 Blockbuster franchise stores and a total of about 1,000 Blockbuster stores combined, he
said. If it does sell dishNET at Blockbuster stores, it likely won’t be in major metro markets, he said. "If I
had a Blockbuster store here in Jackson, the answer would be yes," it’ll sell dishNET there, he said.
The dishNET bundling won’t include a terrestrial wireless service. Dish spent $3 billion to acquire
40 MHz of wireless spectrum in buying assets of TerraStar and DBSD, industry analysts have said. It also
bought 700 MHz licenses in 2008 for $712 million. Dish sought a waiver of satellite spectrum rules from
the FCC that would allow it to operate the wireless service in the 2 GHz band. As a condition for its ap-
proval, the FCC has sought a 5 MHz upward shift at 2000-2020 MHz. Dish has criticized the FCC’s sug-
gestion for "needlessly injecting serious regulatory and technical obstacles into Dish's planned deploy-
ment" of the wireless network. Any wireless service that Dish offers "depends on" its "ability to repur-
pose satellite spectrum," Arland, the Dish spokesman, said Thursday. "Such a service is probably a few
years away," he said.
Customers who buy dishNET will have to agree to a 24-month contract, just like with its Dish TV
service, said Clayton. A customer who breaks the contract would have to pay a $420 fee, although it’s
prorated based on how long the person has had the service, said Khemka.
Meanwhile, there was a hearing last Friday in Fox Entertainment’s bid to get a preliminary court
injunction barring Dish’s PrimeTime Anytime service. A U.S. District Court judge in Los Angeles "heard
arguments and said she would rule on the question of an injunction later," said Arland. PrimeTime Any-
time, which became available in May via Dish’s Hopper satellite receiver, is available to Dish subscribers
with AutoHop, which strips out commercials from copies of TV networks’ programs, Fox has
claimed. Fox, CBS and NBC Universal each sued Dish separately in May, with NBCU arguing that the
satellite service operator didn’t have the authority to tamper with broadcast replays. Dish also has filed
suit against the networks, including ABC, seeking a court ruling that AutoHop doesn’t violate copyrights
since fast-forwarding through commercials has been available since the VCR’s arrival. Dish has gone
full-speed ahead with its Hopper sales and seen little impact from the suits, Clayton told us. "I haven’t
found one consumer who told me he didn’t like skipping commercials," he said. — Jeff Berman
5. FRIDAY, SEPTEMBER 28, 2012 CONSUMER ELECTRONICS DAILY—5
Best Buy Its Biggest Customer
Allegations That Zagg Misled Investors 'Baseless,' Interim CEO Says
The interim CEO at mobile accessories supplier Zagg fired back Thursday at a shareholder lawsuit,
calling "baseless" claims that the company misled investors about the departure of Zagg's former chief ex-
ecutive. The interim CEO, Randall Hales, speaking after a presentation Thursday at the Craig-Hallum
Capital Group conference in New York, said Zagg will deal with the claims in a suit filed earlier this
month in U.S. District Court, Salt Lake City, "in due course."
Former CEO Robert Pedersen resigned Aug. 17, almost eight months after first disclosing he sold
$2.6 million worth of Zagg stock to meet a margin call related to loans on two large pieces of property,
analysts said. The Zagg stock was collateral for the loans, analysts said. Pedersen also sold 515,000
shares on Aug. 14 and 1.2 million shares on Aug. 24, generating $4.2 million and $8.6 million in gross
proceeds, respectively, according to a suit filed by shareholder Ryan Draayer. Pedersen, who founded
Zagg in 2006, remains on the company’s board.
Pedersen’s departure as CEO followed the hiring of Hales as president eight months earlier, after
the former chief executive first disclosed selling stock to meet margin calls. Hales was named interim
CEO Aug. 20 and the company expects to name a new CEO by year-end, company officials have
said. Hales is among the candidates for the CEO post, analysts said.
Hales’ hiring in December was "purposefully" hid from investors, Draayer’s suit alleged. Zagg
"materially misled" investors, "inflating" its stock price by "publicly issuing materially false and mislead-
ing statements regarding the company’s business," the suit said. Hales denied the allegations and said the
"company will defend itself" and will let the case "run its course." Hanes and Chief Financial Officer
Brandon O’Brien, along with Derek Smith, executive vice president-sales, have been running the day-to-
day operations since December, Hales said. "There has been no change at all for us and it’s been business
as usual," Hales said.
Zagg’s largest U.S. customer is Best Buy, which carries 65 to 70 invisibleShield protective
shield products in addition to keyboards and desktop audio products, Hales said. Best Buy has an ex-
clusive on the recently introduced invisibleShield Extreme for smartphones. Best Buy, along with
Walmart, carries Zagg’s iFrogz youth-oriented headphones, desktop audio gear, cases and covers.
IFrogz, which Zagg bought in 2011, posted $16 million in revenue in Q2. In acquiring iFrogz, Zagg is
expanding its product line, with invisibleShield products forecast to shrink to 45 percent of sales in
2012 from 59 percent a year earlier as keyboards grow to 27 percent from 16 percent, Hales
said. Desktop audio is expected to be 15 percent of annual revenue, up from 14 percent a year earlier,
Hales said. IFrogz sales will represent 25 percent to 30 percent of annual by late 2013, Hales said.
The company had a distribution agreement with Logitech to market Logitech by Zagg keyboards in
international markets, but that deal fell short of forecasts, Hales said. "We had a relationship with
them early on where they were distributing one of our products internationally, but they haven’t em-
braced it the way you would have thought they might have," Hales said.
Zagg also sells products from its own web site, which accounted for 13 percent of fiscal 2011 reve-
nue, and a network of 150 mall-based kiosks, six of which are company-owned. The kiosks account for 6
percent of annual revenue, Hales said. Zagg’s sales of invisibleShields and other iPhone 5 accessories has
6. 6—CONSUMER ELECTRONICS DAILY FRIDAY, SEPTEMBER 28, 2012
been strong so far, doubling those connected with iPhone 4S, Hales said. But Zagg continues to lack sales
through Apple stores, Hales said. It has had "some dialog" with Apple in recent months about opening ad-
ditional distribution, Hales said. Zagg also is working to develop direct distribution through Amazon,
Hales said. — Mark Seavy
Plan 'Lacks Ambition'
EU Seeks Lead in Cloud Computing Services, But Worries Abound
Europe needs its own cloud computing strategy if it's to lead the rest of the world as it did with
GSM, Digital Agenda Commissioner Neelie Kroes said Thursday. Her plan to unleash the potential of the
cloud won't affect relations with the U.S., where many key cloud services providers are located, but will
give European companies the chance to compete more fairly, she said at a press briefing. Small and mid-
sized businesses applauded the move, but cloud computing companies and consumers voiced concerns.
Action is needed in several areas, the EC said in a communication to the European Parliament and
Council (http://xrl.us/bnrnzm). Digital single market fragmentation because of differing national laws,
and uncertainties over applicable rules, digital content and data location "ranked highest amongst the con-
cerns of potential cloud computing adopters and providers." That's largely due to the complexities of man-
aging services and usage patterns that span multiple jurisdictions and in dealing with data protection, con-
tracts, consumer rights and criminal law, it said.
Contract problems relate to worries over data access and portability, change control and who owns
the data, the EC said. Another concern is the "jungle of standards," whose sheer numbers cause confusion
and which also lead to uncertainty about which offer sufficient interoperability of data format to allow
portability, or which safeguard personal data, it said.
The strategy "does not foresee the building of a 'European Super-Cloud'" with a dedicated hard-
ware infrastructure to provide generic cloud services to the public sector across Europe, the EC said. But
one of its goals is to have publicly available offerings that meet EU regulatory standards and are competi-
tive, open and secure, it said. The cloud is also needed as a platform for digital content, including mobile
services, the EC said. Consumers should be able to legally access content away from home across Europe
without losing access to services they paid for in any other EU member nation, it said. Flexible licensing
agreements will give rights holders service innovation and create new revenue streams, it said.
The EC proposed three main actions. One is to hack through the standards maze that now allows
vendors to lock in customers and hampers industrywide approaches. There will be no mandatory stan-
dards because the market is too immature, Kroes said. Standardization and certification actions for cloud
computing are already under way at the U.S. National Institute for Standards and Technology and the
European Telecommunications Standards Institute (ETSI), and more standards-setting initiatives will be
needed. But the priority now is to use existing standards to create confidence in cloud computing, it said.
The EC wants ETSI to lead the way in identifying a map of the standards needed, such as for secu-
rity and interoperability, it said. The EC will build trust in cloud services by recognizing at the EU level
technical information and communication technologies specifications for protecting personal information,
and work with Europe's cybersecurity agency and others to come up with EU-wide voluntary certification
7. FRIDAY, SEPTEMBER 28, 2012 CONSUMER ELECTRONICS DAILY—7
systems by 2014. It will also address the environmental challenges of increased cloud use by agreeing
with industry on harmonized metrics for cloud energy and water consumption and carbon emissions by
2014, it said.
The second action involves developing model terms for service-level agreements between cloud
providers and professional cloud users, and proposing standardized contract terms and conditions for con-
sumers and small firms who deal with cloud services, the EC said. Finally, it said, it will set up a Euro-
pean Cloud Partnership as an umbrella organization for national initiatives related to public procurement.
The strategy also calls for a "reinforced international dialogue on safe and seamless cross-
border use" in areas such as trade, law enforcement and cybercrime. Many countries are starting to
see the importance of cloud computing, so the EU must strengthen its collaboration with partners un-
der the auspices of the World Trade Organization and the Organisation for Economic Co-operation
and Development, it said.
Asked how the strategy might play with major U.S. cloud services providers, Kroes spokesman
Ryan Heath told us: "Some might be annoyed, but this is going to massively grow their potential income
so any extra effort will be well rewarded." Europe has 500 million potential customers, and a large public
sector that can be harnessed into a new market for American firms because no foreign contracting or own-
ership rules apply, he said.
Europe's small business sector expects the EC to show leadership in creating a unified market for
cloud services, said Association for Competitive Technology President Jonathan Zuck. The lack of a sin-
gle market is hampering small and middle-sized enterprises in terms of security and privacy rules, he
said. They need to exchange data with other SMEs and they want flexible rules that make moving to the
cloud easier, he said.
The strategy is a "promising step forward" but raises several concerns, said the Software & In-
formation Industry Association, which represents cloud computing businesses in the U.S. and else-
where. Parts of the communication "go in a direction SIIA warned against" in a report to policymak-
ers last year, treating cloud computing as a discrete entity that's potentially subject to specific govern-
ment regulation when it's really a variety of evolving business and technical developments that are
only roughly similar, SIIA Public Policy Vice President Mark MacCarthy wrote on the SIIA "digital
discourse" blog (http://xrl.us/bnrnw7). The EC recognizes that fact, but then goes on to propose a se-
ries of regulations that can only be implemented effectively if there's a reasonably precise legal defini-
tion of cloud computing, he said.
The plan "lacks the ambition to properly protect" consumers because it lets businesses choose
whether to safeguard consumer rights and doesn't deal with digital copyright and enforcement/redress is-
sues, said European Consumers' Organisation Director General Monique Goyens. Consumer protections
can't be lowered just because more content is being pushed to the cloud, she said. — Dugie Standeford
Courts
Vringo remains confident as an Oct. 16 trial approaches that Google infringed its search patents,
CEO Andrew Perlman said Thursday at the Craig-Hallum Capital Group conference in New
York. Vringo was expected to file Friday a reply to Google’s motion for summary judgment, setting the
8. 8—CONSUMER ELECTRONICS DAILY FRIDAY, SEPTEMBER 28, 2012
stage for what is expected to be a two-week trial before U.S. District Judge Raymond Jackson in Norfolk,
Va. Vringo entered the fray in acquiring Innovate Protect, which controlled eight Lycos search patents
granted in the late 1990s and early 2000s, two of which are at the heart of the Google case. The patents,
which Lycos acquired form inventor Ken Lang, cover a means for organizing how a search engine ranks
and displays results for a search request. Central to the process are "clicks," with more clicks making one
site more relevant than others to a search. Lycos sold the patents to Innovate Protect, which in turn sold
them to Vringo earlier this year. In a suit filed last year, Vringo alleges that Google’s AdWords and
AdSense platforms violate the patents and is seeking damages dating from 2007 and royalties going for-
ward. "We feel good that we will win," Perlman said. AOL settled a separate infringement suit filed
against it for $100,000, relating to violations that occurred before it adopted the Google platform, Perlman
said. Google invested $1 billion in AOL in 2005 and a development agreement between the companies
was extended in 2010. AOL is a defendant in the Google case. Since the Google case began, legal ex-
penses have been in the "mid-single digit millions" of dollars, Perlman said. In addition to the Lycos IP,
Vringo also recently acquired more than 500 patents related to 3G, 4G and LTE cellular technology from
Nokia, 25 percent of which are considered "essential," Perlman said. The portfolio includes 432 issued
patents and 75 applications, Perlman said. There are 126 U.S. patents and 42 in China, he said. Vringo
bought the IP for $22 million using part of the $31.2 million it raised earlier this year in issuing 9.6 mil-
lion shares to three unidentified investors. The agreement also requires Vringo to pay a 35 percent royalty
on patent-related gross revenues of more than $22 million. Some of the Nokia IP relates to patents consid-
ered "essential" for GSM/GPRS infrastructure equipment and mobile stations that comply with European
Telecommunications Standards Institute specifications. In light of those patents, Vringo sent a letter to
ZTE, maintaining the Chinese equipment supplier didn’t have a license despite supplying GSM/GPRS in-
frastructure gear since 2002, the company said in an SEC filing. ZTE officials weren’t available for com-
ment. While much of its focus is shifting to IP, Vringo also continues to market free and subscription-
based video ringtones as well as Facetones, an automated video slideshow that uses friends’ photos from
social media websites, primarily Facebook. Facetones has gained 1.5 million downloads and will be pre-
loaded on Nokia’s Series 40 phones due in Q4. Verizon sells Facetones through its app store for 99 cents,
but that represents a small percentage of the downloads, Perlman said. Vringo has 227,000 subscribers to
its video ringtone service across seven carriers, the largest being 38,000 with Orange U.K., which
launched them in February 2011, Vringo said in an SEC filing. — MS
Broadband
Microsoft signed a multi-year agreement with Klout, a company that measures the social media
influence of its users, Klout CEO Joe Fernandez said on the company's blog Thursday (http://xrl.us/
bnrow8). As a part of the agreement, Microsoft's Bing "will become one of Klout’s most significant part-
ners," Fernandez said. The social sidebar component of Bing search results will feature Klout Scores for
"People Who Know," which Bing describes as "the experts and enthusiasts who blog and post on Twitter
and other social networks about the thing you're looking for." As a part of the agreement, Klout will inte-
grate Bing data into Klout Scores, including who is included in the "People Who Know." Also, according
to Fernandez's post, Klout Scores will go up for individuals who have Wikipedia articles tied to their
Klout accounts and are searched for on Bing.
Companies
Comcast will work with second-screen app maker Zeebox to promote new interactive TV oppor-
tunities for tablet and smartphone users, Comcast said Thursday. “Zeebox stands out in the social TV
