Healthy competition is a wonderful thing in the auto business as well as anywhere else, and the conversion of telematics services to completely digital communications — leaving behind analog technology for good — is bringing a good old-fashioned whispering campaign into play between General Motors and Mercedes-Benz.
Telematics Digital Transition Hits Speed Bump
The gist of it is this: While Mercedes-Benz is charging $600 for TeleAid customers to upgrade to the system's new digital technology, GM is only asking $15 for the same upgrade of its OnStar service.
How can that be? Ask OnStar, the Mercedes-Benz folks will tell you — there's more to it than a mere $15! Sure enough, OnStar reveals that customers who get the digital upgrade for $15 also are obligated to subscribe to the service for an extra year, which adds a minimum of $199 to their overall conversion tab. That's a fact OnStar has conveniently left out of some communications about the transition.
Why the trash talking? Because just as American consumers have gotten used to telematics, the analog-to-digital transition is throwing an unwieldy obstacle in the path of further growth of services like Lexus Link, OnStar and TeleAid. And it's a hurdle that automakers and their subscribers simply can't avoid.
Mandated Technology Switch Sets Off Chain of Events
Thanks to an FCC ruling in 2002 made with their endorsement, cellular-communications carriers no longer will be required to support their old analog-technology cellular networks beginning in early 2008. Any analog subscriber who still wants their telematics service to work has to get with the program and obtain the new technology somehow.
OnStar was launched in 1996 using proven analog technology and mainly Verizon Wireless networks, which had the broadest geographic coverage of the cellular-network alternatives at the time. But because Verizon is disabling its analog networks on January 1, 2008, OnStar can't ensure coverage to its subscribers who have analog systems after that date.
GM is pointing out that about 90 percent of OnStar subscribers have vehicles that either are capable of operating on the digital network or can be upgraded to operate on the digital network. And more than 99 percent of subscribers in GM vehicles produced after the government's ruling (at the beginning of the 2003 model year) will be able to continue to receive OnStar services.
About 1.5 million vehicles can be, and are being, upgraded. But a significant minority of customers is in vehicles so old that they can only operate on analog and can't be upgraded — that's about a half-million units. The out-of-luck vehicles are ones GM produced before 2002, in addition to some 2002-'04 models equipped with OnStar.
To those stuck with analog, GM is offering a coupon for an additional year of OnStar service if they purchase a new GM vehicle or a certified used vehicle from 2006 or later. That's in addition to the free one-year subscription to OnStar that is already standard on most new GM models.
But those woebegone subscribers represent about 10 percent of OnStar's 4.7 million subscriber base, representing a significant problem for GM — as well as for the OnStar users. Generally, they stand to be some of OnStar's best customers because they've already transitioned from the free first year of use to become paying subscribers for at least a few years. If significant numbers of them get fed up and decide to quit OnStar rather than belly up to GM's offer, it could mean the loss of tens of millions of dollars of revenue for the company. It would also be a big black eye for the OnStar service that long has had trouble ratcheting up its subscriber base as much and as quickly as executives expected.
Lexus Link Goes as OnStar Goes
Lexus Link essentially is a service that Toyota has farmed out to OnStar, so it faces the same transition. On January 1, 2008, the company is cutting off 17,000 Lexus Link subscribers who own vehicles made between 2001 and 2004 and with analog-based telematics systems. Owners can either remove their system at a dealership for no charge or receive a $900 gift certificate to purchase the new generation of Lexus Link when they buy a new vehicle. Toyota reintroduced Lexus Link with digital technology beginning in the 2006 model year in some vehicles and the 2007 model year with others.
As for Mercedes-Benz? One fix fits all of its vehicles and upgrades the telematics system in each model to the digital state of the art, something that could affect as many as 200,000 of the company's 420,000 TeleAid subscribers. If TeleAid customers extend their subscriptions at the same time, the company provides them with some significant discounts.
Sascha Simon, telematics supervisor for Mercedes-Benz, admitted that the automaker has gotten some heat over the amount of the $600 upgrade charge per se, but he defended it. "It required a huge development effort over four years and two-digit-millions of dollars to come up with a completely new box; we didn't take that off the shelf," he said. Mercedes-Benz isn't offering a digital fix to what Simon said are "a couple thousand model-year 2000 vehicles that can't be upgraded for technical reasons."
BMW and Acura are the only telematics providers that get off the hook in the analog-to-digital transition. That's because the BMW Assist system, introduced in 2003 after the FCC ruling, relies on both analog and two digital bands, so even the system's oldest subscribers don't risk losing service. AcuraLink, which is really a "lighter" version of telematics, functions through XM satellite and internal diagnostics within the car, both of which will not be affected by the end of analog transmission.
Another Problem: Shorter Range With Digital Signals
The switch to digital also is bringing a second problem to telematics providers, but it's not one they can really do anything about.
Digital is a preferred technology because it enables lighter and more power-efficient phones and allows the same radio bandwidth to carry more calls than analog. But digital signals are weaker and travel shorter distances. That's not a big deal to the majority of telematics subscribers, who live in urban areas.
But telematics providers concede that some subscribers in rural or remote areas, where analog is the only cellular coverage, simply will be out of reach for their services.
So clearly, the road between analog and digital technology is a bumpy one. Telematics services may not see a problem of such magnitude concerning their technology base again. But this challenge underscores the rising risks — as well as rewards — that automakers face as their vehicles increasingly become consumer electronics platforms as well as means of transportation.