• by Mark Walsh  @markfwal, October 5, 2010

Reports emerging late Monday that Qualcomm would pull the plug on its FLO TV business by year's end didn't come as a huge surprise, given company statements earlier this year acknowledging consumer uptake had never met expectations for the mobile TV service the company invested hundreds of millions of dollar to create.

Qualcomm today issued a statement saying it was suspending sales of new FLO TV devices introduced late last year while the company continues discussions "with a wide range of partners" about divesting its mobile broadcast network and the associated spectrum.

Qualcomm said it would maintain the network for existing subscribers through spring 2011 and that FLO TV service provided through operators including AT&T and Verizon Wireless would be unaffected for now. "In the event of a discontinuance of service, FLO TV will make appropriate refunds, the details of which will be communicated prior to discontinuation," read the statement.

Qualcomm chairman and CEO Paul Jacobs had indicated during the company's July earnings call that it was exploring options for divesting the unit as a result of disappointing demand for the mobile broadcast service.

The wireless technology company has never disclosed how many subscribers FLO TV had -- itself a bad sign. But between its own direct-to-consumer offering launched in 2008 and the white-label mobile TV service delivered through Verizon Wireless and AT&T, market research firm In-Stat estimates the FLO network had attracted only about 200,000 subscribers.

Analysts pointed to factors influencing the demise, from growing competition from free, ad-based mobile video alternatives to the limited range of FLO TV-compatible devices. "People don't want to pay extra to watch the same stuff they're watching on the big screen and laptops, so why pay another $10 a month on their mobile phone," said Norm Bogen, a digital entertainment analyst at In-Stat. He cited competing efforts like Comcast's TV Everywhere initiative, aimed at providing cable subscribers access to programming on any device.

There's also both free and paid options -- like iTunes, Hulu and Netflix -- for streaming or downloading video via the mobile Web and applications.

Aside from stiff competition, the FLO TV audience was also limited by the selection of devices capable of receiving its broadcast signal. A Diffusion Group report earlier this year also criticized Qualcomm for making FLO TV available on relatively few phones instead of across popular devices like the iPhone, BlackBerry and Android-based models.

By contrast, cellular mobile TV service mobiTV, which says it has more than 10 million subscribers, is available across each of those platforms.

Further, Bogen noted that FLO TV was predicated on providing superior quality video to that transmitted on cellular networks. But with improving video quality delivered through the rollout of 3G -- and now, 4G -- networks, that advantage has diminished. "I think that realization is what drove the nail in the coffin for them," he said.

Qualcomm's Jacobs has pointed out that the spectrum the company acquired for $683 million to operate FLO TV has only increased in value. He recently suggested it could fetch nearly $2 billion based on the latest 700 MHz spectrum auction.

Charles Golvin, a mobile analyst at Forrester, agreed that the spectrum alone was a highly valuable asset. With growing demand for mobile broadband services, it's not hard to envision one of the carriers ending up as a buyer. "Spectrum is the lifeblood for operators," noted Golvin.