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« Walking ads with Donald Trumps Apprentice reality TV show | Main | Bi & Ai »

May 18, 2007

Comments

Sumocat

Your post has one "billion" too many, unless in fact "There are 80 billion bloggers." :)

Tomi Ahonen

Thanks Sumocat, yes it should be 80 million not billion. I'll go correct that right away. Thanks !

Tomi :-)

David Smith

This article, while informative, is reminiscent of someone's dream-world; an idyllic local where everything falls into place. That said, I must agree to some degree with most of what is written, however it does become monotonous as the story progresses.

Infomercials

You are absolutely right:

BI = You can do everything on a mobile phone
AI = You can still do the exact same things you did before, but now it feels cooler and it is easier

Thank you Apple for that "I."

mxmora

"music on mobile phones is already worth 8.8 B dollars last year, with ringing tones, ringback tones and MP3 files sold to musicphones EACH already larger than all of iTunes."

The only reason the music on mobile phones is that large is because of the closed nature of the phones today. The only way most people can get music on their phones is to by it from the phone company, even though they already own the CD or have it on their iPod. I predict that no iPhone user will be buying songs from AT&T any longer. They now have their entire music collection on their phone. Now that their music is on their phone they can make any one of those songs their ring tone. So now they no longer have to buy ring tones either.

The phone companies has had a strangle hold on consumers because they lock people out from using the media they already owned on their computers or mp3 players. Getting data to and from the phone costs dearly. With iPhone and a simple connection to the computer, the cell network is no longer needed for transferring all those files over.

" Yes messaging is a multi-billion dollar business on the web. But messaging is an 80 billion dollar industry on mobile"

It's only that big because there is no other way to send text messages. With the iPhone you can use standard Internet tools. You no longer have to get a text messaging plan. You can use iChat to text message anyone because it uses standard Internet messaging. As the iPhone is moved into an area with Wi-fi, the text messaging app auto switches to WiFi seamlessly. iPhone customers will no longer need text messaging plans. The can use the Internet connection. As this catches on, you will see that phone carriers will start to lose a lot of revenue because there are other ways to move data on smart phones.

I could go on and on but life A.I. is bigger than anyone thinks, and cell phone carriers will look fondly back at the days B.I. when they had a stranglehold on the network and the content that went across it.

Luis Alejandro Masanti

quote:
Not that the 50 or 60 year old board members at TimeWarner and Disney and Viacom etc will actually "use" an iPhone,...

Hey, man, Steve Jobs is 52, sits at Disney and WILL ACTUALLY "USE" an iPhone!!!

Tomi Ahonen

Hi David, Infomercials and mxmora,

Thank you for stopping by and posting the comments.

David - thank you (I think). I'm happy if you found it informative and that you partially agree with the blog entry. I didn't attempt any high prose, this is a blog, the good writing and re-writing I leave to my books and "real" articles, so if it got to be predictable and monotonous, I apologise.

Obviously I'd be most interested in what you disagree with "must agree.. with most" - as that would give us the most useful dialogue. Perhaps if you return David, you might tell me where you see reasons to disagree. I'd enjoy that discussion.

Infomercials - yes we agree. The iPhone will make all on the mobile phone more cool. It won't actually give us much of anything we couldn't do before. But suddenly the pocket internet, phone and messaging experiences will be as desirable as the iPod has made music.

mxmora - wow, you seem to be almost hostile about these matters. I would venture to guess you're based in America as you seem so angry at the mobile telecoms players? You might be pleased to hear that there are clear trends toward fair pricing, open internet access and unrestricted cellphones. The concept started in Japan and South Korea (as most current innovations in mobile telecoms tend to). But now already much of Scandinavia and Northern Europe is in similar state. The UK recently saw the launches of unlimited internet access on very modest monthly packages with VoIP access to Skype etc, headed by the newest 3G carrier, Three/Hutchison and its X-Series. The rest of the industry is following.

I'm very sure like all other innovations for this industry, that too will come to America soon (my calculations have America about 4 years behind the mainstream of Europe, ie about 6-7 years behind South Korea and Japan.

But let me address your specific points. I appreciate your view point, however, you might not know this industry quite as well, some of your assumptions are made probably with incomplete information.

Music - you say the only reason music is 8 times larger than iTunes is because it is a closed system controlled by the mobile operators/carriers. That may be a part of the reason, but I would certainly say it is a relatively small part. Certainly iTunes is also closed system, more so than most music services on mobile networks. So just being closed is no reason to think the iTunes/iPhone model would supercede other music offered on mobile phones.

But more precisely, the music industry has already discovered that the various mobile music services - ringing tones, ringback (ie waiting) tones, welcoming songs, background tones, and push ringtones, all serve DIFFERENT needs and have their own market opportunities which are DIFFERENT from the purchase and private consumption of MP3 files.

A large proportion of the first-time buyers of ringing tones buy a ringing tone of a song they already own ! (obviously the heavy users of ringing tones, the youth, will at times buy songs only for the short duration of their popularity as ringing tones, so this does not apply to heavy users of ringing tones once they get into the habit, and that is the majority of the total ringing tone business)

The same is true of waiting tones, welcoming songs, background tunes, push ringtones, mobile karaoke, music video, music streaming etc. So while yes, for the purchase of "basic" MP3 files, yes you may have a point - but then consider this. In South Korea the average price of a song to a mobile phone is 40 cents. Not 99 cents like iTunes. No wonder 45% of all music sold in South Korea is sold directly to musicphones. And South Korea is not alone. The latest figures from IFPI the international federation of phonographic industry - says real music (excluding ringing tones) to mobiles outsells MP3 files sold online such as iTunes from Japan to Italy to Spain. In Sweden the smallest mobile operator/carrier outsells all of iTunes Sweden - and in Sweden you can buy full track MP3 files to your phone for as little as 8 cents (obviously these are older songs, not current chart hits). And the Swedish model lets you copy the same song both onto your phone and your PC.

Yes, some American carriers are still way behind on this, but in the most advanced mobile music countries the services, the prices, the utility and availability are all much better for the consumer than iTunes or buying songs clumsily on credit cards to PCs and then transferring to portable musicplayers. No, just select the song to the musicphone, hit "buy" and its loaded straight, fast - on real 3G networks, not the rubbish on most American networks still today - and its billed straight to your phone bill. Kids can do it - even if they don't have a credit card, etc.

Better, simpler, faster. You'll see those soon in America too.

Also you take issue with messaging and again accuse the carriers. And again, I do admit the carriers (mobile operators) have been greedy at times but in the case of messaging, you don't know the facts. All surveys in every market - including America - have shown that SMS text messaging is the topmost preferred messaging method preferred not only over email, voicemail and IM instant messaging, it is even preferred over voice calls !

You totally don't understand the power of SMS text messaging. There is NO rival in email, not even on a Blackberry. So yes, the iPhone may make it easier to send "traditional internet messaging" communications, and I'll immediately grant you that on the iPhone especially with WiFi this will be easy to do (by the way, my current Nokia is already my fourth smartphone with WiFi - my first one was in 1994 - so that is nothing that dramatic either)

No. You should go read my longer posting on understanding SMS text messaging, why it is not the dumb little brother of e-mail. It is a far superior method to communicate. And yes, we've reported here at this blogsite that not only is SMS preferred over e-mail, it has now been proven to be preferred over voice calls on cellphones by the general public (not only youth) - in the UK (not a bizarre mobile-crazy country like Finland or Sweden or Japan or South Korea).

So you have a good point but don't know the big picture. Messaging is migrating to the most powerful method and that is SMS text messaging. And that won't change with the iPhone.

Thanks for writing

Tomi Ahonen :-)

Wolf Fernlund

Tomi, interesting as always to read your material...

January 10 you wrote the following:

"I would say 10 million iPhones - with prices in the 499 and 599 dollar range, and with only a GSM model and launching with only Cingular in America first - this is a tall order, but it can be done. I would suggest history will find that this is a much bigger drain on Apple's marketing and sales support resources than they can have imagined, but the writing is honestly on the wall."

What do you think about this today? (I get a feeling that you are a little surprised by the volume of iPhone market "hysteria" sofar...)

iphonehacks

Tomi, I must say that the article was an interesting read. I loved the Era BI and AI concept.

I would agree with you that the iPhone would infact create the BI and AI feeling in case of the mobile phone industry and we need to thank Apple for it.

Before the iPhone, everyone in the industry was content in following each other, Apple has been brave enough to think out of the box to develop something quite revolutionary.

I have a blog exclusively for the iPhone, and incidentally carried an article on how the iPhone could potentially be a boon for mobile phone advertising.

Article Link - http://www.iphonehacks.com/2007/05/iphone_a_potent.html

Let me know your views!!

Alan moore

Hi Wolf,

I am Tomi's co-author at this blog. I am personally not surprised by the huge interest in the iPhone. Apple have been a disruptive technology from day 1. For Apple it is not bravery, it is their DNA. It is the other companies which are driven by technology, not by marketing or a clear view on the end user experience. From their stores to their software, well in fact verything they approach.

There is a very clear vision of purpose. Few if any other companies in this space innovate in the same way.

As i said in my post, start with a laugh and work backwards. Like the Sony Walkman.

Thanks for posting

Alan

jiarizti

I'm not a very knowledgeable person in regards of this technologies, but I got caught up by your article and even followed the link and read your posting about Handicapping the iPhone, on doing so, it just hit me and would like to point out something that nobody seems to have thought of.

For what I know, the $500- $600 price point for the iPhone puts Apple already in the profit side (according to some analysis I read on its components). So, why the two years contract? It seems too many people are uneasy with this decision by Apple, so there should be a very good reason behind it. Here is my grain of salt: What could AT&T put into their service worth at lest the cost of the iPhone, which they wont subsidize at all? I think Visual Mail is just a glimpse of what to expect, IMO the other half of the iPhone revolution is in this area, but I’m afraid I just don’t know enough about technologies to speculate here. Do you think we could see some breakthrough implementation here?

freeformer

Jiarizti:

I guess its a given that the value chain from manufacture to consumer determines what the end price displays itself as.

If every single part of that chain held precisely the same sociological value (read importance) in new technology then I wonder if prices would look like they do.

I figure not.

You claim your point is something - 'nobody seems to have thought of' - which raises the issue that maybe its the fact that many people take the above value chain assumption 'as read' so then rarely question such pricing models.

Many people would state that the right price (purely commercially speaking) is whatever people will pay for it.

Many people would question whether something with a high (initial) percieved value should be subsidized at all. In fact - they may argue it should be premiumed.

Is it actually a case of trying to equate hardcore commercial 'value' (i.e profitability) with values of a totally different kind (i.e significance to the evolution of socio-technology)?

FF

Tomi Ahonen

Hi Luis, Wolf, iPhonehacks, Alan, jiaritzi and freeformer

Thank you all for visiting and posting comments. I'm very happy you've found this topic worth your while enough to comment.

We've also been rather widely picked up by the IT press such as ZD Net and Gizmodo, the Apple websites such as Macbytes and Macrumors, mobile sites such as Smart Mobs, and various other national sites from Denmark, Sweden, Finland onto India etc. Welcome all !

Now to specific responses as it is our custom here at Communities Dominate Blogs.

Luis - Wonderful catch, thank you so much. We must have been posting at the same time, sorry I didn't see yours at the time I posted my last reply. But yes, I'm sure you'll accept that Steve Jobs is very much the exception among 50 year olds and high technology. But ha-ha, funny coincidence. I was just selecting a couple of major media brands and had no idea Steve Jobs sits on the Disney board (but am not surprised).

I would hope - while we are on Disney - that Steve could bring some of his youthful - and now mobile-enthusiastic - views to Disney, which is almost criminally negligent in not taking advantage of its unique insights into mobile media. Disney was among the first Western brands to be signed up for the launch of NTT DoCoMo's global first launch of a mobile portal service, in 1999, in Japan. So Disney has known about this space literally for MORE than 8 years. I happen to have followed Disney right from the start due to knowing of this from the guy who did the negotiations from NTT DoCoMo's side (NTT DoCoMo being one of my reference customers)

And Disney has been consistently among the most profitable and lucrative mobile internet websites in Japan since that launch. So Disney HQ has had in fact the world's best knowledge, of the international potential (ie not local brands and content) in the world's first and most advanced mobile internet service. They have generated so much money out of Japanese mobile phone users that it has probably paid for all of Disney's "real" websites worldwide. This from Japan alone.

But have they capitalized on this knowhow. NO ! Idiots. And I mean it with the best admiration of Disney. But idiots. How much has that goose been laying golden eggs year after year after year in Japan, and where are Disney products, content and services on any other nation? Only NOW we get Pirates of the Caribbean as a multiplayer online game for mobile. NOW ? Eight years later ? and ESPN mobile ? What moron ran that brilliant money-maker into the ground ? And why terminate the European launch of Disney MVNO ? Disney sits on an absolute goldmine and they are poisoning the opportunity. Yes, idiots is putting it mildly. They sorely need Steve Jobs at their board to see some sense into all this. Disney of all media brands ? And they desperately need to read my 7th Mass Media piece ha-ha

Sorry about the tirade. But yes, you are totally right, Steve Jobs as a 52 year old is the exception to prove my rule ha-ha...

Who's next? Wolf.

So Wolf, you say you think I am a little surprised by the iPhone related hysteria? No - didn't you read fully that January 10th posting, in it I very clearly say to expect an Apple media blitz. I know very well the passionate Apple fans (we've been burned here nearly as heretics with our early iPod forecast that turned out remarkably accurate, but the Apple fans are truly fanatical, we know. Both Alan and I are huge fans of Apple and admire how greatly it connects with the passions of users of its technology. No other tech brand has nearly that loyalty and love.

But no, not at all. That is partly why this blog now. If you think its silly that four books on the iPhone are already taking pre-orders - including by the way one of my two publishers, John Wiley the world's biggest publisher of IT and telecoms and engineering books who also own the "for Dummies" paperback books - has already announced the iPhone for Dummies book ! I kid you not. (and no, I did not ghost-write that book ha-ha, although I've advised the For Dummies division on telecoms related titles etc) - if you think this level of hysteria is outrageous for a phone that hasn't even shipped yet (and remembering at any one time there are 1,500 different new phone models sold in the world), think again.

Yes, think again. This is PRE launch iPhone hysteria. I am telling you the iPhone will be a BI and AI moment. It will get MASSIVELY more loud and excited once the first iPhones hit the stores - and every programme will find an excuse to showcase the phones. The breakfast shows and the cooking shows and the latest episodes of cop shows and lawyers shows and reality TV etc will all somehow start to feature iPhones.

And then there is Apple's OWN PR machine. If this is the device to save the company, it will get the appropriate attention by Apple. The ad agency that created the Orwellian 1984 Macintosh launch Superbowl ad has one of the truly iconic TV ads of all time. You can bet that all major ad agencies begged stealed and borrowed to be allowed to pitch for this iPhone launch campaign. And be certain, it will have the absolute topmost creative team on the project. This is an utmost career-making campaign.

So when Apple's own PR machine gets going with the iPhone launch - only THEN do we see the maximum buzz and hysteria around the iPhone. This today, this is a prelude, and very mild in tone compared to what will come next month. Mark my words. We will be sick of the word iPhone by June 30 ha-ha...

So no, not surprised in the least. I did very clearly state in Jan 10 that the Apple PR machine will be one of Apple's strengths going into this challenging 10 million sales target. And I also add that Apple will gain a boost from the American media and domestic market which is not sophisticated enough to truly evaluate the iPhone compared to the real competitors. Like we can see in all European and Asian reviews, they are only lukewarm to the iPhone outside of America (actually very suspicious in Japan and Korea and advanced Asia).

iPhonehacks - thank you. And yes, we agree. And yes, it is Apple being very brave that in the past (Macintosh, Newton, iPod) has gone totally beyond what conventional wisdom and following the herd behaviour had created. This is what we - as in the mobile telecoms industry - need. Apple will bring innovation, and it will be good for all. It will also force Nokia, Motorola, Samsung, SonyEricsson and LG to raise their games. And obviosly the second and third tier players like the Blackberries etc.

I'll come over and visit your site. Thanks for the invitation. And yes, iPhone will dramatically help the advertising industry which does need to get to grips with mobile - its a favourite theme with Alan and me at our workshops and seminars. I was just with the Slovenian Marketing Association last month to help them get this point.

Alan - hi. Yes I always like your Bill Bailey quote...

jiaritzi and freeformer - you raise the point about the subsidies and it in itself is a long treatise, so let me first save this reply. I'll answer you and the subsidy issues of the iPhone next.

Thanks for writing, come back again

Tomi Ahonen :-)

Tomi Ahonen

Hi jiaritzi and freeformer

First, thank you freeformer for dealing with part of the issue.

But lets do a bit of the basics. Subsidies. American readers may be surprised to find out that in many countries it is illegal to offer handset subsidies - Italy, South Korea, Belgium, a large minority of the world is in this camp, and a mild movement is in that direction (trying to eliminate handset subsidies, such as they did in South Korea and Israel).

So the iPhone 500 dollar and 600 dollar prices (depending on storage size) is subsidised. A real non-subsidised price is not yet known, but is somewhere in the 800/950 to 1000/1200 dollar range.

And yes, lets take the mid-point for those estimates, and then for example in Italy the "cheaper" iPhone would cost the equivalent of about 900 dollars (ie about 700 Euros). No matter how big your monthly spend is with an operator/carrier in Italy, you have to dish out the 900 dollars for this phone.

Does it hurt sales of phones to pay full price. of course not. Italy has consistently been at the top of cellphone sales and subscription penetration in Europe, and literally Italy has twice the penetration that the USA has (meaning of course two or more phones and subscriptions per person, but thats another story - please search our blog about multiple subscriptions or penetrations to read more about it)

Equally there are lots of countries with handset subsidies where MORE expensive phones than the iPhone are offered for "zero dollars" if your monthly spending is enough and you renew your annual contract. The UK is typical of the many countries with full handset subsidies.

My Nokia N-93 (3 megapixel optical zoom Carl Zeiss lens and flash, DVD quality video recording and video-out connector, 3G and WiFi music/internet smartphone) and definitely nearer a Mercedes Benz or Rolls Royce if the iPhone is more of a BMW - by current exchange rates this topmost Nokia phone is about a 1200 dollar phone in its unsubsidised price - is offered by Vodafone for zero UK pounds, provided you are one of those with massive monthly bills to cover this cost of the upgrade.

So, first, on "real cost" or "real value". We don't know until we learn of the iPhone's "SIM free" price, the non-subsidised "street price" for the phone. But it is likely around 900 dollars for the cheaper version.

Then its somewhat straight-forward mathematics on the subsidy. You estimate what is the monthly billing for the customer over the period of time. There is a wholesale cost to our voice minutes and text messages and mobile web browsing etc. After we pay our costs (the wholesale price) we are left with our sales margin. And from that we have money to cover the cost of the subsidy. If we need to subsidise about 400 dollars (difference of 500 dollar subsidised price and 900 dollar unsubsidised price) then we have to get either 33 dollars for a one year contract, or 17 dollars for a two year contract, just to break even. That means a certain minimun contract price level for that period.

So far so good. if I understood your question, jiaritzi, you wanted to offer services to cover part of the subsidy? And make it cheaper to the end-user (and/or more profits for Apple and Cingular). This is like Sony offering the new Playstation 3, but rather than match the price of the Wii or 360, they would give away 3 gaming titles.

Yes, this is theoretically possible. But then we have the problem we've found in mobile telecoms in the post 2G time - that there is no single killer application. (I should know, I wrote the first book on creating killer apps for mobile in 2002 and have been teaching at Oxford University's 3G courses on killer application development since 2003)

So modern mobile servicess are very similar to watching TV. You have your fave programmes. They are probably very different from what your parents like to watch, and also very different from what your kids like to watch, etc. So imagine if you received a TV which has 3 pre-programmed shows, but you like David Letterman and they give you only Jay Leno. Or you like Sopranos but they give you Desperate Housewives. Etc. This is (one of) the problem(s) with trying to give services bundled with the iPhone.

Not that it can't be done. But for example, would you really like to get Pirates of the Caribbean - the videogame, on your iPhone? Only 8% of the total population play multiplayer online games. And some might not particularly care for the Pirates game. What if you received a free subscription to Flirtomatic? But you are happily married, you don't WANT to flirt around with love-sick youngsters? Or what if I give you a free copy of Elven Legends. What IS Elven Legends? (it is a really cool mobile multiplayer game, coming soon)

If Apple try to do something with a well-known brand like Flickr, MySpace, YouTube etc, then they can't get exclusivity. (the projected user numbers are tiny for getting an exclusive deal on any of the honest mass market brands). But if not a known brand, then they are stuck with that killer app problem, few people would really care enough to give it "value" in their decision.

Ok. there is much more about and around subsidies for handsets. But keep in mind, yes, there will be many countries where the locals have to pay almost twice the price for the iPhone. And there will be plenty of countries where the locals will get an iPhone "for free" ie fully subsidised. In every market they have to make the calculations locally into their domestic competitive market.

Thanks for visiting

Tomi Ahonen :-)

Tomi Ahonen

PS - I forgot

Hi, I forgot to mention about the Apple brand premium. Apple is brilliant at this. When the original Macintosh launched, it was "under powered" by some IBM-compatible specifications. Ie comparing "apples to apples" on the IBM related metrics, the Mac seemed "inferior" and thus very expensive. But obviously the Mac had much MORE in its mouse, "windows" ie icons based interface, hypertext, wisywig printing, etc.

So Apple is very competent at changing the game. If you use the old rules, Apple seems expensive and perhaps lesser in specs. But it typically does so much more and better, that it really does create what we call "new market space" in our book Communities Dominate Brands (where the iPod is one of our case studies of how exactly to do that).

And yes, the same is true of the Newton and the iPod. Both were very expensive at launch, compared to their contemporaries, but radically different.

So Apple has a strong track record in getting its customers to pay extra for the Apple experience. And increasngly with the iPod, Apple has become extremely cool and desirable, which helps get more dollars out of the wallets of the paying public.

Ok, that was all I needed to add

Tomi :-)

James

Time will show this jackass author how wrong he was. If he doesn't delete this to cover his tracks.

GR

>>remembering that Windows is Microsoft's copy of the Mac operating system

And Mac is Apples copy of the PARC operating system.

Steve Jobs: "we have always been shameless about stealing great ideas..."
http://www.pbs.org/cringely/pulpit/2007/pulpit_20070329_001882.html

Dave Zatz

"And yes, the same is true of the Newton and the iPod. Both were very expensive at launch, compared to their contemporaries, but radically different. So Apple has a strong track record in getting its customers to pay extra for the Apple experience."

Remember how successful the Newton was? Yeah, me neither. ;)

Tomi Ahonen

Hi James, GR and Dave

Thank you for visiting and posting comments

James - Of course we won't delete this, nor even your abusive comment. I hope you would have explained WHAT it is you disagree with? Perhaps you might return to explain a bit why you think the "jackass author" is so wrong?

GR - good point. And I've always also advocating rather learning from other successes (so in some way, attempting to copy success, perhaps in a broad definition that could be called stealing too).

Dave - Ok. Newton was not successful. Considering how radically the Macintosh changed all of personal computing and the iPod changed all of portable music consumption, two out of three commercial successes is a success hit rate any CEO would take. You can't win them all.

With that, bear in mind, most PDA experts do admit that the Newton was significantly ahead of its time and truly radical at launch. It has influenced all subsequent PDAs. But yes, Apple was not able to turn it into a commercial success. However, now considering the iPhone being a combination cellphone, music/media player and pocket computer/internet device, it is certainly fair to suggest the iPhone is the grandson of the Newton, a re-incarnation of that concept, with more modern twists.

In some ways the Newton to the iPhone is what the Lisa computer was to the original Macintosh. A kind of proof-of-concept vehicle, with many of the actual components and concepts trialled, but earlier, before the technology was quite there. This I think suggests that Apple has been very well aware of the pocketable computing device concept and opportunity long before its rivals. Too early? in this case, yes. But it also helps give a VERY strong base of knowhow and experience now when they launch the iPhone.

I'm certain that when compared against any stand-alone PDAs, the iPhone will totally crush them as a pocket computer. Similarly taking the iPod music and media knowhow, here too the iPhone will rule. The only area Apple will struggle to get all the parts right, is the cellphone (incidentially by far the most complex part and most expensive part of the convergence in the iPhone).

But there, I'd put my money on Apple getting it enough right to make the iPhone immediately a hit, and I've been saying, Apple is also excellent at maintaining a usability lead - expect the second release of the iPhone to be the ultimate cellphone/smartphone. If I was at Nokia or SonyEricsson or Motorola, Samsung, LG etc - the second iPhone is the phone to fear. This first edition is Apple only entering the market...

Thank you all for writing and posting your comments

Tomi Ahonen :-)

Krzysztof

Hi Tomi,
Great thought provoking article, thnks for that...
I'd better boook my Oxford courses quickly :-)
All the best
Krzysztof

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