2006 and the third screen’s gravitational pull

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The wireless sector will enter 2006 with great expectations, everybody watching third-generation systems shift into higher gear with all that jazzy, digital content whose anytime, anywhere availability is transforming other industries even as cellular carriers of old reinvent themselves.

Indeed, the mobility given voice communications with the commercial launch of cellular communications only two decades ago was revolutionary in its own right. But that was only a crude beginning. Wireless networks-made faster and smarter by powerful silicon chips and software, and enhanced by the Internet’s intelligent design-will begin to take shape in 2006 as arguably the most technologically sophisticated and agile communications platform the nation has ever seen. But paradoxically the better the networks get, the more it becomes a services game.

Music, entertainment, gaming, messaging, photography, advertising, financial transactions and other heretofore disparate business enterprises are being drawn into the commercial vortex of the wireless business. It is part of a bigger marketing revolution that takes account of the 200 million mobile-phone subscribers, dynamic teen demographics and the underlying advanced wireless infrastructure of the United States.

As such, 2006 and beyond may be more about how wireless technology changes everything else than how the wireless industry itself changes.

“3G is the linchpin of the whole thing. It’s going to get faster and better,” said Andrew Seybold, a veteran industry analyst.

In the United States, Cingular Wireless L.L.C., Verizon Wireless and Sprint Nextel Corp. are moving boldly ahead with 3G. T-Mobile USA Inc. likely will have to score more spectrum at the 3G auction in 2006 to stay in the game in a meaningful way. Meantime, as with broadband penetration, Europe and Asia are blazing trails in 3G beyond anything we will witness here for some time.

Seybold said 3G and its successors will change the conceptual framework of the wireless business.

“This is no longer about wireless networks. This is about wireless services getting to devices regardless of the network,” said Seybold. Implicit in that reality is the premium it places on transactions and partnerships. Yes, the cable guys have arrived.

Rudy Baca, a wireless strategist at The Precursor Group, said the wireless industry should continue to thrive in 2006 in an environment of “benign neglect” at the Federal Communications Commission. Congress and citizens hope that neglect does not extend to enforcement of location-based enhanced 911 service.

It is a different story at state level.

“States are tired of getting complaints from citizens,” said Baca.

In early 2006, the California Public Utilities Commission is set to rule on a revised bill of rights for telecom consumers far less regulatory than the rule currently on the books, but not enforced. Though the champion of the CPUC bill-of-rights rewrite will be gone in 2006, she will not be forgotten. Not by a long stretch. Susan Kennedy will be at Gov. Arnold Schwarzenegger’s side as his chief of staff, weighing in from Sacramento on the controversial telecom consumer-protection guidelines and the selection of her successor.

The outcome at CPUC? The hundreds of thousands of dollars the cellular industry has spent on California lobbyists to defeat the bill of rights probably will not be totally in vain. A California telecom bill-of-rights “lite” is in the cards for 2006, despite industry’s preference that menacing new state regulations be terminated altogether. What will be terminated by Schwarzenegger in 2006 is any legislation resurrected and passed by the California legislature to write the current bill of rights into state law.

Then there is Massachusetts’ cellular bill of rights for industry to worry about in 2006. This is precisely the kind of domino effect industry wanted to avoid. But industry’s recent legal victory against Minnesota Attorney General Mike Hatch and the state’s wireless consumer-protection law is apt to make cities and states think twice in 2006 about taking on the cellular industry.

If 2005-when the FCC backed the wireless industry in the Hatch and health litigation-is any guide, 2006 may be a year when telecom regulators go one step better and invoke benign intervention on behalf of wireless carriers seeking greater federal pre-emption.

Wireless carriers also will be on Capitol Hill in hopes of further ridding themselves of state regulators. That begs the question whether the wireless industry can ride on the coattails of Voice over Internet Protocol to achieve total federal pre-emption? The answer could depend somewhat on whether VoIP providers avoid regulation in any new telecom reform touch-up bill.

When cities and states are not trying to stick it to wireless carriers with new taxes or regulations in 2006, they can be expected to continue pushing for bills to take handheld cell phones out of the hands of drivers-particularly those of ravenous devourers of wireless minutes we know as teens.

While consolidation in the mobile-phone industry continues, Wi-Fi deployments are expanding-particularly in cities. And WiMax is on the way, not to mention mobile satellite services with terrestrial components indistinguishable from those of mobile-phone carriers. With additional spectrum given to MSS companies, 2006 will be important in helping to determine whether MMS carriers can leverage regulatory relief to become a serious competitive threat to mobile-phone carriers. Mobile virtual network operators will be more plentiful in 2006, but their future in the long run is unclear.

As always, with handsets, it is carriers vs. handset makers. Carriers want the devices more customized to their liking, and handset makers want to sell the same phone everywhere. That will not change in 2006. Motorola Inc. regained some of its lost glory in 2005 with its Razr mobile phone-12 million shipped and counting. It could be a tough act to follow in 2006.

Meanwhile, the buzz around mobile TV will grow more deafening, particularly as Qualcomm Inc.’s MediaFlo and maybe Crown Castle Corp.’s networks come online in 2006. There’s little doubt that wireless video is gaining ground-witness MobiTV’s half-million subscribers-but the mobile music market is already established to the tune of 30 million iPods worldwide and the multibillion-dollar ringtone industry. The smart money has mobile music outpacing video next year.

Amp’d Mobile Inc. has already said it will offer full-length songs at 99 cents apiece (less than half of Sprint Nextel’s price). Here’s betting the rest of the industry will have to move in that direction, though perhaps at a more modest clip. The question is: How do carriers a.) offer songs at a reasonable price but still b.) make some money off each transaction? If they can’t strike that balance, users could just side-load music from PCs onto phones, leaving operators on the sidelines of a potentially lucrative wireless music market.

General interest in games will continue to grow, but the most interesting-and potentially profitable-applications will not be traditional games. The time may be right for a handful of simple, community-based games and other applications that may not even be competitive. Hardcore gamers will generally stick to their consoles and PCs, but other wireless users may take to offerings by Digital Chocolate Inc., InfoSpace Inc. and others.

Aggregators, like VeriSign Inc.’s Jamster, and third-party mobile publishers, like Dijji Corp.-formerly Dwango Wireless-will need to develop innovative new offerings or risk becoming less relevant as big brands make their own deals directly with carriers. Conversely, users will increasingly go off-deck to surf the wireless Web and shop for content.

Mobile search-both local searc
h and Internet search-will be a great space to keep an eye on. Lots of big players, including Yahoo Inc., Google Inc., InfoSpace Inc., and several smaller ones with deep pockets-4INFO, JumpTap and others-will fight it out to become the service of choice for both operators and consumers. One interesting aspect will be how some-or many, or all-try to duplicate Web-based marketing efforts like banners and Google’s AdWords.

And despite all the posturing and hype, neither porn nor gambling is bound to be big in the U.S. next year.

What will continue to be big in 2006 and onward is government’s reliance on wireless networks for homeland security, priority access and emergency alert wireless services.

Security fraud and cyber attacks will not disappear. Tech-savvy robbers and hackers don’t sleep.

Radio frequency identification technology will progress at Wal-Mart’s direction, undoubtedly adding to a privacy debate elevated to the national level after revelation of the Bush administration’s clandestine wiretapping program.

On top of it all next year, health litigation.

“I think we’re going to get a jury verdict on phone radiation in 2006,” said Precursor’s Baca, without predicting a winner. For sure, it’s serious business that Wall Street increasingly is taking note of. After all, the health of the wireless industry could be the line in 2006.

RCR reporter Heather Forsgren Weaver in Washington and Online Editor Mike Dano contributed to this report.

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