The pieces continue to fall in and out of place in the ever-evolving wireless world, but it now appears the many changes – from the subtle to the spectacular emergence of Apple Inc.’s iPhone, Google Inc. and open access – have unwittingly joined in disorganized union to force the wireless industry to a tipping point of sorts.
There are simply too many unrelenting forces for the wireless industry to remain comfortably ensconced in the only business model it has known the past three decades. The smart companies will capitalize and flourish. The others are apt to be eaten alive. Gartner Inc. analysts estimate 80% of telecom carriers will fall flat on their faces attempting to transform themselves into content enablers over the next four years. That’s just content; there are also key nextgeneration technology choices for wireless operators.
Sizing up the situation
Today’s winners could be tomorrow’s losers. It’s a big challenge knowing which way to jump (ask ex-Sprint Nextel Corp. president Gary Forsee and ex-Motorola Inc. CEO Ed Zander), which is why 2008 will likely see wireless companies hedging across the board like no time before. But hedging can be an insidious, feel-good strategy that lulls companies into thinking they’re in the ball game when in reality they’re vulnerable to getting their clocks cleaned as a result of embracing an approach that’s actually cautious, risk-averse and lacking in cerebral boldness.
“The economic model that has driven the wireless industry since the early 1980s just might be going in for a quarter-century tune up,” said Tom Wheeler, a managing director of Core Capital Partners and president of cellphone industry association CTIA from 1992 to 2004. Wheeler made the observation in a recent column on the changing relationships among wireless carriers, vendors and consumers in a digital universe gaining daily strength as wireless and Internet technologies feed off each other to inform, entertain and incite the masses.
“The Internet folks have already co-opted the wired telecom business. Next, they believe, their consumer-driven innovation will allow them to do the same thing to wireless,” Wheeler stated. “You have to give them credit for the pace of their innovation. Whereas carriers’ processes to implement something new are legendarily long, Netcentric companies bring forth one new initiative after another, throwing them out to see which one will stick and change the market. . The albatross around the wireless carriers’ neck is their networks. Carriers define themselves by building networks. The Internet folks define themselves by building services. So why is it that carriers need to continue to play by these 25-year-old rules? What is it that carriers can do to change the game?”
On the one hand, that arguably is the big challenge for wireless carriers in 2008 and beyond. But, given newfound boldness of handset makers like Nokia Corp. and Apple as well as the inevitable wireless infiltration of Google, Skype Ltd. and other Internet types, it is unclear whether mobile-phone operators can control their destinies in coming years. It could simply be a paradoxical situation of wireless carriers having to surrender control to keep some semblance of control, all while keeping Wall Street happy. One way or another, wireless carriers likely will begin to undergo a fundamental change in 2008. A new era is about to begin. After all, wireless technology will drive the networks of the future. Everyone will want access to wireless networks to better leverage everything they’re now doing and want to do in the future. Wireless 4.0 is about to arrive.
The wireless industry is becoming more than its name implies. It is growing into a broadband access business in which interactive multimedia content and applications (e-mail, texting, safety alerts, music, TV, ringtones, games, imaging, banking, navigation, pinpoint advertising and more) are increasingly shaped by mobile device makers and users themselves. It is at once all about you and every single firm out there hungry for a piece of a growth-prone wireless pie whose rich flavor has been historically determined by wireless carriers.
Fitch Ratings said it expects telecom operators on average will experience modest revenue growth in 2008, with key sources for growth in business and wireless services driven by increasing data demand.
The $120 billion cellullar industry is largely built on voice communications, but there is lots more traveling faster through fatter and faster wireless pipes to Web-enabled mobile phones.
“There will be 1-inch screens and 128-inch screens. It will be ‘your life’ which you sync with all of this – both devices and networks. The lines between will blur, but ‘your life’ will be clear across all,” predicts The Shosteck Group. “User-generated services such as Facebook, YouTube, MySpace and other particular services today will be surpassed by ‘content specific applications.’ It will be replaced with context and interactive driven content. For as before, it is impossible to predict what will be ‘killer’ applications. What was once true – millions of users devoted to a single application will move to millions of applications for smaller user groups. And vertical markets will/are being redefined from the corporate sector to the horizontal consumer segment.”
Still, it is not a stretch to believe wireless engineers and software writers are working around the clock to upstage the iPhone, Apple’s phenom wireless device that’s exclusive to AT&T Mobility in the United States and other carriers in Europe. Is Asia next in 2008?
“The loss of revenue from fixed services, the penetration of broadband access technologies and the maturation of [Voice over Internet Protocol] and broadband wireless Wi-Fi and WiMAX technologies is accelerating the wireless industry’s drive toward seamless mobility and transparency across various media,” said analysts at Rutberg & Co. “As mobile operators and cable companies position themselves in the market, they will likewise seek to implement consolidated transport and switch networks.”
Making room for more
Consider the sea change that is before us. Nearly 13% of U.S. households depend entirely on cellphones for communications. But the next data point is perhaps even more telling. Average U.S. consumer spending on cellphone service is approaching annual expenditures for landline telephone service, according to the Department of Labor’s Bureau of Labor Statistics. That is huge. Capital markets have taken note.
“I think 2008 is really going to be pivotal for the wireless industry,” said wireless industry analyst Andrew Seybold, adding the upcoming 700 MHz auction could produce a couple new competitors to a wireless field dominated by AT&T Mobility, Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc. The Big Four control the lion’s share of the nation’s 250 million cellphone subscribers and the spectrum that is the lifeblood of the industry.
Google, the Internet search engine giant that is held in an awe once reserved for software king Microsoft Corp., could make its biggest play yet in the wireless space in 2008. The company said it plans to bid in the 700 MHz auction that starts Jan. 24, and appears to have its sights set on the 22 megahertz of spectrum set aside for open access – a license that requires a $4.6 billion minimum bid.
“The bottom line is they want access to everything,” said Seybold.
Ditto, according to Phil Asmundson, national managing partner, technology, media and entertainment, and telecom at Deloitte & Touche L.L.P. “I’ve never known Google not to be serious,” said Asmundson.
He sees Google as a serious bidder. “It gets them on more screens.”
Another possible newcomer to the wireless establishment is Frontline Wireless L.L.C., which wants to capture a national commercial/public-safety broadband license with a minimum $1.3 billion price tag. If it wins the license, it will have to negotiate a network-sharing agreement with the public-safety broadband licensee. That could be a lot harder than writing a fat check for a wireless license.
“The big game changer is going to be the 700 MHz auction,” said Grant Seiffert, president of the Telecommunications Industry Association. TIA represents wireless and wireline telecom manufacturers.
Just to make things that much more suspenseful, the FCC will largely blackout round-by-round 700 MHz bidding results. The real reason for blind bidding is to prevent cheating.
Indeed, the combination of a high-grade spectrum infusion and open-access platforms for handsets and networks could be a boon for wireless vendors, applications developers, public-safety and homeland security system integrators, tower companies and content creators (if the Hollywood writers’ strike ever gets settled).
“While we don’t expect the [700 MHz] spectrum to begin being built out until 2009, we do believe that the auction will serve to expand the adoption of wireless data which should ultimately benefit our companies under coverage,” said Merriman Curhan Ford & Co., an investment bank and securities broker-dealer.
What about WiMAX? Will it gain real traction in 2008, or remain largely idle if new Sprint Nextel CEO Dan Hesse bows to any board pressures to unload significant 2.5 GHz broadband assets that the No. 3 carrier was looking to bring to the table in a joint venture with Craig McCaw’s Clearwire Corp. It never happened. Meantime, Sprint Nextel’s iDEN service will fade further into the sunset in 2008.
Not everyone believes the unfulfilled Sprint Nextel-Clearwire partnership will significantly slow WiMAX deployment in the United States. Geoff Roman, corporate VP for strategy and business development at Motorola Inc.’s home and networks mobility unit, said speculation about WiMAX’s demise is exaggerated. “I don’t see it that way. . I think they’ll get together. I don’t see this as a permanent divorce in my view,” said Roman.
Also attempting to make a bigger go of it in 2008 are radio frequency identification and ultra wideband technologies, femtocells, software-defined radios and mobile satellite service operators with ancillary terrestrial component authorizations.
Traffic inside the Beltway
Don’t expect much from Congress in 2008, though wireless consumer protection and expanded federal pre-emption will remain hot topics. Some Democratic lawmakers, fed up with Federal Communications Commission Chairman Kevin Martin, want to pursue legislation to overhaul the agency and hold off action on FCC renominations next year.
While election-year politics will put most everything on hold in 2008, Martin must still figure out how to reform universal service, how to improve spotty enhanced 911 service and whether to heed wireless industry and tower companies’ complaints about post-Katrina backup power rules.
Truth is, it’s mostly all a crapshoot for the wireless industry in 2008. There’s really only one guarantee: more patent lawsuits.