Reality Check: 4G is the wireless NASDAQ

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
With the Mobile World Congress behind us, it’s time to start re-frame the new-new broadband debate. We will continue to have the technology arguments, which, while valid, sound a lot like IP vs. Frame Relay arguments of the past. We will have spectrum debates (can’t have enough), security arguments (can’t have enough), and transition strategies (tech is never good at transitions, and 3G is not a disposable technology).
Let’s examine 4G’s impact through a series of strategic questions:
1. Is 4G going to be positioned like 3G (which was positioned as a more ubiquitous version of Wi-Fi)? “It’s faster” isn’t a breakthrough investment thesis (look at the adoption rates of high-speed Internet between the initial introduction and the emergence of YouTube and file sharing sites). I would also argue that “it’s faster and it’s mobile” isn’t an investment thesis, if PC card penetration is any indication. Speed is not the buying trigger.
2. Is 4G going to be positioned as a replacement for in-home high-speed data? Certainly not against Verizon FiOS, AT&T U-Verse, and Comcast high-speed data investments, but could for very low-end users (which, again, is a difficult thesis to make).
3. Is 4G going to replace low-bandwidth access technologies such as T1s for business? Likely so for seasonal uses such as point of sale or a bank ATM, unless there is a dramatic change in the tariffing process of the incumbent providers. It also could be a very effective part of a wireline/wireless “backup” strategy. No one is building an entire thesis on this, but they could (cable should (?), depending on the costs of getting across that parking lot or boring through that wall).
4. Is 4G going to be positioned as a cheaper 3G (more mobile bandwidth for less costs)? I bet the business case was not written assuming a deep discount to 3G, but Sprint has started their 4G pricing at 3G levels – a bold move that should encourage faster migration to 4G at a minimum. We forget in our assessment of costs that the primary generator of 4G “savings” is from the device to the tower. The aggregation (cost/megabyte) savings from the tower to the Internet is already occurring before 4G (thanks, iPhone, for proving every telco data engineer wrong). But we’re getting warmer.
To find a plausible answer to the question of 4G positioning, we need to go back to 1971 and 1987. In 1971, a bunch of securities dealers introduced the NASDAQ Over the Counter (OTC) Trading System. (Although not used today, NASDAQ stands for National Association of Securities Dealers Automated Quotations). Long before the Internet dis-intermediated commerce, the NASDAQ was hard at work, posting the latest bids and asks – it was originally a large computer bulletin board, a private Craigslist for the broker/dealer community. The original reaction to the NASDAQ was frustration – some broker dealers made money off of the “spread” between the bid and ask prices, and the NASDAQ significantly diminished this profit opportunity. But technology prevailed, first for basic information, and later for trading.
Then came the 1987 market crash. Until 1987, traders would use the NASDAQ to get better information, but when it came time to make the trade, they used the telephone. In the Oct. 1987 crash, however, the phone systems jammed, creating a backlog of orders. Traders could not answer their calls fast enough, and, when markets fall ~30% in a few trading days (compare that to the 4% drop this week), the timing of trade execution is critical (simply put, the large trading houses got their orders through and the smaller batch trades waited). This led to the development of the Small Order Execution System (SOES), which is a completely electronic clearinghouse for smaller trades (more on this development can be found here). This platform spawned the “apps” of E*Trade, TD Ameritrade, and other personal investment exchanges. From the meltdown came a platform.
When I am asked about 4G strategies, I think a lot about the NASDAQ. It’s an electronic exchange that brings together interest groups, in this case buyers and sellers of securities. The NASDAQ does not make a market in oil, and it’s not the market maker for the world’s grain (the combined CME/NYMEX exchanges handle this), but it trades more stock volume than any other exchange. It’s definitely the world’s best known exchange, with the popular tag line “The stock market for the next hundred years.” How did they achieve such prominence? The NASDAQ highlighted successful entrepreneurs – how they created a market for them, and made their ideas flourish. It’s not a technology message. It’s not a price message. There are no comparisons to the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE). And it’s really not an “open” message as there are qualifications that must be met to trade on the NASDAQ. Take a minute to look at their latest ads, posted on YouTube. Now swap “Clearwire” or “4G from Verizon” for NASDAQ. It’s a message of enablement, a component of a larger solution or idea – it’s not the total solution.
This is how one 4G communications company can break out of the pack. It will be the NASDAQ of telecom and the remainder will be the NYSE and LSE (or worse, the AMEX or Philadelphia Stock Exchange). It will gladly take a backseat to the applications success stories, and, to go with a previous Reality Check article (The Tweet guarantee), will focus on transaction execution. It’s more than wireless, and it’s not mass market-focused.
Who will it be?
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments at [email protected].