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Analyst Angle: The mobile Internet’s no zero-sum game

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
While Washington focuses on the timely issue of spectrum allocation, Wall Street is quietly watching another critical piece of the puzzle in averting a potential mobile capacity crunch. Presuming policy making continues to support rapid expansion of the wireless Internet, new business models also must emerge to support the massive ongoing investment needed to put this spectrum to its most growth-oriented use.
While the debate over spectrum allocation has been at times polarizing, the conversations around mobile infrastructure investment should be galvanizing. Mobile is poised to power significant growth across the entertainment, media and communications landscape, and there’s a shared stake in ensuring wireless infrastructure can continue to power this progress.
This time-sensitive quest involves negotiating complex terrain. The central quandary? Mobile Internet pricing to date has been based on the “all-inclusive” wireless voice model. Today’s competitive marketplace has established the price, and there is little elasticity, particularly in the current economic climate.
Yet unlike the voice world, where carriers and consumers had an exclusive relationship, in the world of the mobile Internet there is a broad array of players cashing in on connectivity. Unquestionably, this is a positive development. The booming applications market is barely three years old, yet it’s projected to top $30 billion in two years’ time, according to a recent Gartner report.
While new players are understandably reluctant to give up a share of their revenues unnecessarily, we do now see the emergence of cross-cutting collaborations as carriers, content providers and others explore new models to ensure a cohesive, engaging and profitable relationship with mobile consumers.
A timely example is found in the ongoing effort to transform our wireless devices into credit cards, a catalytic development for the marketplace, but one that involves substantial effort across several layers of the ecosystem to ensure secure, reliable transactions with adequate privacy protections.
Consumers, of course, aren’t concerned with the back-end business models but the end result – robust connectivity and exciting, reliable applications and services.
As we do more with our mobile devices, capacity demands are escalating in daunting fashion. Already in the United States there are more smartphones sold than personal computers. The fast-growing popularity of tablet devices is further ratcheting up consumption. In fact, wireless industry trade association CTIA reported 110% growth in the amount of data consumed on wireless networks in the second half of 2010, as compared to the same period in 2009.
This creates a straightforward supply-demand dilemma. We put more wireless infrastructure in place to support this trend, or we enter a world of diminishing returns, where business models are defined by rationing of scarce spectrum, with negative ripple effects from the reliability and price of service to consumers to limiting what app developers and innovators can enable us to do with our devices.
The preferred choice for all parties is clear, and the collective question is how best to finance the network improvements necessary to keep the market growing.
New revenues streams are emerging, particularly right now in the arena of location-based services and video calling/messaging. But symptomatic of the broader dilemma are two trends documented in PricewaterhouseCoopers’ annual survey of North American wireless providers. Our most recent report shows average revenue per smartphone user of $93 in mid-2009, going down to $86 one year later. Yet leading wireless carriers’ capital expenditures continue to hold steady at just north of 20% of revenues, despite the pressures on the top line and a struggling economy.
That trend will need to continue in order to accommodate mobile data’s ongoing, explosive growth. Adaptive strategies are underway. Carriers are shifting to metered usage, for example, mirroring other familiar consumer pricing models – from energy usage to the size of our morning lattes. But more collaborative progress is needed across the wireless ecosystem.
Each year PricewaterhouseCoopers surveys more than 1,200 CEOs and other senior executives from 69 countries around the world. In the most recent Global CEO Survey communications executives were 30% more likely than their peers in other industries to believe growth would be achieved in collaboration with external partners. And, by a nearly 50% margin, they believed their IT investments were primarily to support growth and leverage emerging innovations, such as mobile and social media.
Translation: Growth and innovation in the communications space will be powered by the twin engines of investment and collaboration. The inverse also is true: The future of the mobile Internet is no zero-sum game. The entire ecosystem has a shared stake in ensuring its continued strength and expansion.

Pierre-Alain Sur is a Partner in the Assurance and Business Advisory Services practice with a primary focus on Technology, Information and Communications companies. Sur transferred to the U.S. firm from PricewaterhouseCoopers France in October 1996. During his 18 years of public accounting practice, he has serviced many clients in the technology, information and communications industry, including Nokia Corp., Lucent Technologies, ST Microelectronics, Alltel Corp., Verizon Wireless, Sprint, Windstream Corp., Nextel International, Local Insight Regatta Holdings, PrimeCo Personal Communications, Alamosa PCS, MetroPCS Communications Inc., China Netcom and Unicom.


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