Now that the United States appears to be entering a recession, the economics behind deployments of third-generation wireless systems are even trickier than new math. Carriers and vendors are walking a tightrope trying to find the proper balance between offering exciting new services and breaking the bank as they spend billions trying to build the networks necessary for services.
For the most part, U.S. wireless carriers say they need new spectrum to fully deploy multimedia voice and data services that will enhance the lives of Americans. Carriers are aware that this spectrum will cost money. However, operators have recently shown in the PCS re-auction that they are more than willing to pay for this spectrum. It is the cost of doing business.
In order to make back the money spent acquiring spectrum, carriers must deploy more services-data services. Yet carriers have been reluctant to deploy those data services that promise the quickest return on their investment, i.e., data services that carry ads over mobile phones and PDAs. Why? Because carriers know that some of their subscriber base will be turned off by advertisements.
Meanwhile, ARPU continues to go down and carriers must begin to pay for new spectrum. Customers have signed wireless contracts giving them hundreds of minutes of cell-phone use for mere pennies, and carriers continue to subsidize the costs of handsets. In a recession, will people want data services, or will they stay content with their voice services? Even if they want more data services, will they cut back on other options to keep their overall bill at the same level?
For manufacturers, the math is even trickier because vendors have had to finance the buildout of these 3G networks. Vendor financing is a fact of life for 3G systems. In the end, manufacturers end up paying to play.
It seems like both carriers and vendors are destined to fall off this tight rope.
But in discussing RCR Wireless News’ story this week on the rise of McCaw Cellular Communications Inc., D.C. Bureau Chief Jeffrey Silva sent me this email about the greatest tight-rope walker of all. “I guess it’s inevitable because of who he is and how much he has accomplished, but Craig McCaw seems to command hero worship. Truth is, McCaw Cellular was a high-wire act-the firm was highly leveraged in part by junk-bond sales-before white knight AT&T came to the rescue.
It’s probably McCaw’s business genius that gave him the courage to push the envelope that allowed him walk the fine line between filing for bankruptcy and becoming an overnight billionaire.”
It’s a scary act, but the potential rewards are enough to stop the tight-rope walkers from looking down.
