WASHINGTON-2002 offers the wayward wireless industry a chance to begin to redeem and redefine itself.
But it won’t be easy, and survival skills will be essential. Indeed, with economic sluggishness persisting here and abroad, the industry is not totally in control of its future.
At nearly every turn, the indicators are negative. Layoffs, bankruptcies, sour earnings, declining stock prices, scaled-backed capital spending and weakened demand for wireless products and services. The ripple effect has created panic among ordinary American workers as tech-heavy pension funds fall in value. Rank-and-file investors are no less enamored with the state of affairs, hiring high-powered lawyers to file securities fraud cases against telecom and high-tech firms. The semiconductor world is wilting. The past 18 months have been an unadulterated high-tech hell.
Industry travails have not discriminated among the sectors. Cell phone, paging, mobile satellite and fixed wireless firms-service providers and vendors alike-have felt the sting.
Optimists insist the worst is over, that the battered high-tech sector has bottomed out and will begin to make a comeback in 2002. Others see the shakeout continuing through next year, with real improvement not showing up until 2003.
But if there is a silver lining out there, it is this: The hype-induced high-tech bust has forced the wireless industry to become more disciplined in fashioning rational business models. It has forced corporate executives to return to basics, to temper expectations without dampening technological exploration. Value is suddenly back in vogue.
No, there will not be a flash cut to third-generation wireless systems, at least not in the United States. It will be evolutionary, chock full of fits and starts, and it will happen. Mobile data will live, and America will emerge competitive as Europe digs itself out of $130 billion in 3G debt and Japan finds out if NTT DoCoMo’s FOMA has staying power.
On the other hand, who is to say whether 3G will be next big thing. 802.11 fixed wireless technology could win the prize. Maybe WAP and Bluetooth will stage comebacks.
The Internet, it turns out, is not the answer. It is a clue and a powerful catalyst. The wireless industry is challenged with reinventing itself in a way that draws on the best of technological advances-faster processing speeds, electronic miniaturization, super-powerful software, etc.-and packaging it in way consumers find useful at the right price. The road from here to there is filled with potholes. The winners and losers have yet to be determined. Hundreds of billions of dollars are on the line. Here’s a look at possible trends and flash points that could shape 2002.
Lord of the rings
Who will be the winners and losers in the mobile phone industry in 2002?
Next year, the U.S. will begin to get a taste of 3G via 2.5G technology that some say is really 3G technology. The technology war between Qualcomm Inc.-developed cdma2000-to be used by Verizon Wireless Inc. and Sprint PCS-and European GSM-based wideband CDMA-committed to by Cingular Wireless, AT&T Wireless Services Inc. and VoiceStream Wireless-is alive and well.
2002 will see the top national wireless carriers offering packet data at speeds faster than today’s snail-pace but far slower than the 384 kilobits-per-second-3G benchmark. What mobile-phone operator can best exploit 2.5G and which technology will carry the day in the marketplace?
Some industry analysts, like Andrew Seybold, say data speed, while important, is not the elixir. Applications (email, messaging, ring tones, games, etc.) and pricing will determine success. Seybold warned that if wireless data is not priced properly, the wireless industry “will stub its toe. Big time.”
Seybold is critical of AT&T Wireless’ usage-base pricing of mobile data. So too is Tole Hart, a senior analyst for Dataquest/Gartner. “I don’t think it’s good. I think they have to get pricing more user friendly.”
So who is Seybold betting on? “I think Sprint PCS is going to dominate the wireless data world by the end of next year.”
The technology battle will play out on another front, which Wall Street will be watching closely next year. With the Federal Communications Commission ruling to lift the spectrum cap by the end of 2002, mobile-phone operators will be positioning themselves for a new wave of mergers and acquisitions. Some observers predict industry consolidation will start small next year but mushroom in 2003.
“I think 2002 will be a year for lots of backroom meetings,” said Seybold.
As such, at least one mega wireless merger could be announced by the end of the year. Possible pairings include Verizon Wireless and Sprint PCS and Cingular Wireless and AT&T Wireless. Don’t count VoiceStream or Nextel Communications Inc. out, either.
The mobile-phone market is brutal. Executives are looking for greater efficiencies as the 3G future looms. Layoffs and spending cuts will not get them there. 2002 will lay the foundation for massive industry consolidation.
The gatekeepers
As the urge to merge grows, the question is whether wireless deals can win the approval of federal regulators. The next few years will be interesting ones for FCC Chairman Michael Powell, Justice Department antitrust czar Charles James and Federal Trade Commission Chairman Timothy Muris. Industry, knowing the Bush administration favors deregulation and disdains heavy-handed government, will not be shy about putting mergers-no matter how unthinkable (a term coined by former FCC Chairman Reed Hundt in reaction to a rumored merger between AT&T Corp. and SBC Communications Inc.)-in front of Bush appointees.
Powell, James and Muris have yet to be tested on telecom antitrust. Even before wireless mergers reach them, Baby Bells could make plays for long-distance companies.
Muris, for his part, already has signaled he supports enforcement over regulation when it comes to digital privacy.
In addition to privacy, carriers will have to pay attention to evolving digital copyright law as wireless pipes are opened wider to multimedia content.
The consumers
States have joined trial lawyers in scrutinizing the mobile-phone industry. The consumer backlash is expected to continue in 2002. Subscribers are mad about dropped calls, busy signals, messed up bills and early termination fees, and they’re not going to take it any more. An inquiry by 22 state attorneys generals into billing and advertising practices by Verizon Wireless, Sprint PCS and Cingular Wireless could grow into something bigger next year. State regulators are watching, too. Rep. Anthony Weiner (D-N.Y.) will try to find traction for legislation that would require the FCC to compile statistics on wireless complaints so that consumers can make more informed buying decisions. But with House Commerce Committee Chairman Billy Tauzin (R-La.) setting the agenda and the wireless lobby fully armed, the Weiner bill
remains a long shot. The same goes for a bill sponsored by Rep. Rush Holt (D-N.J.) to ban mobile-phone spam.
The defenders
The terrorist attacks of Sept. 11 have put a newfound emphasis on safety and security applications of wireless technology. The Bush administration in 2002 will push forward the rollout of priority access service, though it is unclear whether mobile-phone firms can meet the technical requirements of putting calls of government officials and emergency workers ahead of others. Of course, that has paid subscribers worried. Meanwhile, policy makers will be under pressure to improve interoperability among public-safety agencies and to consider private wireless spectrum requirements of critical infrastructure sectors, like public utilities and railroads. Cyber security issues return to Congress’ radar screen in 2002 as well. The FCC, for its part, is expected to redouble efforts to implement location-based 911 and to ensure that network reliability i
s up to snuff.
The resources
Competition for two major telecom resources-radio spectrum and numbers-will again intensify in 2002.The mobile-phone industry lost the spectrum battle with the Pentagon this year. In the spring, industry will try to salvage at least some military spectrum for 3G. In February, the FCC plans to try again to authorize ultra-wideband technology. After heavy opposition from the departments of defense and transportation, mobile-phone carriers and GPS industry, the FCC took the item off its Dec. 12 agenda. And then there’s the matter of bankrupt NextWave Telecom Inc. and the Justice Department-industry settlement that Congress didn’t get to before leaving town for the holiday.
The traders
U.S. Trade Representative Robert Zoellick is bullish about opening global markets. The House passed fast-track trade legislation, but did not get a vote in the Senate before lawmakers adjourned. That issue will return next year. With wireless growth leveling off here but showing great potential in emerging markets, the wireless and high-tech industries would like to see Bush score a big trade victory in 2002. Whether telecom firms can capitalize on the president’s free trade agenda is another question. Senate Commerce Committee Chairman Ernest Hollings (D-S.C.) wants to limit foreign government ownership in U.S. wireless carriers to 25 percent, a plan that would force the German government to reduce its stake in Deutsche Telecom AG, which merged with VoiceStream Wireless early this year.
