In 2009, the wireless industry is apt to suffer many of the same consequences exacted upon others by the worst economic downturn since the Great Depression: layoffs (likely giving way to stepped-up outsourcing), reduced capital spending, lower revenues and slimmer profit margins, tight credit, soft consumer demand, management shakeups and bankruptcies. Crystal-balling is a cinch in tough times like these.
Still, it would be a mistake to attach to the wireless industry the kind of foreboding, fatalistic forecasts that hover over other businesses as a result of a global financial crisis that brought Wall Street to its knees and threatens to do the same to the auto industry. No one’s too big to fail anymore. But the difference between wireless and other sectors is day and night. 2009 will be just a chapter in an ongoing manufacturing-to-service transformation in the United States, a charter member of the flat, interconnected world.
Accelerated disruption cycle
As bizarre as it might sound, the long-term outlook for the wireless space couldn’t be more promising. The havoc that recessionary pressures will wreak in 2009 (likely even longer) – combined with telecom-tech policy shifts proscribed by the incoming Obama administration and fellow Democrats who’ll control Congress and the Federal Communications Commission – will merely accelerate the normal cycle of disruption. Yes, it will probably be a blood bath. Consolidation will hasten, if not by more mergers and acquisitions, than by attrition.
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Household-named telecom service providers and equipment vendors could be forced into reinvention mode or sent out to pasture. Motorola Inc., Sprint Nextel Corp., Nortel Networks Ltd. and Palm Inc. are among those that’ll be on the watch list, but there’s a line forming behind them.
Amid the chaos of the Darwinian struggle to survive, strong companies will struggle but ultimately become stronger. But there will also be opportunities for software, hardware and application vendors, content providers and others that can add sustaining value to those who control the fat wireless pipes that give consumers and businesses indispensable anywhere, always-on connectivity. Even in the gloom and doom of the economic malaise, people will not stop talking or accessing the Internet. Wireless technology will continue to be a force-multiplier, not just in terms of enabling people and machines to talk with each other, but also with respect to advancing goals in education, health care, homeland security and governing itself (taking a page from the Obama campaign playbook).
On the surface, the wireless industry is a bit of a paradox. It is shrinking in terms of the number of traditional carriers and manufacturers even as service-based revenues increase annually. The pie is getting bigger thanks to the continued rise in per-minute wireless usage, data-content offerings and other value-added services made possible by mobile Web access. The only question is who gets how much in 2009 and beyond. Once-discrete market segments are increasingly coalescing and collapsing into the wireless space. That’s why in 2009, feature phones likely will cede more market share to smartphones, with more touchscreen handsets apt to come to market. Apple Inc.’s iPhone, serviced exclusively by AT&T Mobility, is still the gold standard. But HTC Corp.’s G1 phone, based on Google Inc.’s Android open-platform operating system and operated on T-Mobile USA Inc.’s networks, and other newly introduced smartphones could make respectable gains in 2009.
Owing to the fact that laptop computers are plenty smart already, subsidized low-end netbooks could begin to populate the wireless space in bigger numbers in 2009.
But at what cost?
Subsidy concerns, prepaid boost
“Subsidization of in-demand devices such as the iPhone and the BlackBerry Storm will generate strong potential for limited profitability as clients look to get the latest and greatest on a more frequent basis. However, current subsidy levels require at least two-year contracts with the purchase of each new device to become profitable,” observed the Yankee Group. “This flies in the face of device innovation and refresh cycles, which are closer to a year, as well as recessionary pressures that will force many postpaid consumers to rethink their mobile contractual relationships and opt for a solution that provides lower total cost of ownership. The ugly truth is that operator profitability will suffer further as a result of this disconnect.”
Of course, if economic conditions continue to worsen, many consumers could buck the smartphone trend and it’ll be boom-time for prepaid wireless.
Analysts generally agree that mobile phones have become must-have devices that most consumers will not part with even in a dire economy. But look for the recession to have a substantial impact in content genres still seen as novelties or luxuries by the public, such as over-the-air music downloads, mobile games and wireless video. And just as consumers tighten their wallets, venture capital firms will continue to rein in investments in 2009, leading to a dwindling number of new content and application startups – and, perhaps, expediting M&A activity as players look to fortify their positions to weather the economic storm.
Bright spots
A few segments look promising even in the short-term, however. The surge in traffic on the mobile Internet will increase thanks largely to demand for mobile access to social networking communities such as Facebook and MySpace. The flip side: The ever-increasing glut of inventory coupled with lean times will force cost-per-impression ad rates down even further, leading publishers to experiment with cost-per-action models in an effort to monetize the wireless Web. Those experiments could lead to real progress in the mobile-advertising space, which generally consists of banner ads that lead to branded landing pages. Expect more cutting-edge campaigns that target younger users and leverage innovative technologies like 2D barcodes and interactive, multimedia messaging.
GPS-enabled navigation applications – perhaps the only segment in the LBS space to produce real revenues yet – will continue to gain traction, too, as flat-rate data plans become commonplace and multimedia-friendly phones proliferate. (Incidentally, personalized navigation device manufacturers Garmin and Tom Tom may begin to struggle as consumers increasingly use their phones, not dedicated devices, as they travel.)
How does your 2009 budget for the purchase of wireless technologies compare with 2008?
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RCR Wireless subscribers’ response in a recent survey.
More controversially, 2009 is poised to be the year that mobile porn finds an audience in the United States. Carriers are certain to keep the stuff at arm’s length, and don’t look for porn at the App Store, but mobile-targeted online destinations will see traffic ramp up dramatically as multimedia-friendly handsets with large screens become the norm.
Wireless is all about the future
The bottom line is that little should be read into expected wireless travails of 2009. This industry is all about the future; 2009 is not a do-or-die proposition for wireless.
Wireless networks will be mainstays in industrialized and emerging nations for years to come. The technical details of how the next generation of the wireless Web is woven will begin to take tangible form next year as Verizon Wireless begins deploying LTE and Clearwire Corp. gets a better gauge on consumer appetite for WiMAX in a risk-averse, belt-tightening economic climate.
“I think it’s going to be a bad year for Clearwire,” said industry guru/consultant Andy Seybold.
Likewise, femtocell fever could be tested (if not significan
tly tempered) by the nay-saying economy. Meantime, OS wars should continue unabated.
Verizon Wireless, AT&T Mobility, Sprint Nextel and T-Mobile USA are positioned to control their destinies and those of countless other companies in the ever-evolving supply chain if they can weather 2009 and leverage their golden spectrum assets. The same potentially goes for Leap Wireless International Inc. and MetroPCS Communications Inc. if they can gain scale through a merger of necessity.
Instead of dwelling on the depressing prospects for 2009, the wireless industry might be better served by taking a longer view since it is uniquely situated to take broadband to another level in the United States.
Remaining relevant
Consider this: The Pew Internet & American Life Project said a survey of experts found mobile devices will be the primary means of accessing the Internet around the world in 2020. And in a new report, Swedish Analyst firm Berg Insight foresees the same trend – one with financial and social implications that are at once far-reaching and unfathomable.
Has your wireless budget changed because of the economic conditions reported on in this past month?
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RCR Wireless subscribers’ response in a recent survey.
“There is only one Internet and its users do not accept boundaries imposed by devices or networks,” said Sabine Ehlers, associate analyst at Berg Insight. “People expect and demand to get a similar experience from an application regardless if they use a desktop PC, a netbook or a smartphone for access. Their pilots for crossing over to the mobile media will be companies that offer familiar and interoperable applications on well-designed devices with transparent pricing. Cellular operators and content aggregators will need to rethink their strategies to stay relevant. In the discussion about who owns the customer one must never forget that the customers more than anyone else own the Internet.”
The Berg report predicts applications reaching mobile masses first will be those that exploit “cross-over recognition” by offering seamless access to popular fixed services. “The ground-breakers will be those providers that also integrate inherit differentiators of surfing-on-the-go such as instantaneity, personalization, location and efficiency in presentation . established Internet services, cleverly adapted for and ported to mobile, will eventually lead the way for uniquely mobile services and applications. The challenge for service developers and providers will be to design, package and introduce mobile-specific features, such as context-sensitivity, so that they become a natural and easily accepted evolution of online communication, which will require a deep understanding of how users communicate and how they interact with each other and mobile technology.”
Net neutrality
All of this raises an interesting question regarding what’s expected to being the top telecom-tech policy issue – net neutrality – confronted by the Obama administration, Congress and a Federal Communications Commission under Democratic leadership next year. On the one hand, Democrats want stronger and more explicit government rules to prevent discrimination and degradation of Web traffic by broadband service providers. But with massive data flows expected to migrate in coming years to wireless broadband networks (which today primarily support voice communications), wireless carriers will forced by necessity to manage traffic like no time before. It will be an ongoing cost-benefit analysis that attempts to commercially leverage wireless broadband networks in ways that extract maximum data revenues without sabotaging networks of finite bandwidth in the process.
Democratic telecom policymakers will have a similar challenge in crafting a net-neutrality regime that doesn’t give rise to unintended consequences that hurt the very consumers they’re attempting to help.
RCR Wireless News staffers Colin Gibbs, Phil Carson and Mike Dano contributed to this report.
