Reality Check: Wholesale … more exciting than you think

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.
Demand for mobile data is surging. We all know it. You can’t open a trade pub anymore without reading about it, and research firms are salivating over all the new forecasts they get to conduct. Here are some highlights:
–According to Cisco, mobile data is forecast to grow at a 108% compound annual growth rate between now and 2014, with video accounting for 66% of that traffic.
–Driven by USB “dongles,” cellular PC modem shipments continue rampant growth – according to ABI Research, wireless wide area network modem shipments topped 72 million units in 2009. This is up from 46.4 million in 2008. ABI forecasts 93 million units in 2010.
–Over the next five years In-Stat expects that the majority of consumer electronic devices purchased, including digital TVs, Blu-ray players and gaming consoles will be web-enabled, with 137 million devices shipping in the United States in 2014.
–According to ABI Research, smart phones made up 19% of all handsets shipped in the second quarter; this is a 50% jump from Q2 2009
–In-Stat expects mobile video calling revenue to surpass $1 Billion by 2015.
–In-Stat forecasts wireless backhaul expenditures to grow 41% by 2014.
This was a pretty hot topic at the recent 4G World event in Chicago. So the WiMAX Forum felt it a good place to throw a luncheon and talk about a related topic we feel that most people don’t know enough about: wholesale. Why wholesale? In the days of pure voice communications wholesale was a fairly mundane topic; however, with exploding data growth from the myriad new mobile Internet-based business models, wholesale get s a lot more interesting.
The panel was moderated by Barry West, most recently known for his executive positions at both Clearwire Corp. and Sprint Nextel Corp. Before the panel began, West gave an excellent presentation describing the plight of mobile operators struggling to manage surging network traffic. The difficulty encountered by mobile operators in handling the increasing data use has been well-publicized, the most infamous case of course being AT&T Mobility’s adoption of Apple Inc.’s iPhone. West presented the idea of buying service from wholesalers and thereby offloading data traffic as an excellent method for handling this problem. To highlight that point, Matthew Carter, President of 4G at Sprint Nextel, participated in the panel. Sprint Nextel is well-known for its relationship with Clearwire, and has received excellent press regarding its recent HTC Corp. Evo 4G and Samsung Electronics Co. Ltd. Epic 4G launches. These WiMAX-enabled smart phones represent the classic mobile operator business model, and Sprint Nextel seems quite content to begin offloading the massive data traffic driven by today’s smart phones to an IP-based WiMAX network rather than a voice network.
But reducing mobile operator executives’ blood pressure isn’t the only reason why wholesale is getting more interesting. We are sitting at the crossroads of mobility and the Internet after all, and that means new business models. As some of the statistics above outline, there are a plethora of new connected devices on the market, and more are coming. That means people are going to want connectivity for different, specific purposes in addition to general internet access, and wholesale enables this. Our 4G World panel included representatives Hideo Okinaka from UQ Communications and Yung Hahn from Intel Corp., who illuminated this with their own examples.
UQ Communications, based in Japan, already has several wholesale agreements up and running. Being the first operator to offer next generation broadband wireless in Japan, it was in a powerful position and its network was immediately in demand. One MVNO, @nifty offers Wi-Fi/WiMAX personal hotspots to consumers, with advertising focused on mobile gamers and PC users. UQ also works with Japan Railways to connect JR trains and stations. Japan’s population makes extensive use of its excellent rail system, and bringing connectivity to commuters – many of whom travel over an hour each way on trains – is good business. I had the good fortune to be in Tokyo several weeks ago, and saw a good deal of advertising in JR stations for this service. On an odder note, UQ also wholesales service to a vending machine company that uses WiMAX-connectivity to power software that does a visual scan of a potential buyer and recommends a drink based on its assessment. It correctly identified a colleague as jet-lagged, and offered a caffeinated beverage. I’m not certain if this will catch on in the United States, but it certainly was an interesting business idea.
Intel is one of the world’s leading chip manufacturers, and it is counting on an increasingly connected world to bring it increasingly impressive profits. Hahn spoke to the value of a wholesale model in enabling new business models in the form of new service providers. These new service providers are looking to buy and rent capacity for specific purposes. They know exactly what their market segment is looking for, and exactly how to deliver a wireless service that will best fit their segment’s needs. They will provide bundled services for customers that they have intimate knowledge of, and this will bring some fascinating new services, such as the current trend towards e-readers, to the market. It will also conveniently bring Intel a good deal of new markets for chips and processors.
Intel actually kicked off our event with an exciting video interview of Jason Bonfig, VP of Computing for Best Buy Co. Inc. For those of you who spent this summer on a beach somewhere relaxing, Best Buy used the hotter months to divulge two interesting announcements. One was a deal with Clearwire to bring 4G power to its Best Buy Connect services. The other was with Intel to ensure that all Intel-embedded I3, I5 and I7 products will also be WiMAX-embedded. This is true in all geographies to future-proof the consumer products against WiMAX networks opening in those areas. According to Bonfig, 27% of Best Buy’s assortment will be covered by WiMAX, which is the largest of any connected devices in the notebook area. So far Best Buy claims to have gotten an excellent response from customers on its WiMAX products, and he believes that it gives Best Buy a unique value proposition in dealing with its market.
Tomorrow’s connected business models will not be possible without the wholesale of wireless broadband. So next time you see news of a wholesale agreement you’ll probably want to make sure you pay attention. It may be more interesting than you think.