Wireless newcomers big and small join battle for mobile customer

Editor’s Note: This article is an excerpt from RCR Wireless News’ May Special Edition, “Enabling the Mobile Revolution: Mobile Chips, Devices and Accessories.” The 80-page special edition is available here.
Traditional thinking may say that new entrants in the wireless sector, at least in the United States, aren’t likely to make too much of an impact against top operators Verizon Wireless and AT&T Mobility. However, there is a long list of companies, from MCI Communications Inc. to Western Wireless to Skype Ltd., that prove that startups can become powerhouses in their own right.
Today, emerging competitors in the wireless marketplace are a mix of digital media companies that have made huge names for themselves in a relatively short period of time and companies with a dogged determination to have a mobile play that have the all-important wireless asset – spectrum. Google Inc., Skype, Twitter Inc. and Facebook Inc. sit alongside more traditional wireless operators like Clearwire Corp., Cox Communications Inc., Dish Network Corp., FLO TV and Harbinger Capital Partners L.P.
While likely these smaller spectrum-owning operators aren’t going to climb to the No. 1 spot anytime soon, the digital media companies are eyeing the wireless space to grow their respective businesses. These companies are likely the greatest threats to today’s nationwide operators.
Today’s competitive landscape
As it stands today, Verizon Wireless, with nearly 93 million subscribers, and AT&T Mobility, with almost 87 million customers, are domestically neck and neck in subscriber growth and subscriber numbers, while Sprint Nextel Corp., with 48 million subscribers, and T-Mobile USA Inc., with 33 million subs, duke it out with regional operators for customer growth. Tellingly, Sprint Nextel and T-Mobile USA both lost around 100,000 subscribers in the first quarter, making some analysts think the wireless industry is a two-horse race.
“The biggest threats to AT&T and Verizon are AT&T and Verizon,” said Iain Gillott, president of iGR Research. Cable provider Comcast Corp. has deep enough pockets to be a threat, but hasn’t been successful in previous attempts to offer a wireless component to its cable and broadband offerings. In fact, cable operators have talked about adding mobility for years, but wireless played only a minor role at this year’s National Cable & Telecommunications conference.
One of the most interesting aspects of the wireless industry is that no one knows exactly where the next big thing is going to come from. John Stratton, Verizon Wireless’ chief marketing officer, commented in an interview with press recently that one of the reasons the wireless industry is so exciting is because it’s unpredictable.
“No one knows what is going to happen three years from now,” Stratton said at Qualcomm Inc.’s Uplinq developer’s conference. During his keynote address, Stratton pointed out that when Verizon Wireless introduced the BREW operating platform in 2003, the carrier had just released its first color screen and the most popular game on the device was Jamdat Bowling. Fast-forward four years and Apple Inc. – in its first foray into the wireless sector – kickstarted data downloads with an iconic device and a bunch of great applications. Fast-forward three more years and the industry experiences the first WiMAX handset capable of handling high-definition quality video built by HTC Corp. for Sprint Nextel, running on Clearwire’s WiMAX network.
What will another three years bring? It’s anyone’s guess, but many industry leaders are talking intelligence – intelligent devices running intelligent applications on intelligent networks. That intelligence, however, can lead to battles between operators, network providers, operating system companies and device manufacturers for who owns the customer. As with many things in the wireless ecosystem, some level of “co-opetition” is likely to be the end result.
Emerging opportunities for digital media
Glenn Lurie, president of emerging devices, resale and partnerships at AT&T Mobility, said that while large digital media companies increasingly “are looking to set up in our sandbox,” smaller wireless operators could partner to alter the wireless landscape.
“The bigger threat to carriers is that the eyeballs are starting to shift,’ said Kenneth Frank, president of Alcatel-Lucent’s Solutions business.
Thus, Google, Yahoo, Twitter and Facebook are starting to take search and social networking mobile. Mobile first is a mantra from Google CEO Eric Schmidt, while Twitter executives will tell you that Twitter was built with mobile in its DNA. Kevin Thau, head of mobile products at Twitter, said 50% of the company’s active users are tweeting from mobile devices.
Traditionally, some of the biggest perceived threats – Google, Skype, Comcast – have become partners with the largest carriers. With more than 500 million registered users, Skype is one of the biggest operators on the planet, although not a traditional telco. Indeed, Verizon Wireless inked a deal with Skype earlier this year in an effort to embrace the Voice over IP connector rather than continue to fight to keep VoIP applications off its network.
In the early days of Wi-Fi adoption, carriers perceived it as a threat. Arguments were being made that people would leave cellular networks because they could have cheaper Wi-Fi service. Fast forward to today, and carriers like AT&T Mobility have embraced Wi-Fi service, buying struggling Wi-Fi providers years ago, and now even tout the number of Wi-Fi connections made as part of its quarterly financial results.
Whether today’s competitors cooperate and compete on different levels, the issue of who owns the subscriber will determine tomorrow’s winners, said Andy Capener, director of service provider marketing of mobility at Cisco Systems Inc.
Smaller spectrum operators
With the AWS and 700 MHz auctions in recent years, some new players have emerged. Although it is too early to judge the success of these players, the fact that they have spectrum, the lifeblood of offering wireless services, ensures them a seat at the table and probably a good return on their initial investments.
FLO TV and Dish Networks both have 700 MHz spectrum, which paired together makes a nice nationwide swath. While FLO has built out a network and inked deals with AT&T Mobility and Verizon Wireless to carry live TV for them, effectively offloading data-heavy video onto the FLO network, FLO has yet to garner real success – at least by subscriber numbers, which neither operator or FLO relesases. FLO expanded its strategy to include standalone devices and signed with Audiovox Corp. to deliver TV to in-car entertainment devices.
Qualcomm CEO Paul Jacobs noted that the company likely will exit the subsidiary in the next year or so, hinting that FLO could partner with a content provider. Dish, which has been quiet about its 700 MHz buildout plans, could be a candidate.
Cable operator Cox has been building out a CDMA network and plans to deploy LTE service on its spectrum, but also has been relatively quiet about buildout plans since launching a few markets earlier this year.
Patrick Esser, president of Cox, said mobility is important to the company and that once customers can take advantage of wired and wireless access to content more ubiquitously, it will forever change viewing behavior across the spectrum – a view embraced by more than one cable provider.
“As a cable operator we have traditionally owned and operated networks in the home,” but are moving into partnerships with companies like Clearwire to take a firm leap into mobile, said Mike Roudi, group VP of mobile services at Time Warner Cable.
“You have this place between in-ho
me networks and macro networks … where you can start to innovate,” he said. “The buying and the consumption experience will be different … you can really start to define a customer experience that is enabled for what that customer is doing at that time.”
Perhaps it’s more a statement about Time Warner’s decision to not rush into mobile, but Roudi thinks “the first cuts of mobile video, whether they were on 2G or 3G networks, were a novelty.”
He offered a somewhat split view, however, on the role of voice in a cable-married-to-mobile world.
“People will tolerate a level of session continuity on data that is far worse than on voice,” he said, which would point to the importance of a voice-driven network. But also added, “when I think about voice in our business, we absolutely think about it as an IP-based application.”
Taking the long road to mobility seems to be something the cable operators are relishing for the time being. As Roudi put it, “I have the luxury of being able to think about wireless and building from the ground up.”
Existing players may find new life
Finally, a company like Harbinger Partners, which bought SkyTerra Communications Inc.’s assets and is pledging to build out a nationwide LTE network, could partner with existing companies like T-Mobile USA or Clearwire to command a stronger wireless presence. And while the current administration likely would not allow AT&T Mobility or Verizon Wireless to pick up much more spectrum, the Federal Communications Commission might approve a tie-up that would bring more competition to the wireless arena. Pundits often point to a merger between regional flat-rate providers MetroPCS Communications Inc. and Leap Wireless International Inc. as one deal that would be approved.