Reality Check: Three headlines no telecom CEO wants to read

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.
There’s going to be a lot to talk about earnings in the next few days, and, despite the dip in the stock after announcing earnings, the biggest noteworthy item about Google’s earnings is that they weren’t blowing away the already lofty expectations. It was the same story with IBM. While we wait for earnings, this week’s Reality Check looks at …
Three headlines that no telecom CEO wants to read:
1. Apple invests in a competitive wireless network. Apple has $48 billion in short and long-term marketable securities (likely more after they announce earnings tonight). Five billion to $10 billion of that into a network like Clearwire would be enormous. It would satisfy the cravings of the vertical integration-minded Apple (you could do a lot with security and streaming if you had an end-to-end network). Imagine the back to school ad of “Buy a Mac, get unlimited (no caps) bandwidth for $30/month.” In fact, the Mac could be its own in-home/around town hot spot, rendering the Mi-Fi devices obsolete. You could connect applications between the Mac, the iPod, and the iPad (e.g. pick up a game or a TV episode from the iPod 4G as you leave the house). And you move on to optimizing the voice experience over packet and bypassing circuit-switched voice altogether, and forming a competitive product to the Skype-Verizon application. Impact scale: 8.5 out of 10. Probability: slim, but we can dream.
2. IBM, Comcast, Time Warner, and five other cable companies (plus an outside investor like Google, Liberty Media, and/or GE Capital) form a consortium to market a consistent suite of enterprise services throughout the world. IBM adds the carrier class quality and the data center and software development/security capabilities. They also add distribution to a global enterprise base with whom they have built solid relationships for decades. The cable companies need a larger business footprint to be persuaded to work together on enterprise. But the faster speeds are here to stay, and the share gains in high speed internet services are real.
This consortium would put 50 megabits per second in reach of even the smallest businesses (and immediate wireless services through the Clearwire relationship to precede any construction), and add the Google and/or IBM software stores (on-demand) in a secure environment. Anti-trust concerns aside, this would be one group (especially if they could achieve global scale) that could impact AT&T and Verizon the most, removing any hope of long-term, double-digit IP growth. Impact scale: 9.0 out of 10. Probability: 4 out of 10 (less as you include Google and Liberty).
2. Carlos Slim’s Tracfone unit and Verizon have a falling out, and MetroTalk (Leap+ Metro PCS) is formed with $5 billion in new capitalization from Slim. Being an MVNO actually was profitable (defying the industry pundits), but what really matters here is the tie to Wal-Mart. The larger wireless companies think of Wal-Mart as some kind of Arkansas anomaly rather than what it is: the largest retailer in the world. If the retail bond is strong, and the product is easy to sell, the relevance of company-owned stores diminishes and they become a liability rather than an asset.
In time, the lower end of the market is going to want something more than 2G data speeds. Packet voice will require more network and signaling controls than Verizon will want to concede, and the handset cost curve has just started to be seen for smartphones. Slim will create the Wal-Mart of wireless service providers: Good (Asian) phones, with good Android and Windows 7 applications, for a fair price for individuals and families. Oh yeah, this will also become the new network for local (in-metro) machine-2-machine applications. Impact scale: 6.5 out of 10 (more to Sprint and T-Mobile). Probability: higher than we think.
“Why write about these headlines now?” you might ask. Because the players that shape the telecom industry going forward are not the traditional ones. They are not doing these deals for scale but for integration and control. They are not leveraged buyout or VC firms like we saw a decade ago. Much of the money and corresponding ownership is global, not domestic, reflecting the dollar’s long-term relative weakness. And these headlines promote growth, not synergy – perfect for the recovery cycle we will soon be experiencing.
Could one of these three headlines occur? Very possibly. None of them would brighten the picture of AT&T and Verizon (or Sprint or T-Mobile for that matter), and 2010’s stock performance for AT&T and Verizon has been nothing short of stellar ($19 billion in market capitalization list year-to-date through Monday).
Sometimes the best chess moves are the ones which prevent worst case outcomes.
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments at jim@mobilesymmetry.com.