A Wild September for Wireless: Putting it in Context
A wild and wacky wireless September it was. In one of the most frenzied months in the history of nearly any tech sector, we saw the following developments dominate the headlines:
- Verizon bought out Vodafone’s stake in Verizon Wireless for $130 billion. In a week, this financing went from “can they do it” to being oversubscribed.
- Microsoft acquired Nokia’s handset division for $7.5 billion.
- Samsung launched its foray into the wearables space with the launch of the Galaxy Gear smartwatch.
- Apple announced two new iPhones, the 5s and 5c, sold 9 million of them the first weekend, and upgraded a quarter of a billion users to iOS 7 in a matter of days.
- The BlackBerry death spiral accelerated, as the company abandoned the consumer market, pulled back the launch of BlackBerry Messenger on Android and iOS, and announced a proposed acquisition by Canadian private equity firm Fairfax Financial for $4.7 billion (a quarter of its valuation just three years ago). Expect more suitors in the coming weeks.
- Facebook’s stock is up 50 percent from its IPO price, driven in large part by its performance in mobile advertising.
- Twitter, 60 percent of whose use comes from mobile devices, announced its plans for an IPO.
- Ericsson announced a landmark product called the Dot—a small cell site the size of a carbon monoxide detector.
As an industry analyst/consultant who has been working in the wireless industry for the better part of 20 years, I see some common threads from these developments that might help Xconomy readers think about the wireless roadmap.
1. Say what you will about operators being “the pipe”, but there is tremendous value in wireless networks.
Verizon’s $130 billion financing to buy out Vodafone financing was completed with relative ease and rapidity. Combine the Verizon deal with the Softbank acquisition of Sprint and the Deutsche Telekom investment in T-Mobile’s turnaround and rapid LTE deployment, and you are seeing tremendous investment in 4G wireless networks. Now Europe and other developed markets have to catch up with the U.S., South Korea, and Japan.
Operators are girding for continued tremendous growth in data usage, the next phase of which will be driven by video. There is tremendous opportunity for those who can optimize wireless networks for rich media, and improve the economics of data delivery below today’s prevailing $10/GB retail price point.
2. Operators are looking for the next big thing…and they might accomplish it.
Wireless operators realize that the heady days of double-digit smartphone growth and mid-40s margins from service plans will not last forever. They are putting serious thought into the next phase of their growth. Given their size, they have to think big in order to move the revenue needle. AT&T has already made important bets around home security and the connected car. Verizon is investing big in cloud. Areas to keep your eyes on: big data, indoor location, video, and machine-to-machine (M2M) communication.
Now, I am sure that many entrepreneurs among the Xconomy readership who have worked with wireless operators are rolling their eyes, saying “yeah, right.” But I’ve been an exec at and regularly spend time consulting to the operators, and I am seeing a cultural shift. They are opening foundries and innovation centers, hiring experts from a diverse range of industries, and becoming more external-facing. Now, they might never be characterized as “nimble” or “agile,” but I’d argue that the leaders among the operator community will look and behave quite different five years from now than they do today. This means goodness for the Xconomy community.
3. The United States is the locus point for wireless leadership in wireless.
The Verizon, Sprint, and T-Mobile deals were all votes for the dynamism and growth of the U.S. wireless sector. The U.S. leads the world in 4G investment, smartphone adoption, and data usage. Only South Korea and Japan are in the same league. It is also notable that Nokia, once the poster child for European leadership in mobile, is now owned by Microsoft, and that Motorola, now under Google ownership, opened a huge manufacturing plant in Texas. If I think about the 10-15 most important and influential companies in wireless (outside the 7 “supercarriers” with 100+ million subs that drive capex and device purchasing power)—Apple, Google, Microsoft, Qualcomm, Cisco, Ericsson, Amazon, Facebook, Twitter, Samsung, Huawei, Netflix, Comcast, Foxconn—all but a handful are located in the U.S. Plus, I’d estimate, conservatively, that 80 percent of the dollars invested in wireless startups are coming from U.S.-based VCs.
4. Ecosystems are more important than devices, in what I call the “post-smartphone” era.
There might not be anything “game changing” about the physical design of the Apple iPhone 5s, for example. But if you combine the faster processor, M7 coprocessor, fingerprint recognition that really works, and iOS 7, you have a pretty significant upgrade of the overall experience, and a platform for app developers to do some exciting new things. Think, for example, about how much the Google Maps experience on a smartphone has changed over the past two years. This tells us that the evolution of the smartphone experience going forward will require the stars to align in both hardware and software, and a dialed in developer community to harness these improvements. As another example, the latest Lumia device from Nokia (now Microsoft) is pretty fabulous. But hardware, software, and apps don’t fall into place for Windows-Nokia in the same way as they do in the Apple and Google ecosystems.
5. Video is going to be a huge driver of the next phase of growth in mobile.
We see this in traffic growth, confirmed by regular studies released by bellwethers Cisco, Ericsson, and Akamai. There are going to be two types of rich media (pictures and videos) content: short-form, snackable media that people capture, consume on, or share from their mobile devices; and longer-form content a la TV everywhere that consumers want to view on their tablets and smartphones. Operators are trying to find the balance between leveraging video and not being killed by it. This is why Wi-Fi and small cells will play a big role. Also expect alternative business models for media delivery, driven by Google, Amazon, Netflix, DISH, and major content producers and distributors.
6. The public sector needs to be more engaged.
The FCC isn’t as paralyzed as the rest of the federal government, but progress on opening significant new swaths of spectrum remains painfully slow. Which is why there’s so much operator M&A and spectrum horse-trading, as the private sector seeks solutions to … Next Page »