Top 5 Wireless Industry Predictions for 2008

As is tradition here at FierceWireless, we would like to present our predictions for the year ahead. Before we begin, however, a note of caution. These are simply our opinions gleaned from a careful analysis of the daily news cycle from previous years--we are not privy to the actual deals, handsets or busts that are destined to shake the wireless industry in the year ahead.

The art of prognostication has a long history, but our methods are simple. No studies of birds or animal insides for us. As the great Roman philosopher Cicero wrote, quoting the poet Pacuvius: "As for those who understand the language of the birds and who know the livers of animals better than their own, I believe it is better just to listen to them rather than pay attention to them."

We advise you to do the same. Feel free to read our predictions with a skeptic's eye, just be sure to let us know when you disagree.

That's not to say we don't think we're going to get at least a few of these right, though. After all, as Cicero writes: "Who can shoot all day without hitting the target occasionally?" -Brian

Prediction #1: Helio will go bust

SK Telecom and Earthlink will finally throw in the towel and scrap Helio. Although both firms have repeatedly reiterated their commitment to the mobile virtual network operator, in 2008 they are going to see the light. During the third quarter the MVNO brought in $52 million in revenues, up from $13 million this time last year but it produced a net loss of $92 million. In addition, as of August 2007, the MVNO had only attracted a mere 130,000 subscribers. In October Helio reduced its workforce by 100. SK Telecom may be able to keep this firm afloat for a bit longer but Earthlink certainly doesn't have the wherewithal to continue to pour money into this venture. We think it's unlikely that Helio will make it to 2009.

Prediction #2: Leap and MetroPCS will merge

We think flat-rate carriers Leap Wireless and MetroPCS will merge in 2008. In September, MetroPCS publicly announced its desire to acquire Leap Wireless for $5.5 billion in stock plus $2 billion in acquired debt for a deal worth $7.5 billion. A few weeks later Leap rejected the offer because the company said the deal undervalued Leap's business and offered no premium to its shareholders. Nevertheless, analysts are optimistic that a merger is imminent. In a research note in September, Lehman Brothers analyst Brett Feldman said that the Leap response was "not a final rejection, but the next volley in what we expect to be continued negotiations."

And just last month, the Wall Street Journal reported that some of Leap Wireless' shareholders were not happy with how the carrier rebuffed MetroPCS' offer. The report also said that the chance of a deal between the two carriers is still very high, but because of FCC auction rules, MetroPCS and Leap cannot discuss a deal again until after the 700 MHz auction comes to a conclusion sometime before next summer.

Prediction #3: Motorola to spin-off its units

As a reader alerted us a few weeks ago, Motorola has long positioned its individual business units in separate geographic regions--a decision that at least partially indicated a strategy to spin them off at a future time. While financial analysts have begun to mull what a broken up Motorola would look like, we are confident that Motorola will make that transition this year. Motorola's Mobile Devices business unit is based in Libertyville, IL while the company's Networks unit, which develops base stations and infrastructure, is based in Arlington Heights, IL and Motorola's Connected Home division is located in Horsham, PA.

Motorola is likely to make the move this year for a variety of reasons, but not the least of these is the fall in popularity (or at least the fall in sales) of Motorola's keystone handset, the RAZR. Last year saw the departure of CEO Ed Zander and subsequent exit of CTO Padmasree Warrior. The company is also defending against pressure from activist investor Carl Icahn who has stated to the media and the company's board that a broken-up Motorola could translate into $20 billion in additional shareholder value. His estimates may not be that far off base, analysts seem to agree, but the company needs to get its handset business back on track before Motorola can make as profitable a dissolution as that. We think they will do both.

Prediction #4: Sprint, Clearwire will merge their WiMAX networks

After months of dallying, Sprint and Clearwire will partner and jointly construct their 2.5 GHz networks to provide seamless nationwide WiMAX coverage. Last August Sprint Nextel and Clearwire first announced that they would jointly build their WiMAX networks and eventually sell the services jointly under one brand. However, by November the deal was off. Both firms said that the complexity of the deal coupled with the departure of Sprint CEO Gary Forsee contributed to its demise.

Nevertheless, we believe that some sort of agreement between the two firms will be necessary to provide the type of nationwide coverage that customers will demand. We think that under the helm of Sprint's new CEO Dan Hesse, the two firms will re-evaluate this strategy and realize that they shouldn't have abandoned their initial plans.

Prediction #5: Verizon Wireless' Open Access to prove toothless

In late November of last year, Verizon Wireless CEO Lowell McAdam announced that the carrier would "allow customers to connect any device that meets our minimum technical standards, and be activated on our network." McAdam reasoned that "customers' needs are increasing and diverging. Soon Verizon Wireless will not be able to meet customers' needs with our specific portfolio of devices and applications. To keep up with the pace of innovation in the development community, and get ahead of customers' needs, we've decided to encourage the development of new devices and applications by further opening our network."

The question remains: Will Verizon Wireless be able to meet their customers' and the industry's expectations when it does "open" its network to any device and any application? Probably not. The company knew that when it made the open access announcement it would bring a media storm of positive PR for the carrier, which has long been characterized as one of the most closed and controlling of carriers. We believe that Verizon will still block phones that offer competing voice services, like Skype, on its "open" network--the carrier will blame the refusal to support the device or application on it not meeting its "minimal technical requirements." These requirements have yet to be disclosed. Consumers who aren't as familiar with the wireless industry will also be severely disappointed when they figure out that most of the world's phones are not available to any Verizon Wireless subscriber--not because Verizon refuses to carry the phone, but because it runs on a GSM network instead of a CDMA one. Once Verizon actually opens up, the mainstream media will skewer the carrier for an announcement that proves to be all bark and little bite.

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Top 5 Wireless Industry Predictions for 2008