Lowenstein's View: The 10 most important questions in wireless
We are at a unique moment in the wireless industry's trajectory. On the one hand, wireless is growing like gangbusters, globally, across a range of metrics. It is at the center of the latest technology boom, taking in a growing share of venture capital dollars and driving a wave of M&A and IPO activity. On the other hand, there are important segments of the industry that are not healthy. Look at the U.S. operator landscape outside of AT&T and Verizon Wireless, the OEM players outside Apple and Samsung, infrastructure companies outside Ericsson and Huawei, or the 85 percent of apps that aren't making money. In thinking about this period of structural change in mobile, here are ten questions that I believe will have significant bearing on the next phase of this industry.
1. How many operators should we have?
A year after AT&T's proposed acquisition of T-Mobile USA surfaced and was subsequently killed by the regulators, the operator landscape is less healthy. Subsidies, the economics of wireless data, a shortage of spectrum, and a dilution of capital have contributed to this situation. A more optimal structure, in my view, would be three national, well-capitalized operators, with "real" 4G networks, plus one vibrant wholesale network, all with sufficient spectrum to support 5 GB average usage per subscriber per month, circa 2015-17.
2. How much spectrum do we really need for wireless?
Once you get a taste of LTE, you want to do the same thing over a mobile network that you can do on home broadband. Problem is, wireless economics are different than fixed network economics, as reflected by the operators' conservative LTE pricing. I believe we need the key stakeholders--regulators, operators, and content providers--to get in a room and rigorously examine the fundamental question about expected consumption (per person? device? household?), the price we expect users to pay for it, and business model options (who pays for/subsidizes that consumption). Then we'll have a better idea of who gets how much spectrum and at what price.
3. Do we want video/rich media to be consumed over mobile networks?
The concept of TV Everywhere is tantalizing. Except that current usage-based pricing plans discourage consumption of video over mobile networks. The industry must tackle the question of whether, and how, we want rich media delivered to mobile devices. Consumers should be prepared to pay a modest, event-driven "premium" to view video over mobile (similar to the HD surcharge on iTunes). We also need creative business models, whether advertiser-supported content or programming that incorporates the network cost (a la Kindle), with some revenue share for the service providers.
4. Will there be a viable third OS, and who will it be?
There are a lot of industry constituencies pushing for a third OS "ecosystem," but the market has not spoken yet. I believe a vibrant third OS is important for the industry's competitive balance. A fourth OS, however, is not viable. Which means, choose one between Microsoft and Research In Motion's BlackBerry. One scenario is that Nokia/Microsoft absorbs key elements of BlackBerry (BES infrastructure, security, NOC, patents) as part of their "enterprise" strategy. Or that one of the major enterprise players (HP, Oracle, Dell, IBM) makes a play for all or part of RIM.
5. What is the future role of the operator?
Competitive differentiation has tilted back toward network capability and pricing. Larger operators with influence and scale are making a play for exclusive content, and/or are aligning themselves with content partners (i.e., VZW-cable). I also think there's still a significant playing field for operators in the enterprise, M2M/connected devices, and cloud services. And in the consumer space, perhaps it's not all bad to be the "pipe."
6. What to do about subsidies?
The industry's Kool-Aid has turned into its nicotine. Struggling under the weight of subsidies, operators have taken an airline-esque approach of late, with higher early termination fees, device upgrade fees, and other tactics. Longer-term thinking is needed, however. Operators will have to get more creative than the current punitive approach, offering a greater range of handset and service pricing options to break the subsidy/contract cycle. We also need a greater selection of lower priced devices, including from Apple. As we move more toward cloud-based services, a "not as smart," Chrome-type phone, might be a viable option for some users.
7. How big a deal is substitution?
Social networks and over-the-top (OTT) services such as iMessage and WhatsApp pose a real threat to text messaging. And as LTE becomes more widely deployed, voice and video from OTT players could result in a segment of subscribers ditching mobile voice plans. I believe that over time, the voice/text/data plan structure will erode, in favor of a "network access plan," shared across devices and family members, that can be used for any combination of voice, messaging, and data services. With IMS, there are important new opportunities for the operators to revisit "voice" and offer a suite of value-added services.
8. How will M-commerce play out?
The energy involved in chasing the M-Wallet opportunity is staggering. But the mobile payments space is overly fragmented, the ecosystem has not yet come together, and the real consumer benefits have yet to be demonstrated, at least in countries with a sophisticated consumer financial infrastructure. So for the time being, we're stuck in the "this is the year of" mode for mobile payments. I don't think things will be that different a year or two from now. A key question is whether there is something truly disruptive, to act as a catalyst.
9. How do we reach the next generation of smartphone subs?
Smartphone penetration in the U.S. now exceeds 50 percent. Getting the next 20-30 percent is going to be a lot harder. In today's family plan structure, each additional smartphone subscriber means a $30-$40/month commitment, with the average household's wireless bill pushing $200. Unless we see some creative pricing--family share for data, multi-device plans, session pricing, and just plain cheaper handsets and data plans--growth will level off.
10. What is wireless, anyway?
Perhaps this is more of a philosophical question, but I think the question of "wireless" or "mobile" is going to eventually disappear. Phone-tablet-computer is becoming a Venn diagram of a category. What really matters is providing the ability to effectively access or deliver content, to/from any one of a number of "screens," for a given context (stationary/mobile, home/office/car), in a manner that is economically viable to the content/service provider and the consumer. Deltas between fixed and mobile networks, PCs and phones, web and apps, continue to shrink.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.