The wireless industry appears to be headed toward a transition.
Smartphone sales are slowing and customers aren’t upgrading their phones as often as they used to. LTE buildouts are largely finished. The spectrum crunch appears to be easing, thanks to advances in technology (unlicensed spectrum is now an option) as well as efforts by the FCC to release additional spectrum options (from AWS-3 to 600 MHz to 3.5 GHz to millimeter wave spectrum). Competition is heating up and prices are falling.
Indeed, longtime industry analyst Chetan Sharma noted that wireless carriers’ service revenues declined for the first time ever starting last year, and have continued falling this year. He said overall wireless industry ARPU dropped below $40 for the first time in the first quarter of this year.
Sharma isn’t alone in noting the trend, and others are predicting the slowdown will continue. “We now look for annual margin expansion of just 35 bps in 3Q & 4Q16 for the industry vs. 275 bps+ in each of the last five quarters,” the analysts at UBS wrote in a research note this week detailing the firm’s expectations for the remainder of 2016. “This results in industry EBITDA growth ~3.5% in 2H, down from 7% growth in 2Q and low-double-digit growth this time last year.”
Not surprisingly, executives from wireless carriers continue to paint an auspicious view of the future. “The industry is very healthy and exciting,” AT&T chief Glenn Lurie said this week at Sharma’s Mobile Future Forward conference.
Lurie explained that AT&T is investing in a handful of areas where it expects growth, including connected cars, connected cities and the “industrial IoT.”
“If it’s not connected, it’s dumb,” he said. “Inanimate objects are going to take care of us. We’re not going to take care of them anymore.”
Of course, AT&T is also banking on its massive $49 billion acquisition of DirecTV to stimulate its own business – the carrier is hoping its fourth quarter launch of DirecTV Now will grow its advertising and pay-TV revenues through a free OTT video service accessible by anyone within range of a wireless or wired network. And AT&T has been inking a dizzying array of content licensing deals in recent months in preparation of the launch, with the aim of offering more than 100 channels at a “very aggressive price point.”
Verizon too is moving in this direction, albeit from a slightly different angle. Verizon’s Go90 video service represents the operator’s own video service play, and Verizon concurrently is working to build out its own advertising technology business based on its recent and planned acquisitions of AOL and Yahoo.
Verizon too is investing in the IoT and associated industries; the carrier recently promised to launch LTE Cat M1 this year.
While AT&T and Verizon are working to protect their respective wireless subscriber bases and grow into adjacent opportunities, Sprint and T-Mobile are taking a different course.
For its part, T-Mobile is clearly working to refine its core business of selling connections to smartphones, with noteworthy success. The carrier expects to add around 753,000 postpaid customers in the third quarter. Moreover, the operator has hinted that could refine its business even further through online-only sales and activations of its T-Mobile One unlimited talking, texting and data service. And Neville Ray, T-Mobile’s CTO, hinted this week at Mobile Future Forward that the operator’s LTE network could support 1 Gbps speeds as early as next year through the combination of 4x4 MIMO, carrier aggregation and other advanced network technologies.
What of Sprint? The carrier continues to promise super-fast download speeds thanks to its trove of 2.5 GHz spectrum licenses, though that’s an argument Sprint executives have been making for years now.
And of course there’s the promise of 5G, which remains a hot topic of discussion particularly among vendors struggling with flagging sales. Based on comments from various telecom executives, 5G technologies will initially be used to provide short-range, fixed connections from base stations to antennas affixed outside users’ homes or offices. That could start happening in locations around the country as early as next year. Eventually, 5G will provide super-fast mobile speeds across whole cities, but that won’t happen for at least the next few years.
So where does that leave the wireless industry? Gone are the days of carriers squeezing more money from existing subscribers by upgrading 3G feature phones to LTE smartphones. In place of that business, industry players can sell other things to existing customers (DirecTV Now, Go90), they can sell their services to new customers (IoT, smart cities), or steal existing customers from rivals (T-Mobile). The real opportunity, I think, will be in how established wireless players either partner with or compete against newer entrants in the field, such as Google’s Project Fi, cable’s efforts in wireless, Sigfox’s IoT network, Starry, the CBRS Alliance and others. Advances in wireless technology and business models are opening doors, and it will be interesting to see what emerges. --Mike | @mikeddano