Lowenstein's View: Key themes for mobile in 2H '16

Mark Lowenstein

Usually, industry analysts such as myself wait until December for the annual ritual of "predictions" columns. But there is enough of import happening in the industry that I think it will be of some value to Fierce readers to take stock of where we are as of mid-year, and to think about what the next 6-9 months look like across the mobile landscape.

A Quick Mid-Year Report

In terms of the operators, AT&T and Verizon are holding steady, T-Mobile continues to gain, and Sprint continues to tread water. We have seen less action on pricing in the past six months than in recent memory. It appears to me that with flat revenue growth and continued increases in demand for data, operators are hesitant to drop prices any further, particularly given that per GB data prices have declined by 40-50% in the past three years.

Most of the action at AT&T and Verizon, it appears to me, seems to be focused on planting the seeds for future growth. This is taking two forms. First, each operator is making bets around video and content, in their own separate ways. At AT&T, the focus is on leveraging the combined wireless and DirecTV assets. The first wave was focused on attractive bundle offers, aimed at subscriber acquisition and retention. Now, AT&T is turning to providing various packages of content to mobile subscribers, and experimenting with various skinny bundles and innovative business models across the company's broadband, pay TV, and content assets. I am also very encouraged by AT&T's aggressive investments in fiber, which should position the company well for 5G and a more competitive broadband market.

Verizon is taking a more 'online'/mobile-centric tack, putting significant weight behind AOL assets, investments in unique content and relationships, Go90, and being in the hunt (lead?) for Yahoo! Over the next 6-9 months, we will know more about whether these bets put Verizon on an improved strategic footing vis a vis its telco and cable counterparts, putting the company in the position to compete more effectively with not only its telco counterparts, but as a player in the broader digital media landscape.

The second major area of activity for the carriers is IoT. This space is more a series of singles and doubles, rather than triples or home runs such as DirecTV, AOL, Yahoo! and so on. AT&T's investments in connected car, and Digital Life are starting to show results. New areas of focus are in connected health devices and smart cities. The latter is an important area but hard to dimension. There should be some interesting tests and trials in the coming months. Verizon, too, is making some bets on smart cities, which are more closely linked to connectivity buildouts around fiber and 5G. Verizon is also competing more vigorously in the connected car area.

T-Mobile, it appears to me, is very focused on developing programs to retain the significant number of customers it has gained over the past two years, and ensuring its network is competitive enough to be in the carrier big leagues.

Key Themes for The Second Half of 2016

With that, some key themes for the second half of 2016.

Spectrum, Spectrum, Spectrum. A big story for the second half of the year will be the results of the 600 MHz auction, which should conclude by late summer/early fall. Depending on who wins and who loses, this could lead to an accelerated period of spectrum horse-trading and deal-making, also involving spectrum assets at DISH and Sprint, plus cable/MVNO implications.

Keep an eye out in the 'unlicensed' world, as well. Development on the LTE-U front has stalled some, to the frustration of, especially, T-Mobile and Verizon. But this will kick into gear in 2H 2016 or 1Q 2017. I am even more excited by the prospects of the 3.5 GHz band. The FCC is majorly behind this, and I think it presents an opportunity for the U.S. to assert some leadership position in wireless innovation. Google will be testing 3.5 GHz in Kansas City this summer, and there should be some decisions about who will run the Spectrum Access Systems over the next 6-9 months.

Video, Video, Video. There is more action on video than ever. Predictions about the % of mobile network traffic attributed to video could end up being conservative. The tone is being set by Facebook, which in the past few months launched Facebook Live, is spending large sums to produce unique video content, and is investing significantly in the video ad space. Its WhatsApp and Messenger assets, which boast 1.8 billion monthly active users combined, are also positioned to play an increasingly pivotal role. Troubled but newly energized Twitter, under the return of Jack Dorsey, is doubling down on mobile video with the launch of the Engage app and expanding capabilities of Periscope and Vine. And Snapchat is not standing still. 

Less Action on Devices, More Action on Software. If the June 22 Wall Street Journal article reporting that Apple is delaying the release of a major new iPhone model is true, it confirms the fact that we're in a period of "small i" innovation on the smartphone front. No breakout devices are expected in 2H 2016, which might lead to a sluggish fall and holiday selling season.

Combine this with slowing growth in the app ecosystem and data showing that people only actively use a relatively small number of apps on their device, and we have signs of an important shift beginning to take hold. There is huge focus on making apps work more effectively together, and using AI, software tools, and voice UIs for search and the management of our daily lives. Witness the froth around Amazon Echo/Alexa, and the efforts of Apple, Google, Microsoft, and others to compete in this arena, as shown in the emphasis at Google I/O and WWDC.

Cable Reasserts Itself. With the close of the Charter/TWC/Brighthouse and Altice/Cablevision/Suddenlink deal and the approaching close of the Altice acquisition of Cablevision, the cable industry is significantly consolidated. I think this will be a positive. We should see more and aggressive expansion in broadband infrastructure, especially on historically under-invested in properties such as TWC. I think cable will also play an increasing role in leveraging its assets for Wi-Fi and small cells. And we should see some developments along the cable MVNO front in the second half of the year—although I think these initial services will be limited in scope and not necessarily 'Wi-Fi First'.

Messaging and Platforms. Mary Meeker's annual State of the Internet report was less focused on mobile than it has been in previous years. Part of the reason for this is that mobile is less a distinct sector, and is more woven into the broader computing/internet/digital media fabric. One area she did emphasize was that messaging services are increasingly becoming platforms for voice and video communications, media, payments, shopping, and other transactions. They are the new 'portals'. Just look at the percentage of time Millennials spend on the various Facebook's assets and Snapchat, for example. On the enterprise/professional side we have the meteoric rise of Slack and Twilio, and Microsoft's acquisition of LinkedIn. These are becoming some of the new centers of the portable computing universe – and notice how Apple and Google are the new 'pipes', rather than the default destinations.

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. 

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