Lowenstein's View: Mobile industry themes for 2016

Mark Lowenstein

It's that time of year again: my annual 'themes and predictions' column. Overall, spectrum, network capacity and security will take center stage. There will be some breakout categories in IoT. And it will be somewhat of a 'pause' year in the consumer device and wearables category.

Spectrum will take center stage. The 600 MHz auctions are scheduled to start at the end of March, and the process could take six months. So it will be fourth quarter 2015 before we have real clarity on the winners. I predict it will be a successful auction, but will raise at the lower end of what some analysts have predicted (see my column on this here.) I also don't believe any new players will play a significant role.

Network capacity will be tested. The price moves in 2015 have focused mainly on providing more data while keeping ARPU stable. Continued growth of data consumption and the growing role of video could start to really test networks. Assuming decent coverage, network capacity will become an increasingly important component of a wireless operator's 'currency' and differentiation going forward.

Device Pause. This was a great year for devices innovation across all categories: smartphones (iPhone 6 and Galaxy 6); smart watches, tablets (iPad Pro), hybrid tablet/PCs (Microsoft Surface line), OTT video (new Apple TV and Roku 4); and fitness wearables (Fitbit HR and other devices with optical heart rate).

It's going to be hard to match that in 2016. On smartphones, the products are pretty great right now, and I think the upgrade/refresh cycle will take a pause. It is difficult to see the next "big I" innovation around the corner. With regard to tablets, I think the discussion of the "post-PC" era will intensify, around hybrid tablet/laptop products. The folks who today port three devices might start considering consolidating this, perhaps making room for a next generation smart watch or advanced wearable.

On the wearable front, this was a great year, especially for fitness trackers and companies such as Fitbit. I think this category will slow down a bit in 2016, as we wait for the next phase of innovation, which I think will center around greater accuracy, more sensors, deeper analytics, and more segment-specific devices/capabilities. (recent column on this here).

Breakout year for IoT. Even though "20 Billion Devices by 2020" continues to lead every IoT presentation, we haven't yet had a breakout category. I think this will start to change in 2016. First, we are seeing more mature and compatible platforms and processes. Second, leading operators are investing in the space and are becoming more flexible with respect to business models. Third, there has been major progress in module prices, capabilities and form factors. This is all leading to a new wave of connected devices that I expect to be launched over the next two years. I am especially optimistic on the home, security and industrial sectors. I think the notable developments over the next couple of years will come from the enterprise sector, using IoT to increase efficiency.

Encryption/Privacy/Security will become a major topic in 2016.  Senior executives in the private and public sectors are spending a lot more time, effort and resources on this issue than is publicly acknowledged. There is serious worry that there will be a major security hack or breach, with the potential to cause real economic, political, or military harm. On the positive side, there is real engagement and collaboration between government officials and the tech sector going on behind the scenes, akin to the types of public/private partnership that has occurred in other important moments in history.

Mobile Payments -- will get worse before it gets better. Yes, Apple Pay expanded to more stores, and yes, Android Pay has started to roll out. But mobile payments is starting to look like the OTT TV space. Too many players, too many ecosystems. One needed development, and where I expect to see some action in 2016, are more incentive programs to use mobile payments as a way of catalyzing the market, and better incorporation of loyalty programs and gift cards into the payments 'ecosystem.'  Mobile payments will have truly 'arrived' when, in a typical day, I can use my phone to pay for goods and services at most merchants, but also pay for the subway, feed a parking meter, and get a soda from a vending machine.

Year 1 of Virtual Reality/Augmented Reality. We saw some nice experiments in VR this year, such as the New York Times sending Google Cardboard to its subscribers and including a VR component in weekly Sunday magazine pieces. But with the introduction of the Oculus Rift and Hololens, 2016 could be Year 1 of VR/AR. It will take a strong marketing push, consumer education, and most importantly, the development of some really compelling content – most likely a breakout game – to launch this category.

Mobile Operators: Big attention to cost. We already saw the beginning of this in 2015, with major reorgs and cost containment efforts at Verizon and Sprint. Expect this to continue across the operators in 2016, as on the one hand they spend billions on new spectrum and still robust capex, while revenue growth remains tepid and price competition pressures ARPU. I expect some of the operators to take a closer look at their retail distribution structure in 2016, with some rationalization of stores and third party relationships. There will also be more serious attempts to make customer care more efficient.

As a broader point, I expect the subject of industry consolidation to be revisited in 2016, and for DISH to finally make some sort of major move (see my November FierceWireless column).

Death of Wi-Fi First, But Better Cooperation Between Cellular and Wi-Fi.  I still don't see Wi-Fi-centric mobile services being more than a niche market. And I think there's a less than 50 percent chance that cable enters the fray in a serious way. What will get more attention, however, is the interaction between cellular and Wi-Fi networks (see this piece for more). This experience has to become more seamless from a customer standpoint. There are some catalysts here, such as PassPoint 2.0, greater deployment of small cells, and work being done in conjunction with LTE-U.

Conclusion: CES An Interesting Gauge

In a lot of ways, CES, which kicks off the tech year, is a gauge of the year ahead. For several years, CES was a huge mobile show. Operators were there in a big way, and it was a platform for major smartphone announcements (except Apple). It will be different this year. My sense is that the mobile component of CES 2016 will center around IoT. It's also an indication that mobile, rather than a distinct category, is becoming increasingly embedded in products across the consumer electronics, entertainment, and productivity landscape.

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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