On the eve of CTIA Wireless 2011, here's a prediction for CTIA 2012: the U.S. operator landscape will look very different. Here we are, in one of the frothiest times in the history of this industry, and we have Sprint Nextel, T-Mobile USA, Clearwire, MetroPCS and Leap Wireless all in the midst, in some shape or form, of "evaluating their strategic options"--which is Wall Street code for "need to merge with someone or be acquired."
How did we come to this point, and what should happen next? AT&T Mobility and Verizon Wireless have steadily pulled away from the pack. The Apple iPhone was, of course, huge for AT&T. Verizon waited out the iPhone exclusivity period by both betting on Android and reinforcing its network and operational excellence. Both operators have huge "stickiness" factors, with 50 percent+ of their subscribers on family/group plans of some sort and significant business in the enterprise.
In the midst of this, you have to hand it to Sprint CEO Dan Hesse for making a pretty good comeback. He first fixed most of the billing, network and customer services problems that were causing subscribers to leave Sprint. He then created a differentiated strategy, built around: first-to-market with 4G and the successful Evo launch; value pricing for data, with Simply Everything; market segmentation with several MVNO/flank brands; some of the more innovative efforts to create a unique Android experience, with Sprint ID; and an effort to create a positive out of a negative, with the Network Vision initiative. But even with all this, it's still tough going for the folks in Overland Park, Kan., and Reston, Va.
The current market situation is a recognition of how fundamentally the operator's world has changed in the past couple of years. With some 60 percent of device sales coming from smartphones, and most of the data growth coming from apps and mobile browsing, subscribers are focusing on device/platform first and network/pricing second. The enormous growth in data consumption is putting even more pressure on the operators to offer the network trifecta: fast, ubiquitous and lots of capacity. This requires substantial, and ongoing, investment, making it difficult to go "half-way."
Look at Clearwire: They've invested $3.5 billion in a network that reaches roughly a third of the U.S. population. The time-to-market advantage erodes daily, as Verizon expands its LTE network and HSPA+ keeps T-Mobile and AT&T "in the ballpark"--for now. Clearwire's strategic investors have essentially abandoned their creation: I call "strike three" on the cable companies in mobile, while Intel and Google are focused on other priorities.
T-Mobile's historic value proposition as the price leader has eroded, given intense competition from MetroPCS, Leap Wireless and the various brands of TracFone and Sprint MVNOs. It is nowhere in the enterprise. And even though T-Mobile's data network has improved substantially, it remains spectrally challenged and lacks the customer growth momentum needed to fund the ongoing, substantial capex needed to survive as a stand-alone business.
So, what now?
We can debate all day long about the role of the operator in an Apple/Google/Facebook/Amazon/Wal-Mart/Best Buy world. But what it really comes down to is how many 4G, or "4G" networks are really needed, and how many can be viably supported, given the substantial sums needed to build, maintain, and operate them? If we add up Verizon, AT&T, Sprint/Clearwire, T-Mobile, some combination of Metro and Leap, and Light Squared as a wild card--are five to six networks needed? Wouldn't fewer, but really good nationwide high-speed networks be better?
I believe some combination of Sprint, T-Mobile, and Clearwire would make the most sense. Combine their spectrum, infrastructure, customer, retail, and market segmentation assets, and you could have an operator that could give the Tier 1 operators a run for their money. No doubt, there would be short-term pain and disruption associated with this. The network integration and handset migration aspects would be messy. But technology, in the form of software and multi-band/mode chips, makes this proposition more viable than it was even was a couple of years ago. It would allow for continued funding of Clearwire, leverage of its substantial spectrum and cell site assets, and an exit (rather than departure) strategy for its investors. It would allow the substantial talent and resources at Sprint and T-Mobile to think innovatively about what an operator should be, circa 2015. Redundant retail assets could be consolidated. A combined company would have greater leverage with handset vendors and would have a better shot at capturing share in the enterprise market.
What about Metro and Leap? I think market forces, and the investment community, will force them to merge. The Metro/Leap combination could serve an important market segment, filling some of the vacuum left by Sprint and T-Mobile as the combined entity focuses on the higher end market. Or, one or both will be subsumed by today's Big Four.
LightSquared is a wild card here. It could be a wholesale partner in addition to, or instead of, Clearwire.
And what about anti-trust considerations? C'mon. Name another country that has more than three facilities-based, 4G networks, all operating healthily. With so much innovation in the wireless and Internet sectors already coming out of the U.S., it should be Job One at the FCC to ensure that we have the world's leading-edge broadband network infrastructure, wired and wireless. If the FCC is going to scrutinize the level of "competition," let it focus on fixed broadband, where choice, speed, and ubiquity are behind--in contrast to wireless, where we are ahead--other countries.
Changes in the traditional industry structure are a natural evolution of the shift from the "wireless communications" market to the "mobile computing" market that began in earnest in 2007. Expect to see a Big Deal this year.
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.