There are moments in time where one can sense important shifts going on in an industry. I think now is one of those times in wireless. First, some historical context – what have been the other ‘big shift’ moments?
- Introduction of the portable phone, which made this the ‘mobile’ industry, not the ‘car phone’ industry
- Move from analog to digital
- Introduction of AT&T Digital One Rate, which all but eliminated domestic LD and roaming
- First popular smartphones, starting with Blackberry and Palm Treo, culminating in the introduction of the iPhone
- Apple launching the App Store in 2008
- Launch of LTE – the first real ‘mobile broadband’ network
This particular shift is different, in that it is not rooted in the introduction of a signature new product or service, or a major technical advance. On the surface, wireless looks like business as usual: the carriers are still raking in the dollars; the latest iPhones haven’t wowed but are still selling well; and the industry has started on a path toward the ‘Next G’.
So you have to ready between the lines to see a developing trend. Just look at what has happened in 2016:
- Major operator moves. The operators have realized that growth in core wireless has slowed. Yes, IoT represents an important next area of opportunity, but it’s gonna take a while to get to those billions of connected devices. IoT is more a series of base hits than doubles or homers. And investors aren’t that patient. Which is why we’ve seen AT&T and Verizon aggressively expanding into new and adjacent areas of business in the hunt for top line growth.
- A wave of acquisitions. In addition to Verizon-Yahoo (and three IoT companies) and AT&T-Time Warner, we are seeing a spike of acquisitions across the mobile ecosystem, including Qualcomm-NXP, Broadcom-Brocade, CenturyLink-Level 3, and a large number of smaller deals.
- Dimishment of hardware. The iPhone 7 is selling fine, but let’s face it – there has not been a new ‘must have’ phone since the iPhone 6 two years ago. Look at how hard it is for a smartphone OEM to gain share, almost regardless of how good the device is. The theme can be extended to the tepid reaction to Apple’s new Macs, and slowing tablet sales. The industry is still figuring out how to blend the PC and the tablet where, ironically, much of the innovation is coming from Microsoft. It is really now about software and ecosystems.
- Layoffs and disappointing spectrum auction. Major industry bellwethers are going through a fairly painful round of layoffs: Verizon, Sprint, Qualcomm, Ericsson, Cisco, and others. Earnings last quarter weren’t so great. And the lower than expected bids in the 600 MHz auction show that spectrum values might have peaked.
- The results at Facebook and Alphabet. A contrast to 3Q earnings in the core mobile business. And perhaps the most jolting statistic: Facebook and Alphabet command nearly 70% of all mobile advertising.
I don’t mean to be sounding doom and gloom here. But these trends show that we are now moving toward a new set of industry drivers and emergence of some new players. Rather than one ‘mega-development’, such as the iPhone or launch of LTE, I believe the next phase of developments in mobile will center around five themes – maybe a bit different than the drumbeat around IoT and AR/VR that you have been hearing from other prognosticators.
- Shifting Power Centers. This trend has been developing for some time. Leading operators are diversifying their business. Apple and Samsung are less dominant. Google, Facebook, and Amazon are innovating…and ascending. Microsoft is coming back. And some of the hot Silicon Valley startups…are about messaging and chat!
In advertising, Verizon has its work cut out, but there is pent-up demand to break up the Alphabet-Facebook juggernaut.