Lowenstein's View: 2017 will be a year of change in wireless

2016 was a “meh” year for the industry. There were no breakout devices. Pricing stabilized, and deltas in network performance continued to narrow. There were no major shifts in share. Capex was flat, and it was a crappy year for the network suppliers, with North America and China being among the few ‘bright spots’. The 600 MHz auction, still in process, will likely raise about half of what some analysts predicted. Pokémon Go was a breakout app for a time, showing hints of the VR world to come, but, like most games, ultimately fizzled. Perhaps the most exciting action was in Washington: the Court of Appeals affirmation of net neutrality; the FCC 3.5 GHz Order and Spectrum Frontiers (5G) Proposal; and, of course the November election.

However, in many ways, developments in 2016 laid the foundation for what I believe will be a year of change and innovation in 2017. If there is one over-arching theme, it’s that there will be a lot of action on new types of networks: LTE-U, 3.5 GHz shared spectrum, 5G Fixed Wireless Access trials, awarding of the FirstNet contract, introduction of NB-IoT by the cellular operators, and likely launch of cable MVNO services.

Here are some major areas and themes to watch.

A Period of Accelerated M&A. 2016 was an active year in M&A. The deals centered around three themes:

  • IoT acquisitions. Verizon acquired four IoT related companies. There were also the Qualcomm-NXP and Softbank-ARM, both of which have an IoT component.
  • Content Related. Verizon-Yahoo, AT&T-Time Warner, both in process, plus several smaller acquisitions.
  • Fiber Deals and Telecom Consolidation. Crown Castle-FiberNet, Verizon-XO, CenturyLink-Level3, Windstream-Earthlink, and more.

I expect the intense M&A pace to continue. A Republican Administration and Republic majority FCC will be more open to deals. I believe there is greater than 50% chance that the Sprint and T-Mobile merge or are involved in some sort of acquisition. There could be more content related deals if AT&T-Time Warner heads toward approval, especially with CBS now potentially in play. And one has to expect that something might finally happen with DISH’s spectrum, once the 600 MHz auction concludes.

LTE in Unlicensed Spectrum. After nearly a year of wrangling and delays, the wireless industry and the Wi-Fi Alliance agreed on am LTE-U/Wi-Fi coexistence plan. T-Mobile and Verizon are both likely to launch LTE-U during 2017. It will be interesting to see whether LTE-U is played as a simple capacity extension/speed enhancer, or whether it is a platform for differentiated services/QOS.

There will also be action in the 3.5 GHz, ‘shared spectrum’ band. The FCC will soon choose the first SAS administrators, and we should see some trial services during the year, laying the groundwork for auctions in 2018.

5G. We will see some pre-5G trial activity in 2017, likely led by Verizon’s trialing fixed wireless access in several markets. The company has applied for 28 GHz trials in several states, and at an investor conference this week, unveiled a Samsung 28 GHz 5G cell site form factor it will be using in the trials.

This will be an early, and important indication of whether 5G could serve as a fixed broadband substitute in certain contexts, in which case wireless operators could emerge as competitors to cable firms. There might be some other interesting trials of millimeter wave services. Keep an eye on Starry.

Purpose-Built IoT Networks. During 2016, IoT started to become real. Verizon is on track for $1 billion in IoT revenues. There were numerous IoT-related acquisitions. And companies such as Ingenu, Sigfox, and Senet turned on unlicensed band low power wide area networks (LPWANs – the industry’s latest bad acronym) in several cities.

During 2017, we expect AT&T and Verizon to launch their own purpose-built IoT networks using their licensed spectrum (LTE Cat-M and then NB-IoT), specially designed to accommodate low power devices consuming very little data. All of a sudden, this field is going to be quite competitive. These IoT-centric networks should be an important catalyst in the market.

FirstNet. FirstNet missed its target date of November 1 to award the contract, in part due to a protest filed by one of the bidders, Rivada Networks, over the fairness of the process. We believe the contract will be awarded during Q1 2017. AT&T is widely rumored to be the frontrunner. 2017 will be a year of lining up agency participation, finalizing the business model, and getting to work on the build.

The Race for Fiber. There has been a raft of M&A activity in 2016 related to fiber assets. This is being driven by continued demand for capacity, significant growth in small cell deployments, and early positioning for 5G and potential fixed wireless services. We expect this trend to continue, with more deals in 2017 and greater competition on pricing.

Business Model Experimentation Around Content. AT&T launched DirecTV Now, at a fairly aggressive price point and stirring the net neut crowd by zero rating content for its wireless subscribers. Several additional OTT Pay TV services are slated to launch in 2017. Wireless, or an ‘any screen’ experience, will figure in all of these offerings. Add AT&T-Time Warner and Verizon-Yahoo to the equation, plus the likelihood of additional content-related deals, and there should be lots of experimentation around alternative business models during 2017.

Cybersecurity. The role of, and opportunities for, wireless players will intensify here. Recent news about Russian hacks, the breadth of the Yahoo! hack, and rumors of other breaches mean that security will become a more prominent issue. The likelihood that the Trump administration will be looser in the regulation of privacy concerns is also a factor.  

It will be interesting to see how the wireless industry plays cybersecurity. Is it an issue to be contended with, or a business opportunity? Probably both.

I do believe that all the news about hacking will make it a bit more challenging for major wireless operators to utilize subscribers’ data for advertising and target marketing. This is a major area of opportunity given the assets they have and are acquiring, but as high profile, semi-regulated companies, actions they take here tend to, ironically, be more under the microscope than their Internet brethren.

In all, it will be an exciting, innovative, and newsworthy 2017. My best for a healthy and successful 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.

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