Industry Outlook: Maravedis' top wireless trends for 2009

By Robert Syputa

2008 was a year of significant change: the wireless industry grew data subscribers and services, and WiMAX struggled to maintain momentum as the spearhead of a new generation of wireless networks more closely integrated with IT and networking. By mid-year, the clamor of hype for the still-formative development of LTE extinguished whatever pre-market hype WiMAX had at the start of the year. In what we see as a natural course of events, WiMAX and LTE alliances were resolved more by commercial than technical priorities.

2009 is shaping up to be even more tumultuous due to a continuation of prior trends towards open device development and increased bandwidth demand on networks that have pressured operators and suppliers. In addition, macro trends are culminating in a crescendo that accelerates the stress of convergence as tectonic shifts in global competition take place. The unusually sharp decline in the U.S.-led world economy will further trends of consolidation and greater product and service commoditization, while putting more pressure on marginal players.  Mobile devices are becoming computers while laptops, desktop PCs and consumer electronics devices become constituents of the cloud environment.

Given the economic uncertainty, wireless capital expenditures by most of the major wireless operators in the United States are predicted to decline in 2009. Estimates vary between a decline rate 10 percent to 25 percent. Spending cuts will affect most wireless technologies at all networks levels but will be especially pronounced for new deployments and alternative operators that must seek capital.

With these broader themes in mind, Maravedis has compiled a list of ten wireless industry trends that we think will dominate in year ahead.

Trend 1: Flat and flexible rate service plans will gain even more traction in 2009 as 3G open access devices, WiMAX and the economy further impact service models. Although Clearwire will only make a down payment on achieving national coverage, it will serve as a stimulus for competitive pricing of flat rate data and communications plans among 3G operators.

Trend 2: Enterprises will strive for greater economies and control over communications expenditure; reduction in spending will impact Smartphone sales, premium services and discretionary charges. More pronounced than indicative of past downturns, enterprises will continue to spend in areas that provide more efficient operations and economic payback including VoIP and in-building data and 3G networks.

Trend 3: Government stimulus for broadband wireless will be part of President Obama's plans for the largest government-funded infrastructure program since the interstate highway system in the 1950s. Industry groups, including the media reform group Free Press, have called for $44 billion of the government budget to improve U.S. broadband infrastructure and extend broadband to rural and other underserved areas. Maravedis foresees similar measures being adopted in various countries including Brazil, Russia, India and China--these countries rightfully see broadband as a key economic driver. Regardless of the economic downturn we will see an increase in broadband Internet user growth.

Trend 4: We expect to see the growth of user experience unification despite 3G and converged WiMAX/NG and 3G device and development fragmentation. The importance of open development environments and services will continue to accelerate and will blur the lines between device types and networks. More refined editions of Google's G phone will show up as a more credible challenge to Apple's iPhone and copy-cat 3G Smartphones. The turmoil of the shift to software-centric development within the industry will be overtaken by consumer demand for friendlier, more efficient and unified fixed to mobile experience.

Trend 5: During 2009, WiMAX will face a strong economic headwind, but its image as  a more efficient, lower cost network, along with the availability of more mobile devices, will help build momentum in terms of deployments. WiMAX CAPEX investments will slow down among the many greenfield operators that have limited access to credit, including the majority of operators in the 3.5 GHz band. They will rein in their focus on the most profitable portion of the market--business customers looking for reliable connectivity.

Trend 6: Emerging and underserved markets will continue to be a central theme for growth of WiMAX despite financial constraints, since several projects have been funded and are viewed as an economic benefit. Latin America and Asia are considered by many vendors as the most attractive regions for WiMAX. BRIC countries will have a greater influence on how WiMAX is seen as a next generation alternative in competition with LTE outside the U.S. 

Trend 7: With the new partnership and investment model now cemented, Clearwire will launch its mobile WiMAX into eight markets by the end of the year (in addition to Baltimore and Portland). In the context of the deteriorating U.S. economy, we expect Clearwire to take a cautious approach with its network deployment regardless of time market entry advantage. At the same time, we believe that the economy and continued high price sensitivity will drive adoption of the flat rate and flexible Clearwire "pay-as-you-go" price model. Still too early to predict are the impacts of groundbreaking efforts including the availability of Google's G2 WiMAX phone; Comcast's femtocell marketing, which will begin in the second half of the year; an orchestrated VNO push in enterprise and vertical markets; and the availability of the first "full mobile" devices by the fourth quarter. These ingredients may spice up the so-far lackluster performance of Clearwire's WiMAX rollouts.

Trend 8: Verizon Wireless will roll out pre-certified 3G-LTE pilot networks by the end of 2009, as it attempts to steal the thunder as the leader in next-generation wireless while Clearwire is still in the midst of its nationwide WiMAX rollout. Verizon does not want to lose its market image as the leading network. LTE will serve as window dressing for their image over the next two to four years. The continued thrust is for gains and retention of 3G voice and data subscribers. Verizon's overall market share continues to grow--the company has taken market share away from Sprint, but does not want to cannibalize such a huge market prematurely. By staying on top of the image game Verizon is less likely to lose market share back to Sprint or Clearwire.

Trend 9: Maravedis does not expect the first LTE networks to go live until 2010 or 2011. Although vendors already claim commercial development and software upgrades from GSM, the standard won't be final until March and compatibility certifications will take their normal 18-24 month course to initial mass market availability. Moreover, outside of NTT DoCoMo, China Telecom and Verizon, most mobile operators indicate a continued shift to HSPA and EVDO reV3 and a possible further upgrade to HSUPA, before transition to LTE. This puts the timing for widespread adoption of LTE into 2012 to 2014. The impact of the economic downturn may further delay the migration to the NG network. While systems, devices and deployments remain more figurative than real, LTE is having its day in the sun of pre-reality hype just as had been the case for 3G and WiMAX.

Trend 10: Multimode WiMAX plus 3G USB modems and devices will start to impact how product is positioned. Multimode overlay of service profiles along with increasing deployment of femtocells may delay the need for incumbent operators to shift from 3G to either LTE or WiMAX directly. WiMAX plus GSM, EVDO, and WiFi will start during 2009, with announcements of WiMAX plus LTE chip sets and devices expected by the end of the year.

In summary, several additional trends need watching. The development of WiMAX and LTE patent pools and trend-setting early lawsuits will influence expansion of WiMAX and LTE into broader markets including M2M and embedded consumer applications. The rapid development of smart distributed wireless broadband network, architectures of which femtocell and in-building/campus networks are subsets, will be needed for wireless to evolve to 4G. The evolution of operator's service frameworks for systematically plugging in layered partnerships within a more open developer and business environment will be instrumental in meeting competitive challenges. Consolidation among WiMAX and mobile industry players and continued rapid growth of Asian market participants will stand in contrast through 2009 and forward.

For sake of brevity, we will hold these and additional topics for the future.

Robert Syputa is a senior analyst with Maravedis,  a research and analysis firm focusing on BWA technologies including WiMAX, UMB, LTE and Ultra Mobile Broadband. For more information visit http://www.maravedis-bwa.com   

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