Last week was quite a week for wireless. AT&T and Verizon announce earnings. The 600 MHz incentive auction heads toward a conclusion. President Trump is sworn in, a slew of executive actions follow, and a new FCC Chairman is named. T-Mobile ONE launches. Sprint buys Tidal. And rumors are circulating about a potential tie-up between Charter and Verizon. WHEW!
Unpacking all these reveals some common threads about the state of our industry, and is evidence that in 2017, we are going to take some very different turns. Here are the 9 key themes we can draw from these recent actions:
- The wireless industry has plateaued. Verizon and AT&T both reported flat to slightly declining wireless service revenue growth. Postpaid growth is anemic. T-Mobile continues to gain share, mainly at the expense of AT&T and Verizon. Deltas on network quality continue to shrink. And the operators are all anxious to keep ARPU from dropping, so I’m not expecting any major changes in pricing.
So we are back to two ‘groups’ of operators now. AT&T and Verizon, because of their size and pressure from shareholders, are racing to find new sources of revenue, stickiness (bundles), and differentiation. They are competing with cable and the Internet players. T-Mobile and Sprint are going to go from “pure plays” to “in play”, in some shape of form, this year.
- The Era of the Subsidy is Over. Even the last holdout, Verizon, has signaled that by the end of the year, some 80% of its subscribers will be off subsidy. ‘Free’ IPhone, RIP. With the financing/BYOD model now prevalent, folks are holding onto their phones for longer. This means puts pressure on Apple, Samsung, et al. to offer a blockbuster new device this year. And the operators need it, because new device launches have become their best opportunities to get customers to switch.
- IoT Is Not the Savior. IoT is starting to become a nice, steady business for the operators. But it is going to be some time before IoT becomes big enough to make a meaningful impact at large operators such as AT&T and Verizon. It’s a series of base hits.
- The Action is in Content and Video. The migration of video to the Internet and mobile is happening at a steady pace. There will be several new OTT launches in 2017, and mobile will figure heavily. Owning both content and distribution are proving to be compelling. Of the “Big Four” wireless and cable players, only Charter doesn’t have some sort of content play…and that is likely to change, be it with Verizon or somebody else.
- AT&T is Out-Lapping Verizon, So Far. Between success with bundling, content leverage, and reasonable early take-up of DirecTV Now, AT&T appears to have made the right bet with DTV. The pending deal with Time Warner pushes AT&T even further into content land. AT&T will have to be careful, in the way that Comcast has been with NBC Universal. But a more favorable regulatory environment will also help.
The success of Verizon’s strategy is still TBD, and it has certainly chosen a more complex route. The company is still getting its arms around AOL, and the Yahoo deal is far from certain. There is merit to Verizon’s view that there’s room for a third major digital advertising play, after Google and Facebook (maybe they should take a page from TMO and market their play “The Un-Google”). But this is a tough hill to climb. It’s why most of the Street picks AT&T over Verizon…for now.
- So This Will Be a Huge Year for Verizon. Big Red has indicated flat revenue growth into 2018. So, one or both of two things need to happen this year. Either Yahoo has to get done, and the company must articulate a clearer strategy of what it plans to do with those combined assets. And/or, they need to do a deal with cable, or DISH. The potential deal with Charter is interesting, as it provides Verizon access to 49 million homes, in some great markets, access to content deals, more broadband without having to build more FiOS, and assets that would be beneficial to its wireless network.
- 2017 Will Be the Year of the Deal. Between the settling in of the new FCC and the results of the 600 MHz auction (likely by March), I am predicting a deal frenzy in cable, content, and wireless. The ball already started rolling in the second half of 2016, with a slew of fiber deals, telco consolidation, and AT&T-Time Warner. In play, or likely be part of Deal-Apolooza in 2017 are: Sprint, TMO, Charter, Comcast, DISH, and Verizon. Significant reshuffling and consolidation is likely.
- Cable Needs Wireless, But Ultimately Wireless Will Need Cable. In addition to possible Verizon-Charter, the industry continues to breathlessly await Comcast’s wireless play, the longest “about to launch” ramp ever. I believe they are tilting more cellular than Wi-Fi centric, but the deal economics do not add up for significant data usage over their network. I still believe Comcast is looking at something potentially bigger in wireless…and we’ll know soon whether they are actually owners of spectrum, via the 600 MHz band.
Over time, wireless will cable more as much as cable needs wireless. Fiber/backhaul and pole assets become increasingly important for network capacity/densification driven by small cells, and what’s needed for the 5G deployment model. And, with the LTE and 5G roadmap, wireless intrinsically becomes a player in broadband…not just mobile. Owning Charter will help Verizon’s in 5G, and getting to a more critical mass in broadband homes provides Verizon with more options in a hybrid fixed/mobile broadband world. The worlds of cable and wireless will ultimately merge in some form.
- A New Breakout Device Is Needed. Toward the second half of 2017, the media will be agog with rumors of what the 10th anniversary iPhone will look like. With the meh iPhone 7, declining tablet sales, and the Galaxy debacle, the industry could use a new, ‘must have’ device to get folks back into stores. Most flagship smartphones are already so good, it’s hard to imagine what the “big I” innovation might be in hardware might be.
With the success of Alexa, and the hundreds of new products that are integrating Alexa, I believe something ‘voice-y’ and AI related will become part of the next gen smartphone experience. Might Amazon get back into the device game? Will Samsung or another major OEM sell a ‘comes with Alexa’ phone? Can Apple up its game? Can anyone still name their child ‘Alexa’?
Perhaps this has ended up being a companion piece to my year-end 2016 column, 2017 Will Be a Year of Change for the Wireless Industry. But barely a month into the New Year, it’s clear we’re in for a pretty wild ride.
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.