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Joe Madden |
Recently, I have been writing about the decline of the macro base station market, predicting that, in rough numbers, the investment in "Tower and Power" will drop by half over the next five years. Unfortunately, I have heard very little disagreement from my subscribers that sell base stations and semiconductor devices. The gravy train is slowing down.
The good news is that the small cell market is ramping up. We're shifting from a coverage market to a capacity market, so the investment is moving into small cells and low power Remote Radio Heads.
The Engineers down in the lab think about this transition as a shift from big base stations to smaller base stations, and they are right. We're making a change in technology. But the CFO and all of her banker buddies see the market transition differently, and they're also right. Sure, we're changing to different infrastructure, but we're also making a change to the business model at the same time. When we look at the breakdown of what kind of small cells are driving growth, we see enterprise applications leading the trend. Enterprise small cells will double in 2015 compared with 2014, and the most dynamic growth is coming from corporations and building owners that are willing to pay for mobile infrastructure.
In fact, enterprise small cell shipments are accelerating faster than small cells deployed by the carriers. The market is still small, but the latent demand is huge. There are hundreds of billions of square feet of commercial real estate in the world, and a high percentage of it needs in-building mobile service.
When Thomas Edison started selling electrical infrastructure, he began by building generators, transmission lines, and then providing the wiring inside a home. Edison had to deliver his electrical service all the way to the light bulb. Over time, the wiring in each building became the responsibility of the building owner. This is the natural evolution for anything that is considered necessary in the home. Many technologies have followed this same evolution, including wired telecom and Wi-Fi.
We see this evolution now in mobile communications. Building owners are gradually taking responsibility for wireless infrastructure inside the building, and many of them are now ready to buy small cells or DAS to make sure that smartphones work inside the building. This transition is especially clear in new construction. Wherever metalized glass is used, commercial building owners now recognize the need for in-building wireless systems of some kind, and architects are starting to bring in wireless consultants just as they bring in a civil engineer or any other specialist.
Here's another indicator: Cisco has lined up their products to sell to the CIO. Ericsson has now teamed up with HP and will integrate HP/Aruba's Enterprise Wi-Fi into its small cells. I know what you're thinking…didn't Ericsson already have their own Wi-Fi with the acquisition of BelAir Networks? They're doing this not because they need the wireless expertise of HP and Aruba, but because they need sales channels and software that align with Enterprise Wi-Fi and IT departments.
As mobile operators invest less capital in macro infrastructure, and indoor infrastructure is bought by the building owner or enterprise, everything else will change in our market. Are you ready?
Joe Madden is Principal Analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. He provides market forecasts for handset, DAS, small cell, and base station markets, with in-depth research down to the nitty gritty details of frequency bands and power levels. Mr. Madden graduated, cum laude, from UCLA in 1989 and is a Silicon Valley veteran. He has survived IPOs, LBOs, divestitures, acquistions, and mergers during his 24 years in mobile communications.