Madden: What if there is no 'Next Big Thing'?

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Joe Madden Industry Voices

As the LTE market matures, the mobile industry has been turning its attention to the “next big thing.” The hype machine is running at top speed on IoT and 5G, and we’ve seen some very optimistic projections about the future of billions of devices, as well as “always-everywhere” gigabit wireless.

For 2G, 3G, and 4G, the creation of a standard was always followed by a serious round of investment by mobile operators. Billion-dollar 2G investments paid off pretty well, with subscriber growth. The 3G and 4G cycles were similar, with even bigger investments in spectrum and equipment to build up the industry to a trillion dollar revenue stream. As the investment cycles have continued, only one or two major operators have been able to stay profitable in many markets.

To move the needle on a trillion-dollar industry, the next round of investment needs to be big, and the revenue targets must be even bigger. I don’t see investment on that scale yet.    

Let’s start by talking about the Internet of Things. There’s a lot of variety, as we are tracking 29 different wireless formats and hundreds of applications.  

In the IoT market, there is rapid growth toward billions of devices. We’ve built up a forecast that looks fairly solid for 6 billion devices in 2021, and we can see the possibility of 20 billion as many people predict. But the average service revenue per device will be pitiful. Many of these devices will carry service revenue of between $1 and $5 per year. By 2025, total IoT service revenue may reach $50 billion-$100 billion. That’s likely to be a great success case for some companies but it’s still only 5-10 percent of today’s mobile market.

The market for 5G broadband has similar problems. Faster data is always appreciated, but additional ARPU is very unlikely in the saturated smartphone market.    That’s why operators are viewing 5G differently: not as another always-everywhere service, but as a way to support fixed broadband services. Mobile operators will compete with cable operators and fiber-to-the-home. The business case will be very limited, to regions with two attributes: High revenue potential and limited competition.   Neighborhoods with fiber to every home will be passed over. Cities with multiple strong broadband competitors will be bypassed as well. The result is likely to be islands of coverage, not nationwide 5G networks. In other words, coverage will be a lot smaller than 2G/3G/4G networks, and so will revenue potential.

Overall, as an industry we should wake up and smell the coffee. There’s no magical “Next Big Thing” coming to boost our industry to the next level. New ideas like 5G and the IoT are likely to be successful niche business areas, but will not create another trillion-dollar money machine.

Joe Madden is Principal Analyst at Mobile Experts LLC, a network of market and technology experts that analyze wireless markets. The team provides detailed research on Small Cell, Base Station, Carrier Wi-Fi, and IoT markets. Mr. Madden currently focuses on trends in 5G, IoT, and Enterprise markets for wireless infrastructure. Over 26 years in mobile communications, he accurately predicted the rise of Digital Predistortion, Remote Radio Heads, Small Cells, and the rise of a Mobile IT market. He validates his ideas with mobile and cable operators, as well as semiconductor suppliers to find the match between business models and technology. Mr. Madden holds a Physics degree from UCLA. Despite learning about economics at Stanford, he still obeys the laws of physics.