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December 23, 2008

Thought Leadership for the Wireless Industry
In This Issue
Themes for 2009
Progress Report on Open Development
Do We Need a Wireless Stimulus Plan?
The Rapidly Changing Mobile Content Landscape

Investment Community Presentation
Private event
New York, Dec. 9

3G Americas Summit
November 19-20, San Diego

New England Mobile Summit
October 21, Boston
Conference organizer and chair

Mobile Internet World
Oct. 22-23, Boston
Advisor and Speaker
Dear Colleagues,
Lens logoDespite all the difficult news around us, 2008 was a terrific year for wireless, marked by game-changing improvements to the end-user experience.  For this year-end Lens, rather than making specific "predictions", I wanted to outline several themes that I think will frame the industry in 2009.  There is little doubt that we are in for some near-term challenges, given the macro-economy, which will result in some changes to our industry structure. Wireless will become increasingly woven into the broader communications fabric. 

My thanks to you all for your business in 2008, and my best wishes for a healthy and successful 2009.
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Wireless Themes for 2009

Note:  this is an expanded version of a December Fierce Wireless column.

To help frame the discussion for 2009, I would say the development in 2008 with the most far-reaching effect was the launch of the iTunes App Store, as it represents the next stage of what a phone can be used for.  It has galvanized the development community, driven users toward flat rate pricing plans, and shored up optimism about continued data growth, which is contributing to continued commitments to high capex.   

Of course, the second half of the year has been dominated by the broader economic picture.  Its effect on the wireless industry cuts across many of my key themes for the upcoming year.

With this backdrop, here are my top themes for 2009. 

1.  Battle for the Home

The economic situation is helping to accelerate a trend that has been developing for years:  people giving up their landlines.   This will take some interesting new twists in 2009.  First, we will see much greater competition in "family" plans, as wireless operators focus on household NPV.  We have already seen this over the past couple of months, with aggressive and differentiated offerings from Sprint, T-Mobile, and Metro PCS, as they try to compete in an area dominated by AT&T and Verizon.  Data plans, and how they figure into the "family share" nomenclature, will be a focus of activity.  

In 2009, we will also see the introduction of a number of Femto-based offerings.   The integrated telcos will attempt to leverage their fixed line (phone and Internet) businesses as part an effort to offer "household" plans that make less of a distinction between fixed and wireless.

2. Greater Flexibility in Pricing Plans

If "flat rate" was the theme fior 2008, "flexibility" will be the theme for 2009.  This development is due in part to the economy, but also because the device is becoming a more important part of the equation.  We have already seen some previews of the "flexibility" theme:  more easily adding family lines to data plans; new and refreshed pre-paid offerings from the major operators; and better off-contract options.  I am expecting more of a "build your own plan" approach, with packages of voice and data services, based on the needs of particular subscribers or market segments.  Also expect more competition, and some aggressive pricing around, flat rate plans in 2009, as Metro/Leap/Boost expand their markets and offerings, putting some pressure on the Big Two plus Two.

Operators are also becoming more flexible and open with regard to pricing  alternative devices and services on their network.  Think "MVNO-lite".  Examples include the Amazon Kindle, the T-Mobile Cameo, and various M2M devices, for example some of the early customers of Verizon's Open Development Initiative. 
3.  Next Phase of Broadband Wireless

This is a corollary to the "battle for the home" theme.  The economy and continued high prices are contributing to a notable slow-down in the growth of PC-based broadband wireless services.  But there will be lots of energy in this sector in 2009, driven by a host of new devices, such as the $100 Acer netbook being sold at Radio Shack, and the continued expansion of 3G networks (AT&T, T-Mobile, Leap/Metro).  Also, as Clearwire builds out more markets, expect the cable companies to offer a mobile "extension" to their home broadband customers.  Expect "quad play" offerings from the integrated telcos here as well.  I also believe there will be a wave of price competition for broadband wireless services, with new thresholds being set in the $30 range. 

We will also start to see the beginnings of what will be a wave of new types of devices leveraging broadband wireless networks.  A new category of netbook devices, with embedded wireless cards, will fill the functionality and pricing gap between today's best smartphones and a fully-featured laptop.  This will be an "experiment" category, so expect some flops. 

The success of the Kindle (which I am frankly surprised about) is causing innovative thinking around devices and services.  The photography category is a ripe candidate for embedding wireless cards, whether for the enterprise segment (insurance agents, real-estate), or consumers wanting better ties to social networks. 

4.  Consolidation

Consolidation will be a broad-based industry theme in 2009, and will touch nearly every sector of the wireless economy:

  • Operators. US Cellular, Leap, and Metro are among the remaining "regionals", so expect something there.   I also believe that data might drive the next wave of consolidation, as I don't think there's room for 6+ 3G/4G networks in this country.
  • Infrastructure.  Several leading infrastructure players are experiencing tremendous difficulty, despite a still reasonably positive global wireless capex picture.  With base station prices falling through the floor, and tremendous development around cheaper and alternative forms of wireless infrastructure, there are too many suppliers. It is also possible that the challenging economy will hasten the movement toward LTE as the primary platform for 4G networks, at least in North America and Western Europe.  
  • Operating Systems/Development Platforms.  Apple and Google have become an integral part of the application development environment over the past year.  Developers are both energized, but also frustrated at the 10 or so OSs that exist in wireless today. We are already seeing developers and device OEMs coalesce around a smaller number of platforms, which will result in attrition in 2009. 
I also expect a wave of consolidation in a number of crowded "sectors" in wireless.  With VCs starting to rationalize their portfolios and the select few players with cash out there bargain hunting, we will see the emergence of one or two "winners" in key categories, such as:  location services; browsers and "on-device" platforms (widgets and so on); mobile search and advertising; femto cells and other flavors of micro, pico, etc.; and application "stores"/mobile storefront.

5.    Focus on "Cost" Creates Opportunities

Operators would rather not slow down capex or product development spending, given the pace of data traffic growth and innovation in devices, content, and applications.  This creates opportunity for increased savings on the cost side of the business.  Three areas of attention include:
  • Backhaul.  After many years of talking about cheaper backhaul, we'll see some action in 2009.  Lower backhaul costs is one of the reasons operators in other geographies can have profitable businesses on much lower ARPU.
  • Alternative forms of infrastructure.  More in the way of pico-cells, distributed antenna systems, and efforts to get more bang out of the infrastructure buck. 
  • Billing and Customer care.  There will be greater emphasis on the Web and on-device capabilities for self-care, so expensive calls to agents can be used for higher-order issues.  One might also see operators seek alternatives for servicing issues that are afield from their core value proposition.
  • Gateways/platforms.  Wireless operators today run a dizzying number of platforms and gateways for different applications - SMS, e-mail, voice mail, MMS, music, video, location, and so on.  This silo approach is costly and complex to manage, and prevents a more integrated user experience.  There is no quick solution here, but look for some attempts to integrate some of these platforms and reduce the number of vendors under management. 
6.    Infrastructure Gets Hot

You might think I'm crazy here, given scaled back capex budgets and difficulties being faced by the likes of Nortel and Alcatel Lucent.  There will be significant activity in wireless infrastructure in 2009, around three themes:
  • Consolidation of OEMs and more partnering.  There will likely be one or two major acquisitions involving the major OEMs, especially as Huawei and ZTE are starting to win meaningful business in developed economies.  The lead OEMs will form tighter parterships with firms that fill a market need, such as Nortel has done with Alvarion. 
  • Huge focus on cost.  Base station pricing is falling through the floor, which is causing the lead OEMs to focus on ways to become more competitive.  Wireless operators are also exerting enormous pressure, as they try to trim capex budgets without overly sacrificing their network buildout, coverage, and capacity commitments. 
  • Major developments in alternative infrastructure.  Several promising areas of infrastructure technology that have been talked about for years are becoming both more mature and cost effective, such as picocells and femto cells.  Distributed antenna systems are becoming an important part of some metro-centric builds.  There is a new frontier of more flexible, software-driven radios and higher performance antennas.  Deep packet inspection is also getting hot, as operators need to more effectively manage data traffic flow and type.
7.    Next Chapter in Search, Navigation, and Advertising

The past year has seen a dramatic improvement in mobile browsers, and the range of content available for mobile devices.   But the ability to quickly and easily search, discover, organize, and navigate to and within all of this content will be an exciting area of product development over the next couple of years, and will include:
  • Intensified phone browser competition.  Continued product evolution, led by Apple, Google, Microsoft, Mozilla, Nokia, Opera, and Novarra.
  • Improved voice search capabilities, as seen recently in well-received applications for the iPhone and the G1.
  • On-device portals, so users can more quickly move between different applications, or snack-able content, without having to constantly load Web pages.  The experience on the device needs to get zippier.  Also, look for better ways to view content "off-line".  
  • Improved contextual search.  The first phase of this focused on distinguishing between on- and off- deck content.  We will see greater effort to deliver more relevant to results to the end-user, such mobile-optimized content, or more intelligent results based on the user's location, previous searches, and categories of interest. 
I also think we will begin a new chapter in mobile advertising in 2009.  Budgets for mobile ad campaigns are tepid, but with the growth in mobile browsing, I think we will see greater attempts at creating a mobile version of the Internet model, based on click streams and contextual search.  Mobile search, mobile web optimization, and mobile advertising, which heretofore have been separate categories, will become much more linked.   We are already seeing this, with tighter partnerships between major operators and the portals (Google, Yahoo, Microsoft) and companies such as JumpTap building ad networks.  Also, expect some early and cautious efforts around the collection and sharing of subscriber data to enable more targeted advertising. 
Progress Report on Open Development

A year ago, Verizon Wireless created headlines with its announcement of the Open Development initiative. "Open" has become one of the industry's key new buzzwords, with "App" stores popping up everywhere and a slew of operator and OEM initiatives. This Lens presents a brief progress report on open development. The bottom line: mixed, with some potential minefields ahead.  Read more...
Do We Need A Wireless Stimulus Plan?

Compared to other industries, wireless has been relatively unscathed, so far, by the economic downturn. But storm clouds are brewing.  By any measure, it looks like 2009 is going to be a challenging year.  I think we have an opportunity to fare better than many other comparable industries. It will take some proactive, and collective, measures, involving some short term pain. Read more on my recommendations for a Wireless Stimulus Plan. 
The Rapidly Changing Mobile Content Landscape

Of all the developments in the wireless industry in this very eventful 2008, none is greater than the way mobile content is being developed, priced, sold and consumed. This has been a net gain for subscribers. But within the mobile value chain, we are seeing a shift in the balance of power and a variety of new business models. Read More