The Brave New World of Wireless
Microsoft (MSFT) Chairman Bill Gates struck a familiar note when he took the stage at the Consumer Electronics Show on Jan. 4. He said he dreamed of a day when he can begin watching news coverage of an event from his TV or PC at home over breakfast, and then continue viewing from his mobile device as he travels to work and goes about his day. Another tech CEO making yet another speech about the seemingly endless possibilities of wireless technology.
The funny thing is, that vision is getting a lot closer to reality -- and CEOs espousing pie-in-the sky notions of wireless "convergence" and "seamless mobility" are sounding increasingly, well, down to earth. More than ever, cell phones are functioning in sync with, and sometimes instead of, PCs and TVs.
That's great news for the wireless carriers such as Verizon Wireless and Sprint Nextel (S) that have invested billions making networks able to carry a host of new services, and the handset makers such as Nokia (NOK) and Motorola (MOT) that have spent lavishly to develop and market the latest in multifeature phones.
A sampling of the fruits of those efforts: In November, Sprint Nextel and cable companies Comcast (CMCSA), Time Warner Cable (TWX), Cox (CXR), and Advance/Newhouse committed $200 million to a joint venture. When the service debuts later this year it will offer users a single mailbox for wireless and wireline phones and the ability to program home digital video recorders (DVR) with mobiles (see BW Online, 11/03/05, "Sprint Nextel's Watershed Deal").
TUNED-IN CELL PHONES.
Some wireless devices are already able to play music and video, run PowerPoint presentations, use global positioning systems (GPS), and trade stocks (see BW Online, "How Cell Phones Roil Japan's Stocks"). And the quality of transmission is only improving, says Jeff Hallock, vice-president for product marketing and strategy at Sprint: "We are on the threshold of quality that, frankly, exceeds consumer expectations."
As various wireless technologies converge on a single mobile device and the new services sharpen, their use is expected to skyrocket. Some 5 million people in the U.S. watched video on their cell phones at the end of 2005, and that tally may double by the end of the year, says Charles Golvin, an analyst with tech consultancy Forrester Research. And according to consultancy Informa, by 2010, more people worldwide -- some 124.8 million -- will watch mobile TV broadcasts than there are U.S. TV households today (see BW, 4/18/05, "I Think I'll Watch TV -- On My Cell Phone").
Analysts expect to see the same boom in such services as mobile gaming, location-based services, and the newly introduced over-the-air music downloads. Microsoft is working on enabling mobile-phone players to post game scores and, eventually, go head-to-head with players using a PC or an Xbox 360. The U.S. mobile gamer community should grow 40%, to 39 million, by the end of 2006 from 29 million last year, according to consultancy IDC. And later this year, Verizon Wireless plans to introduce a service allowing parents to track locations of their kids equipped with mobile phones, via a PC (see BW Online, 1/23/06, "The Great Communicators").
The boom in next-generation wireless services -- assuming it pans out -- won't come a moment too soon for service providers. Subscriber growth in North America and other developed markets is slowing. U.S.
and Canadian operators gained 22.3 million new subscribers in 2005, down from 31 million in 2004, according to telecom consultancy Ovum.
Increasing revenue is all the harder as prices for voice calls plummet. Wireless voice calls are becoming so cheap, consultancy In-Stat predicts that by 2009, one-third of all mobile subscribers will use their cells as their primary phone. This year, per-subscriber wireless revenue may drop 5% to 10% as phone companies use price cuts to compete with cable providers, says Michael Mahoney, portfolio manager with EGM Capital hedge funds in San Francisco.
Yet as the popularity of next-generation wireless services grows, more players are angling for a piece of them. Mobile-TV technology providers like Qualcomm (QCOM) want service providers using their networks to share revenues. So do content owners -- record labels, game publishers, broadcasters, and movie studios -- that are jumping onto the mobile bandwagon.
ON THE MOVE.
Content providers may end up being the biggest beneficiaries of this next-generation boom in data services, says Andrei Jezierski, partner at management consultancy i2 Partners in New York. They can contribute everything from custom graphics to programming (see BW Online, 1/19/06, "Build Your Own Phone Face"). And the price of that contribution could skyrocket. After all, as they venture into radio, wireless-service providers will compete for content with traditional radio stations and satellite radio. Good content will become an important point of differentiation -- giving content providers an upper hand and an increasing share of the profits.
Little wonder mobile-content providers are being viewed as an increasingly attractive investment. Games publishing giant Electronic Arts (ERTS) in December acquired mobile games publisher Jamdat (see BW Online, 12/12/05, "Electronic Arts Dials a Deal"). And recently, Japanese telco NTT DoCoMo bought a stake in Fuji TV.
Content providers will benefit not just from sharing profit but also marketing. Consider the Jan. 5 news from Motorola: Starting this quarter, the handset maker will release phones with a special Google (GOOG) button, taking the user directly to a personalized Google page. The search giant is also looking to put in icons leading to, say, a major online retailer site, or a popular video channel, says Motorola (MOT) CTO Padmasree Warrior. If such content providers' brand and content prove compelling enough, they could even eventually turn into direct competitors, says Golvin. A Google or an Apple (AAPL), with its popular iTunes music download service, could launch their own wireless service.
HOTTER HOT SPOTS.
The advance of next-gen wireless technology is also spawning a new breed of competitor. Some outfits are launching networks based on alternative wireless technologies, such as Wi-Fi, allowing for high-speed Internet access in homes as well as public locations such as airports. In Japan, Softbank and Livedoor sell access to thousands of Wi-Fi hotspots for around $5 a month. And analysts believe these companies could soon introduce next-generation wireless phones, capable of running on both cellular and Wi-Fi networks.
Popular Web-calling service Skype, now owned by auction site eBay (EBAY), allows people sitting in these hotspots to make free calls, send text messages, even conduct videoconferences -- completely bypassing traditional cellular networks. This and other similar services could become more of a threat to wireless service providers as the number of hotspots worldwide doubles, to 200,000 by 2009, according to tech consultancy In-Stat.
Also looking to divert those data revenues are some 150 WiMax networks, offering wireless broadband access in large metro or rural areas, due to spring up worldwide this year, says Ron Resnick, director of WiMax marketing at chipmaker Intel (INTC) and president of industry consortium WiMax Forum.
In Korea, carrier KT will start offering commercial service in May or June. In the U.S., which just made large chunks of the WiMax spectrum required to run these networks available, telco BellSouth (BLS) has already rolled out WiMax systems in six cities.
But many WiMax networks won't belong to existing telcos. As Intel releases WiMax laptop cards, allowing computers to use these networks, later this year and then makes them a built-in part of its notebooks in early 2007, expect a mass entry of WiMax upstarts. "WiMax can be disruptive," says Resnick.
The same can be said of the host of other pressures that will accompany the surge in next-gen wireless services.