The economy promises a bumpy ride for the near future,
but how is the wireless industry positioning itself for long-term survival?

You’ve seen the headlines. Nortel files Chapter 11. Motorola and Ericsson announce more layoffs. Cisco freezes pay hikes for 2009.

While the wireless industry is not immune to the troubles of the ailing economy, its future is not as bleak as, say, the auto manufacturing sector. Still, news at the start of year shows everyone from the top down is looking for ways to not only survive, but thrive.

SHRINKING RANKS
In its annual predictions, inCode projected that economic pressure would shrink industry ranks in 2009 by one major operator and one major infrastructure vendor. The consultants already may have made good on half of that prediction, as Nortel filed for bankruptcy on Jan. 14.

Nortel’s announcement is one of the more drastic of recent developments in the industry. Other companies appear to be boarding up their windows and getting their houses in order for the coming storm. Motorola cut executive bonuses, froze all pay hikes for 2009, stopped pension matching and cut at least 4,000 jobs. Adding to Motorola’s growing list of concerns, RAZR, the previous top-selling handset, was ousted in the third quarter by the iPhone 3G, according to the NPD Group. (Nielsen research indicated the RAZR still had a slight edge in the third quarter.)

Still, Motorola handset sales were expected to be down 50% in the fourth quarter compared with a year ago. In a third-quarter press release, the company stated that its intention to separate the Mobile Devices and Mobile Broadband Solutions divisions would have to wait. “While our strategic intent to separate the company remains intact, we are no longer targeting third quarter 2009, primarily due to the macroeconomic environment, stresses in the financial markets and the changes under way in Mobile Devices,” said Sanjay Jah, co-CEO and CEO of Mobile Devices.

SMARTPHONES DRIVE EVOLUTION
Surprisingly, in the midst of a recession, consumers are still racing toward high-end smartphones. Motorola’s Q has had only moderate success in the smartphone arena, and the company could be feeling pressure to reinvest in new smartphone designs. With prices for a refurbished iPhone at Best Buy lingering just below $200, it’s hard for many consumers to justify spending as much or more on a phone that does less.

But the effects of smartphones don’t stop there. Phones like the BlackBerry and iPhone are shaping the future of infrastructure. As smartphones drive data demand, and WiMAX and LTE vie for position over the next couple of years, companies are being forced to make big decisions about the future of their infrastructures, regardless of the macroeconomic environment. Alcatel-Lucent has taken some flak from analysts for its decision to invest in LTE buildout, perhaps because it already has a WiMAX presence.

“I don’t think [this decision] is in reaction to the economy,” said Kurt Steinert, spokesman for Alcatel-Lucent. “I think it’s just how the market for WiMAX has evolved and we’re just seeing a lot of support for LTE amongst our customers.”

From chip to handset manufacturers, economic conditions are revealing the delicacy of the wireless ecosystem. In a fourth-quarter earnings call, Ericsson CEO and President Carl-Heinric Svanberg noted the effect the economy is having on consumers and thus the sale of handsets. “Obviously, the handset market has been affected primarily on the replacement side,” he said. “Replacement sales are declining as people continue to use existing phones.”

Analysts and CEOs alike are stressing solid business plans as the only tested ways of weathering the next couple of years. They’re trumpeting the importance of business plans that take into account not only the demands of bandwidth-devouring devices but also those of the consumer. New technologies are what keep the wireless industry diverse and relevant, and by necessity, innovation will play a big part in meeting those demands.

Forrester analyst Julie Ask believes companies are going to follow the new president’s lead and lean heavily on change. “CIOs and CEOs are telling me that they plan to change their way out of this mess,” Ask wrote in a Jan. 7, 2009, posting on her Forrester blog. For a number of reasons, she believes that this will not be a repeat of the 2001-2003 recession that had devastating effects on the tech market. “When we come out the other side of this crisis, companies will look quite different…and technology will have been a catalyst in those changes,” she concluded.