The headlines don’t look promising, but industry leaders can and
should look to entirely new business segments for revenues.
Nortel is in bankruptcy. Motorola is reporting a loss of $3.96 billion in the last fiscal quarter. Net subscriber adds are down sharply for the largest nationwide carriers. With news like this, it is easy to feel pessimistic about the future of the wireless industry.
To be sure, with perhaps a few exceptions, major operators are likely to remain profitable through the current economic crisis, but the salad days of double digit year-to-year subscriber growth are very likely behind us. This can hardly come as a shock, because such growth is unsustainable. Once the market reaches saturation – and we’re probably there now – subscriber numbers will only increase with population growth, which is currently running at around 1 percent annually in the United States.
These facts of demographics are certainly well understood by industry leaders, which is why for the past several years their developmental focus has not been on attracting new subscribers so much as figuring out ways to get existing customers to spend more on wireless services – the intense and never-ending effort to increase average revenue per user, or ARPU.
The biggest hope in this area has been in the broad area of data services. There have been some big wireless data successes, for example, in text messaging. There also have been major disappointments, such as the failure of carriers to get much traction in applications and content sales. Overall, growth in wireless data services has been healthy in the past few years and that trend is expected to continue as more subscribers move to handsets with advanced features. But increasing use of data features among consumers is not likely to sustain exceptional industry growth. That is because there is a practical limit to what the average customer is willing to pay for wireless communications. That’s particularly true during a recession, but even in good economic times, most people are very sensitive to the size of their monthly wireless bill. Indeed, subscribers are accustomed to expanding feature sets with little or no increase in price, at least when inflation is taken into account.
Even if consumer resistance were not a huge barrier, fierce competition among carriers is likely to make it difficult to sustain much growth in ARPU. It is clear that in order to continue to grow at anything close to its historical pace, the wireless industry must focus on new business opportunities. I don’t mean just new features and services carriers can try to get their customers to pay a few bucks for, or exclusive deals to offer the latest hot phone products. Rather, what the industry must do is look for opportunities in whole new lines of business, with new kinds of customers and as-yet untapped revenue potentials.
I touched on one such new business opportunity in this column a couple of months ago. (See “Opportunities in ‘User-Transparent’ Communications,” Wireless Week, Jan. 1, 2009.) As I noted then, providing voice and data transport for various services offered by other enterprises is important not just because it is a potentially lucrative application for existing wireless networks but also because it brings in revenues from an entirely new customer base.
THE SMART GRID
But wireless industry leaders should not limit their new business horizons to third-party commercial services aimed at consumers. There are lots of potential opportunities in meeting specialized enterprise and government communications needs as well. For example, the electric power industry soon will be investing billions of dollars on the “smart grid,” a modernization and enhancement of what is currently the quite vulnerable power transmission and distribution system in the United States.
The smart grid will depend upon a massively expanded application of digital communications, mainly machine-to-machine, for fault detection and recovery, systems automation and enhanced security. Indeed, the Utilities Telecom Council, an industry organization that lobbies on behalf of utilities’ communications interests, has recently petitioned the FCC to allocate 30 MHz of spectrum for a wireless network dedicated largely to the needs of the smart grid. Even if the FCC acts favorably on this request, construction of such a network nationwide would cost many billions of dollars.
Meanwhile, the vast majority of smart grid communications requirements could probably be met with existing commercial 3G data networks and planned 4G systems. Carriers and their vendors might have to make accommodations for the unique requirements of the smart grid – for example, data communications would probably have to bypass the Internet and connect directly to private IP networks – but since when has the wireless industry been frightened by the need for technical innovation?
Want another example of a completely new business opportunity for wireless operators? The Federal Aviation Administration soon will be launching a next-generation air traffic control system that will rely on data collected from aircraft through a system of ground stations. Primary communications with those ground stations will be through dedicated terrestrial broadband networks, which probably will be susceptible to outages related to severe weather events and other types of disasters. Providing backup communications through less vulnerable wireless networks could go a long way in improving the overall reliability of critical air traffic operations.
Once you start thinking about it, there are a lot of ways in which our wireless networks could be put to good use beyond their traditional roles in personal communications. Some will be more practical – and more lucrative – than others, but the point is that these sorts of business opportunities are very likely the best hope for continuing robust growth in the wireless industry. Maybe not the eye-popping expansion of the 1990s, but enough to offer hope that the best days for the industry are still ahead of us.
Drucker is president of Drucker Associates.
He may be contacted at firstname.lastname@example.org.