This economic downturn may require clever technology strategies.
There’s little doubt that the most pressing concern on people’s minds these days is the state of the economy, with greater pessimism than has been seen in at least a generation.
It’s also a safe bet that in the near term our apprehension is going to be manifested in more conservative spending on the part of both consumers and business enterprises.
It’s too early to know whether and to what extent this trend will affect spending on wireless services and equipment. In past recessions, the industry has generally fared pretty well, but that was during periods of tremendous growth in penetration rates.
More recently, penetration has approached saturation and industry growth has derived more from increasing average revenue per user (ARPU). Convincing customers to spend even more for wireless services while they are struggling to meet other obligations will be a tough sell.
To make matters worse, operators may find it increasingly difficult to raise the large amounts of capital they need to launch and expand next-generation networks. The challenge for operators and manufacturers will be to maintain a healthy “bottom line” in this environment.
THE TECHNOLOGY ANGLE
Two factors critical to success will be delivered value and cost reduction. To a large extent, both depend upon management of technology.
When the wireless industry was dealing with the last recession earlier in this decade, the “value proposition” was summed up in “bucket of minutes” plans with nationwide (no roaming charges) service and no additional long distance charges.
This new pricing concept resulted in huge increases in network usage without a commensurate increase in per-user revenues. The successful carriers learned how to reduce the costs of capacity expansion, mainly through network optimization and adoption of more efficient air interface technologies such as 1X-RTT. Others managed to reduce costs though mergers.
This time around, value enhancement will probably have to be more subtle. After all, if you are already offering customers essentially unlimited usage with excellent service quality, there’s not much you can do to increase perceived value other than reduce prices – something that will definitely not help the bottom line.
Instead, carriers might want to structure pricing to move users toward services that are perceived as having higher value but which can be delivered at lower cost. One obvious example is text messaging. Carriers love “texting” because they can charge roughly as much for a single message, on average, as they can for a minute of voice traffic airtime even though the text message uses far less network resource.
Despite this, many users view texting, at least in high volume, as a premium service. One way to increase perceived value would be to offer pricing that encourages customers to talk less and text more.
Another avenue to enhanced value is through highly useful data services that put little traffic on data networks. This will generally require that the handset and server portions of an application be structured to minimize required data transfer. Besides reducing network traffic load, the advantage to such optimization is that applications continue to run fast when throughput rates are reduced due to heavy loading or poor channel conditions.
To encourage text messaging and use of network-efficient data apps, customers will need to have devices with better and more focused user interfaces. Great strides have been made in this area in the past couple of years, but much work still needs to be done. And the advanced user interfaces also need to find their way into mass-market handsets, not just a few top-of-the-line devices.
Although economic hard times may make it difficult or impossible to significantly increase data ARPUs, that does not mean data network usage won’t continue to grow. Indeed, flat-rate wireless data pricing is already the norm. Users who occasionally need mobility may opt to abandon their wire-borne Internet service as a cost savings, a trend we have seen with voice phone service. If that happens network loading will surge, and operators will have to increase capacity at the lowest possible cost.
Network optimization, increased backhaul requirements and deployment of additional base stations – data network operators are going to have to deal with these realities to bolster capacity while per-user revenues are most likely going to be pretty flat. Sound familiar?
Actually, a cost/revenue squeeze in wireless data network capacity enhancement may present an opportunity for infrastructure providers. Vendors such as Lucent and Nortel were hammered when operators were forced to reduce the cost of voice network capacity enhancement. In fact, they have yet to recover. But cost factors in data network expansions are likely going to be less about the cost of infrastructure equipment and more about the costs for backhaul and site leases.
Another big impact may be a mandated requirement for more robust backup power systems. If equipment vendors can design infrastructure elements that address these related costs, for example, with smaller and more power-efficient base station systems, they could provide an irresistible value proposition to their carrier customers.
Yes, it sure looks like tough times are ahead, but there is no reason why, with proper business and technology strategies, the wireless industry won’t be able to weather them.
Drucker is president of Drucker Associates.
He may be contacted at email@example.com.