• United States

Mixed messages on wireless value

Jul 19, 20044 mins
AT&TNetwork SecurityVerizon

AT&T sells its wireless business to Cingular. Qwest sells its wireless assets to Verizon. Sprint says wireless is a big part of its profits. Wall Street analysts are forecasting a shift of capital expenditures (capex) from wireline to wireless. Big players are bailing out of wireless, but other players are happy to pick up their assets. If wireless was clearly the way of the future, everybody would want to be into it. Why the diverse view of wireless importance?

To begin with, wireless voice is under a lot of price pressure because of competition. To make traditional cellular/PCS wireless service profitable in the near term, you’d need other offerings you could leverage in service bundles, a valuable home territory to exploit and a credible national name. Qwest probably made the right decision based on these factors. The old US West territory has fewer subscribers than the other RBOC regions and big open spaces that are expensive to cover.

Verizon has a different dynamic. It’s targeting the mobile worker who spends time on the East Coast but also occasionally treks out to Big Sky country. For the business phone user, coverage is everything, and Verizon has about 45% of the big enterprise headquarters locations in its home territory. Verizon can milk the mobile market in a way Qwest never could. The big RBOCs can justify wireless as a hedge against losses in traditional wireline voice, but it’s how the interexchange carriers view wireless that exposes the real issues for the future.

MCI has yet to express a wireless strategy, and AT&T now is committed to wholesaling. Sprint has the most interesting wireless vision. It has championed the picture phone and, more recently, a chance to shoot video clips. In the near term, this plays to the youth market, but in the long term Sprint’s strategy might be a hedge – although a very different one from the voice hedge the RBOCs see for wireless.

Could wireless be a strategic hedge that wireline broadband services can’t be made immediately profitable? For all the enthusiasm about the Internet, it’s yet to be a profit center for a major carrier. What then creates the profit in broadband? Sprint might be holding a place for itself in broadband wireless, expecting that mobile applications for broadband will be, like voice, more profitable than their wireline equivalents. Instant messaging is profitable in wireless and not in wireline. Same with picture- or video-mail services. Perhaps Sprint is looking beyond these obvious plays – which, after all, weren’t obvious at first.

The big question with wireless remains whether there is any real application beyond voice. If not, the competitive forces that have largely destroyed voice profits in the wireline arena eventually also will destroy wireless profits. Most of the current wireless capex Wall Street is talking about is directed at 3G broadband applications. That investment won’t pay off if consumers only want to exchange Short Message Service messages and photos.

The answer to the question “What’s next after voice?” might be developing in Europe. T-Mobile, working with Nortel, is deploying a customized data services offering over wireless that will be trialed in the U.K. and, if successful, elsewhere. While the deal doesn’t explain what customized data services will be offered, it indicates that carriers and vendors are working to address profit sources for wireless in the future.

What might the services be? For the enterprise user, access to corporate applications is clearly a mobile service option, and Web services standards could help enable those kinds of enterprise applications for wireless data. It’s also true that video calling is actually more credible for wireless than for wireline because the tiny screen makes high-quality video a non-issue, so bandwidth consumption and video compression are less of a problem. MP3 music delivery is clearly a wireless application, as is interactive multiplayer gaming.

It’s unlikely that wireless will displace DSL and cable modems as the key delivery platform for broadband, but it’s very possible it will have a bigger role in the broadband future than we think.


Tom Nolle is founder and principal analyst at Andover Intel, a unique consulting and analysis firm that looks at evolving technologies and applications first from the perspective of the buyer and the buyers’ needs. Tom is a programmer, software architect, and manager of large software and network products by background, and he has been providing consulting services and technology analysis for decades. He’s a regular author of articles on networking, software development, and cloud computing, as well as emerging technologies like IoT, AI, and the metaverse.

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