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Pat Romanski

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Wireless Technology Magazine

inCode Telecom, an influential strategy advisor to leading telecommunications companies, enterprises, and private equity companies in North America announced its seventh annual Top 10 Telecom Predictions. The 2010 predictions identify emerging business, network, device, and application trends likely to affect consumers and businesses.

Highlights of the 2010 predictions (see full text below) include:

  • Consumer adoption of netbooks drives a significant increase in operator data plan sales, but could strain data networks and reveal device management and synching issues.
  • The FCC struggles with competing forces regarding net neutrality rules, but eventually permits wireless operators to prevent or limit specific types of traffic as long as operators don’t discriminate.
  • Since all mobile phones above entry level evolve into computing platforms, the smartphone as a category dies by 2011.

“The industry is at an inflection point that is perhaps more significant than at any juncture in North American telecom history,” says Rob Chimsky, inCode Telecom Vice President and CTO. “Incremental revenue is shifting from voice to data. However, threats from new competitors offering ‘over-the-top’ business models emphasizing value delivered by applications directly to consumers, rather than simple connectivity, will reshape the industry.”

inCode 2010 Top 10 Telecom Predictions

1. Wireless Operators Push Netbooks, but They Prove a Mixed Bag

Netbooks continue to gain momentum in helping wireless operators sell incremental data-centric plans, even to existing customers. Consumers in developed markets are more likely to use netbooks in addition to, rather than as replacements for, cell phones and laptops, so operators can boost penetration with multiple connections per customer. However, heavy data usage by netbook users could place more strain on already-loaded data networks. Operators view netbooks purely as another type of connectivity, like a data card. However, consumers see operator-provided netbooks as full computing devices requiring laptop-type support. They expect seamless synchronization among features such as contact lists for all their wireless devices. Operators will either need to spend significantly to develop these capabilities or outsource them to prevent consumer backlash.

2. The FCC: Stuck in Neutral with the Net

The significant debate on net neutrality rules continues, and FCC efforts to reach a compromise bog down for many months. The potential imposition of net neutrality in wireless already has had a chilling effect on spectrum auctions and rural broadband stimulus participation. Ultimately, the FCC will reach a compromise between network reliability and innovation that is satisfying to no one. The Commission allows limitations on certain traffic that may be detrimental to overall network usage, providing the limits are not overtly directed at particular types of service or specific service providers. Operators will need to find ways to gain traction in an environment encouraging more over-the-top services.

3. Wireless Operators Play “Whack-a-Mole” with Data Issues

Verizon has begun its aggressive deployment of LTE, and AT&T is continuing with HSPA. Other operators are following suit, finally giving wireless users the promise of wireline-type throughput. However, as the RF bottleneck is removed, other equally challenging issues move to the forefront. Operators focus on new backhaul solutions that can cost-effectively handle increased traffic. Additionally, device battery life rears its head further because high-speed data applications and always-on connections drain battery life quickly. Battery innovations have lagged behind RF technology advances, and the severity of the gap increases. Operator coverage—especially in-building coverage—is strained as customers use wireless as a replacement for wireline capabilities. Much time, effort, and capital spending will be directed to finding solutions for these capacity issues.

4. When All Devices are Smart, What Becomes Genius?

Once upon a time, smartphones were high-end devices. However, broad adoption of these models has increased volume shipments. In addition, airtime pricing has become more competitive. These factors are turning smartphone features into table stakes for mid-tier devices. Mobile phones above entry level pricing tiers morph into computing platforms so smartphones as a distinction between tiers ceases to exist by the end of 2010. Today’s smartphone—a device with an open OS, a big display, and full Internet browser—won’t be a standout because all devices are smart. New levels of distinction emerge with high-end units becoming powerful Internet devices with voice calling as a secondary function.

5. Wireless Data Pricing Looks More Like the Airlines’

Having provided customers with unlimited usage plans, operators find it very difficult to increase pricing or start usage-based charging. Much like airlines that couldn’t increase basic rates, wireless operators increasingly turn to charging for incremental features and capabilities beyond basic transport. This is most evident in wireless data services and leads to quality of service pricing. Applications such as VoIP or video streaming that require more guaranteed service are priced higher than just best-effort connectivity. Total cost of service for customers increases, but in many cases not from basic transport fee hikes.

6. M2M Leads Operators into New Acquisition Area

The machine-to-machine (M2M) application space has generated significant interest in 2009. AT&T and Jasper forged a strategic partnership, and Verizon and Qualcomm formed a joint venture called nPhase. Operators previously reticent to dive into M2M now recognize the profit-boosting characteristics of this business: low churn, low cost per gross add, and an increase in non-peak traffic. However, many operators possess limited competencies in the support and management requirements associated with M2M enterprise solutions. At least one operator makes a significant acquisition of a major M2M player to jumpstart its capabilities in this market.

7. A Look at Clouds from Both Sides Now

Beam up my data, Scottie! Operators embrace cloud computing for applications delivery because it places more value on the core network and increases customer “stickiness.” Operators should be on the lookout for gray skies, however. Challenges of response time and coverage can affect utility of usage. Plus, network security and vulnerability issues make customers hesitate. Other players won’t sit still and watch operators occupy this space. Unwilling to assume “dumb terminal” status, device suppliers set up a classic technology battle between capabilities in the cloud versus at the edge. Other cloud companies, such as Amazon and Google, provide these services across wireless and fixed in an “over the top” way, relegating operators to “transport pipe” status. During 2010 expect storm fronts to collide, with heat and lightning generated but no greater clarity on winners.

8. A Device OS Bites the Dust

A recession is still on, and there isn’t enough device revenue to support seven (count ’em) different operating systems: BlackBerry, OS X, Windows Mobile, Web OS, Android, Symbian, and Linux Mobile. While the “Open” oasis attracts much support for Google and Android, expect that one OS drops in the desert. Application storefronts and developer ecosystem traction are critical to device OS adoption by OEMs. Bigger device share attracts additional developers, resulting in more uptake by OEMs. Those OS platforms with extensive developer support, streamlined certification processes, and integration of Web 2.0 features establish early leads. Consolidation rather than continued fragmentation is the probable result since the industry typically drives longer term toward standardization.

9. MVNOs Get New Lease on Life in a Very Different Form

Here comes the MVNO 2.0 business model. In North America, MVNOs have struggled, and the few that found success eventually were acquired by network operators. Competing with operators that ultimately controlled supply just didn’t work. The resurgence of MVNOs is based on a new business model emphasizing delivery of total solutions with wireless as part of the package. An example is the free Amazon Whispernet content service accessed with a Kindle reading device. The risks are lower for Mobile Network Operators (MNOs), since they are not enhancing a competitive brand, and they can penetrate markets previously not easy to access directly.

10. Game Console Video Kills the PC Star, at Least for Internet Video

Internet video primarily has been consumed directly on the PC as streaming bite-sized clips. Only early adopters viewed streamed or stored Internet video on their TV. The amount of Internet video viewed on TV doubles in 2010, and the gaming console serves as the primary gateway, accounting for almost half of usage. Developments supporting the console device, such as content availability, existing revenue model, and higher definition programming, are the enablers. While PCs and other devices—such as Internet-connected TVs and over-the-top, set-top boxes—are expected to emerge after 2010, the gaming console will be the preferred device for now.

Bonus Prediction: You Can’t Track the Players Without a Scorecard

Due to major industry changes, traditional wireless operational measurements are fast becoming obsolete. Here are a few examples:

  • Penetration. This isn’t a helpful figure when the numbers of devices and subscriptions reach 200 percent, 300 percent, and more per customer.
  • ARPU. Multiple devices and services per user, each with differing cost profiles, determine real customer revenue.
  • Churn. An increase in the number of “disposable,” “situational,” and “substitution” devices challenges the traditional definition.

A new set of customer-focused metrics emerge and borrow criteria, such as share of wallet, from other industries.

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