Wireless Faces a Crossroads

Wireless carriers are eager to recoup the money they’ve spent building wireless networks, and while m-commerce, mobile entertainment and location-based services all have potential, none of these options even closely resembles a sure thing.

The dilemma is simple, next-generation wireless data networks are not inexpensive to build, but the market for new subscribers to help recoup the cost is limited. A study of mobile phone subscribers in the United States by Alexander Resources found that 2004 will be a pivotal year for the future of U.S. wireless services, because by that year nearly all people who can afford wireless services will have subscribed. Thus the study predicts a significant decline in subscriber growth rates beyond 2004. Declining growth rates will force wireless carriers to heavily market their new 2.5G and 3G wireless services.

Mobile phone subscribers will represent 59.9 percent of the total U.S. population by 2004. This level of penetration will account for substantially all U.S. households with incomes greater than $25,000 annually — a minimum income level necessary to afford wireless services, according to Alexander Resources. Subscriber growth rates will decline to 9.7 percent annually from current levels of 27.2 percent. Annual growth rates are forecast to decline even further, reaching 2.3 percent by 2009.

Carriers will have little choice but to convince consumers to adopt wireless data, Internet and information services to counter declining growth in revenue caused by lowered subscriber growth.

Convincing wireless subscribers to take up data services should not be too difficult. Gartner Group predicts that by 2010, 70 percent of the population in developed nations will spend 10 times longer per day interacting with people in the online world than in the physical one, and the credit goes to the always-on/wearable environment that will extend the anytime, anyplace reach that has been achieved for voice, through cellular phones, to include text-based interactions such as email and chat.

By 2007, Gartner analysts expect more than 60 percent of the U.S. population and the European Union age 15 to 50 will carry or wear a wireless computing and communications device, and by 2010, more than 75 percent will do so.

“The visible history and context of the discussion that is achieved through text-based interactions, such as chat, will extend from the consumer into the mobile and enterprise environments,” said Jackie Fenn, Gartner vice president and research fellow. “Maintaining context in this way will also enable users to switch rapidly between communities without missing out on critical information.”

But wireless data chat and email services are not likely to generate the revenue carriers need. One possible revenue stream is m-commerce, but research by Cahners In-Stat found that early growth in the m-commerce market will be slower than has been widely projected. M-commerce must still overcome user apathy toward wireless data services, slow buildout of next generation wireless networks, slow development and limited availability of m-commerce services outside of Japan, Europe, and the United States.

“Much of the hype surrounding m-commerce, from potential revenue to the number of people that will become m-commerce users, is just that — hype,” said Ken Hyers, senior analyst with In-Stat’s Mobile Commerce Service.

In-Stat’s research does predict that m-commerce will have its place in the wireless world and will be worth billions of dollars in revenue within the next five years, but projections that claim hundreds of billions of dollars greatly overstate the value of this segment.

“Users are not enjoying a wireless Internet experience that even remotely compares to the wired one that millions experience every day. More to the point, very few of the people that are currently linking to the Internet via wireless devices are buying books, CDs or computers,” Hyers said. “More often than not, wireless data users are sending short messages to each other or checking sports scores or stock prices on their mobile phones.”

A survey of current wireless Internet users by In-Stat found that 45 percent had purchased products using their wireless Internet service. Sixty percent had made m-commerce purchases for both personal and business reasons, while only 9 percent had made business-only m-commerce purchases. One of the top selling m-commerce categories was business tickets, such as airline tickets.

According to research by Webnoize, revenue-sharing deals between entertainment conglomerates and wireless operators for music and video will boost annual revenues for operators by more than $7 billion within five years. Wireless entertainment could potentially attract millions of consumers by 2006, and content streamed direct to mobile devices will generate $2.9 billion annually for digital music and video service providers.

“Mobile entertainment will be a boon for large multimedia providers and for smaller companies who position themselves properly,” said Webnoize Analyst Matt Bailey. “For wireless operators, mobile entertainment is simply essential to their long-term success.”

Mobile operators have long held location-based services as an inherent advantage of wireless networks, but the underlying technologies are lagging, resulting in widespread confusion for nearly everyone in the wireless industry, as well as Internet content providers and applications developers, according to a study by The Shosteck Group.

“Standards are not defined, interoperability is virtually nonexistent, and upgrade paths remain cloudy. Network operators who deploy in the short term will end up with almost entirely proprietary systems. These factors make most published revenue forecasts and deployment schedules questionable,” said Jane Zweig, CEO of The Shosteck Group.

Network operators in particular will bear tremendous responsibility for integrating and provisioning services, particularly in the areas of billing, privacy, support, and security. Location-based services are limited by current protocols, user interfaces and networks and they are also dependent on the cooperation of multiple parties, including network operators, manufacturers, ASPs and software and content firms for successful deployment.

“For these reasons, network operators cannot point to the number of voice subscribers they have today and assume they will earn revenue for providing the location of each subscriber. Neither can mobile device manufacturers assume that a particular technology will be a ‘killer,'” said Rich Luhr, director of technology strategy at The Shosteck Group. “The revenue models, the enabling technologies and the services themselves, will be much more complex than that — and in the short term, they remain open to significant disruption from as-yet-unforeseen technology developments.”

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