Wednesday, March 2, 2011

The Smartphone Wave

Smartphones are no longer a "niche" for the wireless industry - they are its future.  This analysis is a discussion of some of the drivers and overall impact these tiny computers will have on the industry landscape.

There is little doubt that smart phones have buoyed the wireless industry, and in some cases have created even rosy expectations for the future of some companies amidst a bleak macroeconomic climate.
Like any other significant evolutionary layer, however, the industry has been able to get somewhat of a "free ride" from the overwhelmingly profitable economics that typically surround selling to early adopters. Over the past several years the focus for the smart phone market has been the phones themselves, and unless you've lived under a rock, iPhone has blasted its way into becoming the poster child. Integrated hardware, OS and carrier connectivity along with native apps and seamless integration to backend servers provided, for the first time, a smart phone wherein the smart part was in the phone and did not require user to also possess the same prowess. Voice has been regulated to just another broadband app (Google Voice, Vonage) on the tiny handheld computers.

Viable, but less popular devices like BlackBerry, Palm, Symbian and Windows OS.X all failed to deliver the integrated wireless, computer and mobile-based experience that iPhone was the first to create. Now, with the advent of Android and a formidable list of device manufacturers that have stepped up to the plate to take advantage of Google's robust, user-friendly and economically symbiotic operating system, the focus for smartphones has shifted decidedly towards applications, developer communities, network backhaul speed and capacity - overall a tightly integrated echo system that allows subscribers to spend their time using their mobile device rather than being frustrated and with an endless stream of set-up, patched and error messages.
Concurrent with the smart phone explosion most carriers have an absolute need to deploy 4G services, along with its inherently more robust backhaul capabilities. Switching to 4G is both a requisite and challenge for carriers in that the costs involved are both broad and deep. Additional cell sites, base stations, new handsets for subscribers (which require significant purchase subsidies) all blend together to create a complex and long-term investment proposition. At the same time, average revenue per user (ARPU) must and will continue to drop as smart phones continue to rack up deeper penetration rates.
The ROI curve for smart phones will not be unlike that of the original cellular business of the early 80s when the average monthly bill exceeded $100 per month for just voice service. As more and more people used cellular phones the price for voice alone has now dropped to the mid-$30 range. Increasingly spectrum-efficient technologies, enhanced economies of scale for manufacturers and double-digit growth of smart phone users will all combine to create compelling business economics for the industry players that are correctly positioned in this new model. Those that cling to the old model, characterized by rapidly declining traditional revenues will have a difficult task at survival.source

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