US Wireless Industry: Key Developments in 2007

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Dec 10, 2013 (3 years and 8 months ago)

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US Wireless Industry:

Key Developments in 2007



(
Executive summary available in French and English
)


















P
repared by


Dwight Herperger












January 2008


US Wireless Industry: Key Developments in 2007






Page
2

Table of Contents


EXECUTIVE SUMMARY

................................
................................
................................
.................

3

1. US WIRELESS INDUSTRY: BY THE NUMBERS

................................
................................
......

4

1.1 Subscriptions and Penetration

................................
................................
..............................

4

1.2 Wireless vs. Wireline Spending

................................
................................
.............................

4

1.3 Top Ten US Wireless Service Providers: Snapshot

................................
.............................

5

1.4 Market Share / Net
-
Adds

................................
................................
................................
.......

5

1.4 Handset Manufacturers

................................
................................
................................
.........

6

1.5 Focus on Wireless Data

................................
................................
................................
........

6

2. KEY PLAYERS, KEY EVENTS

................................
................................
................................
...

7

2.1 Apple, AT&T and the iPhone

................................
................................
................................
.

7

2.2 Google, Android and the OHA

................................
................................
..............................

8

2.3 Verizon and Open Networks

................................
................................
................................
.

9

3. THE 700 MHZ SPECTRUM AUCTION

................................
................................
.......................

9

3.1 Spe
ctrum Basics

................................
................................
................................
...................

9

3.2 Strategic Value

................................
................................
................................
....................

10

3.3 New Player Influences the Rules

................................
................................
........................

10

3.4 Who’s In? Who’s Out?

................................
................................
................................
.......

10

4. EMERGING SEGMENTS & SERVICES

................................
................................
...................

11

4.1 MVNO’s

................................
................................
................................
...............................

11

4.2 Mobile Advertising

................................
................................
................................
...............

11

5. TECHNOLOGY DEVELOPMENTS

................................
................................
...........................

11

5.1 Whither WiMax?

................................
................................
................................
..................

11

5.2 LTE and the CDMA/GSM Religious Wars

................................
................................
..........

12

5.3 Mobile Video Platforms

................................
................................
................................
.......

13

5.4 Femtocell

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................................
................................
.............................

13



US Wireless Industry: Key Developments in 2007






Page
3

EXECUTIVE SUMMARY


For the US wireless industry, 2007 was a year of continued growth (especially on the data side),
accompanied by a dizzying array of developments and disruptive forces on the market,
regulatory
,

and t
echnological fronts.


On the numbers side:




the industry reached a milestone of 250 million wireless subscribers in November,
quadrupling over the past ten years



spending by US households on wireless services was set to exceed wireline services by
the end
of the year



net
-
adds, pegged at 1.65 million subscriptions per month, continued to decline on a year
-
over
-
year basis



nearly 90% of handsets sold in the US are replacement devices, significantly higher than
the 50% global average



impressive growth in the wi
reless data market, reaching $5.85 billion in service revenues
at the end of Q2 (an 81.6% increase over the previous year)



the percentage contribution of data to overall service revenues for the industry jumped
from 14.5% to almost 17% in Q2, and is projec
ted to reach 20% by the end of the year



in June, Verizon handled a record 10 billion TXT messages, the highest volume ever
reached for a single carrier


Change was omnipresent, happening on various fronts:




New Players:

new kids on the block, Apple and Go
ogle, shook established norms and
practices in the industry, with the introduction of the iPhone, Android and the Open
Handset Alliance




New Approaches:

“openness”


for networks, platforms, devices and mobile software
--

was the mantra of key industry pl
ayers such as FCC chairman Kevin Martin, Google and
Verizon; and the relationship between carriers and handset manufacturers starts to get
redefined on significantly different terms, with revenue
-
sharing arrangements now in play
as well as the possibility
of direct relationships with customers on a more independent
basis




New Opportunities:

additional airwaves afforded by the upcoming 700 MHz wireless
spectrum auction serve as a catalyst for the rapidly growing wireless data market; mobile
advertising sta
rts to take hold; MVNO’s soldier on, but several players drop out of the
game




New Technologies:

LTE emerges as the dominant path for the development of 4G
wireless broadband, perhaps putting the death knell to the CDMA vs. GSM religious wars
that have fo
r so long characterized the US industry; WiMax experiences speed bumps
along the way; MediaFLO emerges as a
de facto

leader for mobile video platforms; and
new technologies like femtocells present new possibilities for increased penetration in the
marketpl
ace









US Wireless Industry: Key Developments in 2007






Page
4

1.

US WIRELESS INDUSTRY: BY THE NUMBERS


1.1 Subscriptions and Penetration


CTIA, the US Wireless Industry Association, reported in November that the total estimated
wireless subscribers in America surpassed the 250 million mark, quadrupling
over the past ten
years.



















In the second quarter of 2007, the industry also reached a subscription penetration rate of 80%.
Additional data released by the CTIA also revealed that Americans use more minutes, for less
cost, than any other
consumers in the developed world. Further, research conducted by the
Federal Communications Commission (FCC) reported that 98% of Americans can choose from at
least four different service providers.

1


On the broadband front, the FCC released data at the
end of October indicating that wireless
high
-
speed subscribership grew nationwide by more than 600% from 2005 to 2006. The research
also showed that new wireless broadband subscribers made up 62% of the total growth in high
-
speed lines during the second ha
lf of 2006.
2


1.2 Wireless vs. Wireline Spending


According to data released by the Bureau of
Labor Statistics for the year 2006, American
households spent on average $524 for their
cellphone bills, compared with $542 for
residential and payphone services
. It is
projected that by the end of 2007, the
wireless spend will surpass the wireline one
for the first time (Only as recently as 2001,
this ratio was 3:1).
3

In next year’s survey,
Voice over Internet Protocol (VoIP) will be
tracked as a separate line
item.





1

CTIA Press Release
, 13 November 2007.

2

“Data on High
-
Speed Services for Internet Access,”
FCC
, 31 October 2007.

3

IT Facts
, 18 December 2007.





US Wireless Industry: Key Developments in 2007






Page
5



1.3 Top Ten US Wireless Service Providers: Snapshot
1


1.4 Market Share / Net
-
Adds


Based on Q2 results for 2007, carrier market share in the US stood as follows:




AT&T/Cingular: 27%



Verizon:

26%



Sprint:


22%



T
-
Mobile:

11%



Alltel:



5%



all o
thers:


9%


Net
-
adds continue to decline for the industry as a whole. The current rate is 1.65 million
subscriptions per month (down from 1.92 million per month in 2006, and 2 million per month in
2005). AT&T posted the strongest performance in Q2, add
ing almost 1.5 million new subscribers.
T
-
Mobile has also experienced solid results with its “myFaves” launch, adding 2.5 million users
since October 2006.
4






4

“US Wireless Data Market: Q2 & 1H 2007 Update,”
Chetan Sharma Consulting
, August 2007.


By the Numbers: Top Ten U.S. Wireless Service Provi
ders

Operator

Subscriber
Base

Net
additions

Total
Churn

Postpaid
Churn

ARPU

Data
ARPU

Revenues

AT&T Mobility

65.7 million

2.0 million

1.70%

1.30%

$50.82

n/a

$10.9 billion

Verizon Wireless

63.7 million

1.6 million

1.27%

0.96%

$52.17

$10.59

$11.3 billi
on

Sprint Nextel Corp.

54 million

-
60,000

n/a

2.30%

59*

~$10

$8.7 billion

T
-
Mobile USA Inc.

27.7 million

857,000

2.90%

2.00%

$53

$8

$4.89 billion

Alltel Corp.

12 million

213,000

1.90%

1.31%

$55.96

$6.36

$2.3 billion

U.S. Cellular

6.067 million

52,0
00


1.60%

$52.71

n/a

$1 billion

MetroPCS
Communications Corp.

3.66 million


114,300

5.20%

n/a

$42.77

n/a

$557 million



Leap Wireless
International Inc.


(estimates)

2.7 million**

36,500

5.20%

n/a

$45.13**

n/a

$393
million**

Dobson Communications
Cor
p.

1.5 million

49,100

n/a

2.01%

$52.54

$7.03

$392 million

SunCom Holdings

1.14 million

2,200

2.90%

N/a

$57.38

n/a

$240 million

*postpaid only

**Second quarter results; Leap has not yet reported full 3Q results

Source: quarterly reports and company s
tatements



US Wireless Industry: Key Developments in 2007






Page
6

1.4 Handset Manufacturers


Global market share among major handset manufacturers at the end of

Q2 stood as follows:




Nokia:


37.9%



Samsung:

14.1%



Motorola:

12.4%



Sony Ericsson:


9.4%



LG:



7.2%


Compared to the previous quarter, Nokia was on the rise while Motorola lost the most significant
ground (3.2%). In the US,
86
-
88% of handsets sold are n
ow replacement devices (globally, this
figure stands at just over 50%).
5


1.5 Focus on Wireless Data


Notwithstanding the generally positive numbers in the US wireless industry overall, the real story
of 2007 is the impressive growth of the wireless data m
arket


reaching $5.85 billion in service
revenues for the second quarter. Compared to the first two quarters of 2006, the US wireless
data market in 2007 grew a significant 81.6%.
6





















On the carrier front, Verizon overtook Sprint in dat
a ARPU with a 13% increase from its Q1
numbers to $9.84, whereas Sprint posted a data ARPU increase of only 5%, to $9.75. AT&T’s
data ARPU increased by 11% to $8.77, with T
-
Mobile rounding out the big four with a 4%
increase, to $7.80 for Q2 2007.


The pe
rcentage contribution of data to overall service revenues for the industry jumped from
14.5% to almost 17% in Q2 and is projected to reach 20% by the end of 2007. Again, Verizon
leads the pack, posting an increase of 19% for wireless data ARPU as a percen
tage of overall
service revenues from the previous quarter, followed by AT&T at 17.3%, Sprint at 16.3%, and T
-
Mobile at 15%.


Non
-
messaging data revenues continue to be in the 50
-
60% range for most US carriers. In June,
Verizon handled a record 10 billion

TXT messages, the highest volume ever reached for a single
carrier.




5

“US Wireless Data Market: Q2 & 1H 2007 Update,”
Chetan Sharma Consulting
, A
ugust 2007.

6

All figures from
Chetan Sharma Consulting
, August 2007.


US Wireless Industry: Key Developments in 2007






Page
7

2. KEY PLAYERS, KEY EVENTS


The year 2007 was marked by a series of dizzying developments and disruptive forces in the US
wireless industry, beyond anything experienced in any single year

prior. Three developments in
particular stand out: (1) the introduction of the Apple iPhone, in an exclusive relationship with
AT&T
;

(2) Google’s emergence as a new player in the US wireless industry, with its open source
-
driven Android mobile platform
and the Open Handset Alliance (OHA) that will drive its
development
;

and (3) Verizon’s announcement that it will open its wireless network to phones and
mobile devices bought elsewhere. A fourth major factor affecting the industry is the upcoming
700 MHz
spectrum auction
,

and is dealt with separately (see Section 3 below).


2.1 Apple, AT&T and the iPhone


Following rumours from the previous summer, Apple unveiled its much
-
ballyhooed iPhone on
January 9
th
, 2007 at the Macworld Expo trade show. In an exclus
ive relationship with Cingular
Wireless (which, days later, would be re
-
branded as the long familiar AT&T)
7
, the phone was
scheduled to launch in June 2007 in the US, with launches slated for the European and Asian
markets later in 2007 and 2008, respectiv
ely.


Positioned by Apple CEO Steve Jobs as a “revolutionary and magical product that is literally five
years ahead of any other mobile phone
,
” the iPhone would in fact incorporate three different
products: a mobile phone (a quad
-
band GSM device with a rev
olutionary touch screen and other
visual
-
oriented features), a widescreen iPod (capable of downloading and playing audio and
video content from Apple’s iTunes service), and a portable Internet communications device
(capable of web browsing and POP3/IMAP ma
il services on Cingular/AT&T’s EDGE network, as
well as WiFi access points). Pricing was pegged at $499 for a 4GB model, and $599 for an 8GB
model, to be distributed through both Apple’s and Cingular’s retail and online stores. Jobs also
set a target of
taking 1 percent of the global market for cellphones (10 million units) by the end of
2008.


The iPhone did indeed launch, on June 29
th
, with various service plans starting at $59.99 per
month


all of which included unlimited data, visual voicemail, 200
SMS text messages, roll
-
over
minutes and unlimited mobile
-
to
-
mobile calling. AT&T indicated that in early sales, roughly 40%
of iPhone subscribers were new AT&T customers and that they tended to sign up for more
expensive service plans than other customer
s.
8

On September 5
th
, Apple announced that it was
cutting the price of the iPhone


reducing the cost of the 8GB model by $200, to $399


and
offering a $100 store credit to consumers who had previously purchased the phone at the higher
price. On Septemb
er 10
th
, Apple announced that it had sold one million iPhones to date.


The ramifications of Apple’s entry into the wireless market space are interesting. Apple’s
relationship with Cingular began in February 2005, when Steve Jobs initiated a meeting with
then
-
CEO of Cingular, Stanley Sigman. Market observers speculate that Apple’s choice of
Cingular as its exclusive partner in the US came down to a key decision: GSM vs. CDMA. Even
though Apple opted for Cingular’s EDGE broadband wireless service


cons
iderably slower than
Verizon and Sprint’s offerings which are capable of 1 megabit per second downloads, and even
Cingular’s own 3G offering (which, as any 3G service, draws considerably more power)


at the
end of the day Cingular’s network was aligned wi
th a technology standard, GSM, enjoyed
throughout Europe and nearly everywhere in Asia. Moreover, it has been reported that Verizon
officials would never have given any handset manufacturer the kind of control over hardware and
software design that Apple
demanded of Cingular.

9





7

Apple, too, would seize on the attention
-
grabbing moment to announce that it was dropping “computer” from its name
and would be simply known as Apple Inc.

8

“iPhone Use Disappoints; Ap
ple Slides,”
New York Times
, 25 July 2007.

9

“iPhone’s Network Hang
-
Up,”
Business Week
, 12 July 2007.

US Wireless Industry: Key Developments in 2007






Page
8

More overlooked


and perhaps as significant as the introduction of the iPhone itself


are the
financial terms of the Apple
-
AT&T relationship. Neither party will disclose details, but it is
assumed that a revenue
-
sharing agreemen
t is in place. Speculation amongst observers and
analysts peg the agreement most conservatively at $3 per month for existing AT&T subscribers
who switched to the iPhone for a two
-
year contract; and a bonus of $8 on top of that (to a total of
$11 per month

per subscriber) for new customers.
10

Others have estimated a bounty for new
subscribers to be in the range of $150
-
200. In the most detailed analysis, Gene Munster of Piper
Jaffray modeled the terms of the deal
,

and estimates that Apple may be receiving
as much as
$18 per month


which, extended over a two
-
year contract would roughly equal the market value
of the phones themselves.
11

In any event, if such terms are in place
,

it would mark a significant
departure from the traditional relationship enjoyed b
etween carriers and handset manufacturers.


2.2 Google, Android and the OHA


The Internet behemoth Google, which has a reputation for breaking down barriers to advance its
advertising and service businesses, made its first concrete foray in the wireless m
arket space
with “Android”


an open
-
source based software platform for mobile phones. Announced on
November 5
th
, Android will be developed by the Open Handset Alliance (OHA), an industry group
of 33 companies led by Google. Partners include a mix of car
riers (Sprint, T
-
Mobile), handset
manufacturers (Motorola, Samsung, LG, HTC), semiconductor companies (Intel, Qualcomm,
Texas Instruments) and other technology companies (eBay, Nuance, SkyPop).


The platform itself involves several layers of software for p
hones


an operating system, a user
interface and applications such as advanced Web
-
browsing software. The Alliance expects the
software


to be made available free of charge to carriers and handset makers


will be
supporting mobile phones as early as th
e second half of 2008. The announcement also
effectively quashed rumours that Google would be launching its own phone (which some had
fancifully labelled the “GPhone”).


The move by Google is a bold bid to change how the
wireless industry operates. Ca
rriers have traditionally
controlled the development of applications for their
own phones, negotiating with individual handset
manufacturers the models and features that would
ultimately serve their customer base. Google’s strategy is to create more web
-
e
nabled phones in
the customer market, and thus create more opportunities for the company to sell ads on mobile
phones. Google will likely negotiate revenue
-
sharing agreements with carriers for the ads being
delivered to the phones, and possibly share in m
onthly service revenues as under the Apple
-
AT&T relationship.


On November 30
th
, Google announced that it would also be participating in the upcoming 700
MHz Wireless spectrum auction (elaborated on in Section 3 below), opening the possibility that it
coul
d itself become a direct player in the wireless industry. It is reported to be running trials on an
advanced wireless network at its Mountainview, California headquarters.
12

Whatever the
outcome of these initiatives, it underscores the level of commitment

Google has to expanding the
availability of high
-
speed mobile Internet access to consumers, and to broaden the range of
wireless applications from what is currently on offer.




10

“Analyst weighs in on Apple’s rev
-
share arrangement with AT&T,”
AppleInsider
, 19 July 2007.

11

“Piper Jaffray: AT&T paying Apple $18 per iPhone per month
,”
CNet News
, 24 October 2007.

12

“Google Has Even Bigger Plans for Mobile Phones,”
Wall Street Journal
, 16 November 2007.

“Consumers deserve more competition
and innovation than they have in today’s
wireless world.”


-

Eric Schmidt, Google Chairman & CEO

US Wireless Industry: Key Developments in 2007






Page
9

2.3 Verizon and Open Networks


Following on the heels of the Google announcemen
t, Verizon


the second largest carrier in the
US by subscribers


stunned the industry when it announced on November 28
th

that it would be
opening its wireless network to allow its customers to use phones and mobile devices that were
purchased elsewhere.

While maintaining its traditional service, the company will offer a separate
service plan for “non
-
Verizon” phones, presumably at different pricing. Lowell McAdam, CEO of
Verizon Wireless, indicated that the company would be meeting with handset manufactu
rers and
programmers in the first quarter of 2008, with a view to opening its network by the summer.


For a company with a reputation of being highly protective of its traditional business, this is a
significant departure. As recently as September, Verizo
n had filed a petition with the federal
courts challenging the FCC’s rules on openness for the upcoming 700 MHz wireless spectrum
auction
(see Section 3.3 below) as “arbitrary
,
” “capricious
,
” and generally unfair government
meddling in the marketplace.
13



Market observers were initially sceptical as to how “open” the Verizon network would be. For one
thing, as the network is based on CDMA technology, it limits the number of phones that will be
compatible (i.e.
,

no GSM). Further, Verizon reserved the righ
t to control which CDMA handsets
would be able to connect to the network, following testing at Verizon labs relative to a set of
standards that had yet to be defined. Many of these concerns were somewhat allayed, however,
when Verizon pledged its belated
support to Google’s Android initiative on December 3
rd
.



3. THE 700 MHZ SPECT
RUM AUCTION


3.1 Spectrum Basics


One of the key events spurring so much attention and activity in the
US wireless industry this past year is the upcoming FCC 700 MHz
wireless s
pectrum auction. Spawned by a US House of
Representatives vote in February 2006


mandating broadcasters to
vacate the 700 MHz airwaves that have accommodated analog
television broadcasts for UHF channels 52 through 69, and in turn to
switch to an exclusi
vely digital television (DTV) format by February
17
th
, 2009


the auction is creating other kinds of waves that are only
beginning to reverberate throughout the industry.
14


Divided into two broad swaths, the lower end of this spectrum (48 MHz, which covere
d UHF
channels 52
-
59 in the past) is already occupied by Aloha Partners (which plans to use it for its
HiWire Mobile TV offering) and Qualcomm (which currently enables its MediaFLO Mobile TV
network). The upper end of the spectrum (60 MHz, or UHF channels

60
-
69) has a portion (24
MHz) reserved for public safety services, but the remainder (the so
-
called “C Block” of spectrum)
is to be auctioned off under the supervision of the FCC on January 24
th
, 2008. According to
estimates provided by the Congressional

Budget Office, the auction (officially dubbed “Auction
73”) is projected to result in proceeds of $10
-
15 billion, which has been nominally targeted to aid
the national conversion to digital television. Other analysts have pegged the potential auction
pro
ceeds as high as $30 billion.




13

“Verizon Plans Wider Options for Cellphone Users,”
New York Times
, 28 November 2007.

14

Incidentally, the long march towards this cha
nge in broadcast format also prompted Internet entrepreneur Mark Cuban
to launch his HDNet television network earlier in September 2001.

“I am committed to
ensuring that the fruits
of wireless innovation
swiftly pass into the
hands of c
onsumers”


-

FCC Chairman


Kevin J. Martin
1

US Wireless Industry: Key Developments in 2007






Page
10

3.2 Strategic Value


Why all the fuss? For one thing, this band of spectrum is notable for its “broadcast
-
attractive
physics
,
” such as its ability to penetrate walls and other obstacles. For another, estimates for
building
a nation
-
wide 1900 MHz PCS network are around $4 billion, whereas a similar 700 MHz
spectrum
-
based network
is
in the neighbourhood of $2 billion (cell towers on the latter can cover
twice as many square miles).
15


3.3 New Player Influences the Rules


Perhap
s matching the significance of the auction itself has been the involvement of a new player
to the wireless game, Google, and its influence on the process governing the auction. In a filing
with the FCC on July 9
th
, Google advocated four types of “open” pl
atforms as the basis for
involving itself in the auction:




Open Applications:

consumers should be able to download and utilize any software
applications, content or services they desire;



Open Devices:

consumers should be able to utilize a handheld commun
ications device
with whatever wireless network they prefer;



Open Services:

third parties (resellers) should be able to acquire wireless services
from a 700 MHz licensee on a wholesale basis; and



Open Networks:

third parties (e.g.
,

ISP’s) should be able t
o interconnect at any
technically feasible
point
in a 700 MHz licensee’s wireless network.


In such matters, you may not get what you want but perhaps you get what you need. On July
31
st
, the FCC responded by modifying the auction rules to address the fir
st of these two
conditions: winners of the auction would be required to provide a platform that is “more open to
devices and applications.” This ultimately proved sufficient to Google and, on November 30
th
, the
Company formally announced its intention to

participate in the 700 MHz auction, maintaining its
previous commitment to a minimum bid of $4.6 billion.


3.4 Who’s In? Who’s Out?


On December 18
th
, the FCC released a list of the 266 prospective
bidders. Of these, 96 applications were deemed “accept
ed for filing
.

The remainder were labelled “incomplete
,
” and applicants were
required to resubmit and include more information. All were also
required to submit an up
-
front payment by January 4
th
, 2008.


Who’s

in? Some familiar names include AT&T, Echo
star
Communications, MetroPCS Wireless, Qualcomm and Verizon
Wireless (in a joint venture with Vodafone). Newer kids on the block
include Google, Cablevision Systems Corp. and Microsoft co
-
founder
Paul Allen’s Vulcan Spectrum.
16


Who’s out? Sprint Nextel


the third largest US wireless carrier


declined to participate, having made its bet on WiMax technology,
which occupies a different range of spectrum. Notable by their
absence, too, are major cable operators like Comcast and Time Warner Cable, squelch
ing
rumours of “quadruple
-
play” market offerings for these companies that would bundle high
-
speed
data, telephony, TV and wireless.





15

“700 MHz Explained in 10 Steps,”
GigaOM

blog, 14 March 2007.

16

Frontline Wireless, a high
-
speed wireless start
-
up co
-
founded by former FCC chair Reed Hunt, has since withdrawn
from the auction and, indeed, shut down operations after failing to raise sufficient funds for its potential bid.


US Wireless Industry: Key Developments in 2007






Page
11

4. EMERGING SEGMENTS

& SERVICES


4.1 MVNO’s


The industry has always treated MVNO’s (mobile virtual network operators) with

some
scepticism. These are mobile operators that do not own their own spectrum and usually do not
have their own network infrastructure. Instead, MVNO’s establish business relationships with
existing wireless carriers to buy minutes of use (MOU) for sal
e to their own customers.


The highest profile of these in the American market is Virgin Mobile USA, a joint offering by
Richard Branson’s Virgin Group and Sprint founded in 2002. For the first six months of 2007, it
realized a net profit of $26 million o
n revenues of $667 million. In October, the company went
public and raised $412.5 million, the proceeds of which are to pay down debt and possibly buy
out Sprint’s 16.7% stake.


The market, however, is littered with more failure than success. Preceded by

ESPN Mobile’s
disappearance in 2006, the past year has seen Disney pull the plug on its mobile play and Amp’d
filed for bankruptcy in June. Notwithstanding these market failures, new entrants are still coming
to market, and some analysts point to “kajeet
” as a possibly the first successful tween MVNO.


4.2 Mobile Advertising


Indications are that the market for mobile advertising is still very much in the early stages.
Research shops like Gartner peg the global market for ads on mobile devices at $11 bil
lion by
2011; Strategy Analytics sees an even higher target of $14.4 billion. Others, however, think it will
take at least 5 years to reach $10 billion in revenues.

17


Reflecting the nascent nature of the industry, where there
has

been activity is on the
acquisitions
and venture capital front. In September, Nokia bought Enpocket, a mobile ad platform provider.
Earlier in May, AOL purchased Third Screen Media, a mobile ad broker; and Microsoft purchased
mobile advertising company ScreenTonic. In June, Ni
elsen acquired Telephia, a firm that tracks
mobile phone usage.


Experimentation in the market continues. Virgin Mobile USA, for example, launched “Sugar
Mama
,
” a program that lets customers earn up to 75 minutes of free airtime in exchange for
watching
ads or responding to mobile surveys
.

(PepsiCo, the US Navy and Nintendo have been
among the brands participating thus far
.
)


Amongst Internet players, Yahoo! is showing mobile display ads in 16 countries, working with
large European carriers like Vodafone.

While Google still does not have the technology to serve
SMS and multimedia ads on mobile phones, its Android and Open Handset Alliance initiatives are
early steps towards accommodating advertising on mobile devices. Further, Apple’s iPhone


with its t
ouch
-
screen functionality


is certain to breed new plays in this space.



5. TECHNOLOGY DEVELO
PMENTS


5.1 Whither WiMax?


In July, Sprint Nextel and Clearwire Corp. announced their intentions to jointly build a nationwide
high
-
speed wireless network based

on WiMax technology. The agreement envisaged the two
companies sharing the costs of a network that would reach 100 million people by the end of 2008,



17

“Mobile Ads: Not So Fast,”
Business Week
, 13 December 2007.

US Wireless Industry: Key Developments in 2007






Page
12

with each side providing roaming rights to the other’s customers. Prior to the announcement,
Sprint had

already committed to spending $5 billion on the network over the next three years.


Market and technology
-
related speed bumps from that high point have arisen since then. Sprint’s
CEO, Gary Forsee, left the company in October. Then, on November 9
th
, the

two companies
announced that the deal was off, citing complexities of the transaction and their inability to reach
mutual terms. AT&T also appears poised to abandon WiMax technology in favour of LTE for its
preferred 4G technology of choice
.

(
S
ee
5.2 bel
ow
.
)


Sprint nonetheless remains committed to WiMax. It announced recently at the CES trade show in
Las Vegas that it is on track to launch commercial services for a WiMax high
-
speed wireless
network at the end of April, following on trials launched

December in Chicago, Baltimore and
Washington, DC. The service, dubbed “Xohm
,
” will offer per day, weekly and monthly
subscription packages as well as longer
-
term contracts, but plans would not subsidize the cost of
WiMax devices for customers. Other in
dustry players who have invested in WiMax technologies
to date include Intel, Motorola and Samsung Electronics.


5.2 LTE and the CDMA/GSM Religious Wars


On par with its attention
-
grabbing announcement at the end of November to open its cellphone
network
to other’s phones and mobile devices (see section 2.3 above), Verizon announced a
couple of days later that it would be adopting LTE (long term evolution) as the preferred
technology path for its 4G approach to wireless broadband. Verizon’s current networ
k is CDMA
-
based, a technology developed by Qualcomm and popular in South Korea and the US.



The development is significant in that it would effectively negate the GSM vs. CDMA divisions
that have marked the US market, bringing Verizon’s CDMA customers cl
oser to technology
standards enjoyed by an estimated 2.5 billion cellphone users across the globe.

18


LTE technology is targeted to achieve download rates of 100 Mbps and upload speeds of 50
Mbps for every 20 MHz of spectrum (equal to, or faster than, exis
ting wireline DSL or cable
services), and can handle 200 connections per 5 MHz. Moreover, LTE is fundamentally based on
TCP/IP, the core protocol of the Internet, and is thus better equipped to handle IP connections.





18

Chart from “Change
Coming to Wireless World,”
Wireless Week

(15 December 2007)


US Wireless Industry: Key Developments in 2007






Page
13

Verizon will begin trials in 2008 and

expects that LTE products could come on stream as early as
2010. AT&T and T
-
Mobile have also indicated that they are likely to adopt LTE standards for
their 4G networks


leaving Sprint isolated with its competing WiMax technology. Hardware
vendors supp
orting the LTE initiative include Alcatel
-
Lucent, Nortel Networks, Motorola, Nokia
-
Siemens and Ericsson.


5.3 Mobile Video Platforms


Market research firm IDC forecasts that 24 million Americans will be watching video on their
cellphones by 2010, up from 7

million today.
19

At issue in 2007 has been exactly which platform
would prevail in terms of supporting the delivery of this video with US carriers. Competition has
largely been between “DVB
-
H
,
” a European
-
backed standard, and Qualcomm’s “MediaFLO
.



Bo
th Modeo and HiWire were early players on the DVB
-
H front, but by mid
-
year US carriers


notably AT&T and Verizon


had opted to go with the MediaFLO solution, effectively establishing
Qualcomm’s offering as the
de facto

standard for mobile video in the Am
erican market. Reasons
for the decision included: faster channel switching time, low battery power consumption, and
support for full
-
length programming as well as real
-
time entertainment and information feeds.
Verizon now offers eight channels of news,
sports, prime time shows and cartoons for an
additional $15 per month, and AT&T expects to launch a similar service shortly.


5.4 Femtocell


An emerging technology which is garnering much attention is the “femtocell
.
” Designed to act as
an in
-
home wireles
s access point, femtocell devices use a high
-
speed Internet connection


rather than the wireless network


to convey a call from a handset to the carrier’s switching
station, where it is then directed to its destination. For cellphone users, it is an ans
wer to the
challenges posed by poor wireless network reception inside their homes or places of work.


US wireless provider T
-
Mobile recently launched a service


“HotSpot@Home”


in part to
address this problem. Its approach is based on WiFi technology, t
hough, and requires special,
dedicated handsets that operate over both cellular and WiFi networks. Because WiFi operates
on the same frequencies as garage door openers and microwave ovens, quality of service can
vary significantly. Further, WiFi has a te
ndency to drain handset batteries quickly.


Femtocells, in contrast, work with existing cellular handsets and actually conserve phone battery
life. Further, since femtocells use dedicated wireless spectrum, there is no interference and call
quality is eas
y to manage. For carriers, the costs of deploying such a system involve not only
seeding their network with “femtocell boxes
,
” but also having the spectrum to accommodate the
service. However, carriers can use their existing spectrum to pass calls from t
he cell phone to
the home femtocell box. Alternatively, they can purchase cheap, subprime spectrum


so
-
called
“guard bands
,
” thin slivers of spectrum squeezed between other airwaves.


Sprint is the first US wireless provider to launch femtocell
-
based ser
vice


dubbed “Airave”


on a
commercial basis, in select areas of Denver and Indianapolis. It expected to add Nashville by the
end of the year, with a broader rollout nationwide anticipated for 2008. The relative low cost of
femtocell deployment lowers
the barriers to entry for would
-
be upstart wireless service providers,
and has already attracted the likes of Motorola and Google as investors in the development
phase of this emerging technology.








19

“The Third Screen,”
Economist
, 19 July 2007.