Cellular – A Money Maker No Matter How You Slice It (IDEAS) – Part 2

Implications: Thanks to the wrestling match between LTE (long term evolution) and WiMAX, the big topic nowadays is standardization. However, what does that mean?  Arun Sarin called for a coalescing of support around LTE and rapid standardization, see my analysis entitled WiMAX v. LTE – Let’s Fight!!  Standards Fighting is a Necessity. Given, the competitive nature of the industry and the need by the financial community to create excitement in telecom, it is unlikely that there will be one standard. Content is king. Femtocells – self learning. Wireless enterprise.

Analysis: The coming years will be filled with activity in the wireless business.  The chaos most investors have been reading about – standards fighting, spectrum auctions, online TV, wireless media, femtocells, etc., all spell out one thing- OPPORTUNITY.

The standards war that Sarin says the industry should avoid is a nonsensical position to take.  In fact, I would be surprised if we did not see Sarin in a vendor or on the board of a vendor building LTE (long term evolution) systems.  Startup vendors, in this current economic environment, are having a hard time raising capital.  Nowadays, the scenario is this – debt to equity conversions or a combination of debt and equity.  Investors are now creditors.  The cash is there it’s just not as naïve as it was 10 years ago.  How many LTE vendors can you build?  Not as many as investors will like.  The uncertainty in the marketplace not only serves the investor with opportunities but also provides the startup company with a pool of investors.

In other words, it works both ways for the vendor community to have the standards war raging.  My position on the need for standards is not a secret.  However, having lived through the early wireless standards wars only in hindsight do I see the overall benefit it has brought to the consumer.  So long as vendors are worried about competition they will continue to aggressively innovate.  This is an opportunity for investors to search for those innovative cash starved satrtups.

Content has been in the news in one form or the other since the first spectrum auctions in 1994.  We first called it data, then slow motion video, then streaming video, then just video.  I remember thoughts of playing music over a wireless handset were actually laughed at by technologists in standards meetings.  Cries of tell them to play their “Walkman”.  Video and audio compression over the cellular network was talked about and laughed at.  However, we were all competing against each other.  We all knew that despite our personal misgivings, the marketing folks probably had something.  Guess what we started writing the 3G standards and I can even remember the one vendor who brought into TIA, the first 4G standard – brilliant work.  The fight for content has been waged since the mid-1990s.  The carriers were building the networks to support it.  The telecom community was courting the content community since the 1990s.  Sprint was the first wireless carrier to deploy a wireless video service in 2004.  The wireless carriers threw tens of billions of dollars at building the 2.5G and 3G networks needed to show video and play music.  Does anyone think that after spending so much money, the telecom carriers are not going to continue promoting content?  However, the carriers have discovered that they need to play ball with the content creators.  The revenue models are still being developed.  In fact the models are evolving as you read this analysis.

Despite, the misgivings of independent entertainment production companies, quality content will cost money.  The creative artists, from actors to writers, to directors, to producers, to crew, and to distributors all are entitled to a cut of the action.  However, don’t expect anyone to wait around for the perfect revenue model because no one is going to leave any cash on the table – not for a second.  You can only dip into film libraries so many time before people start demanding new material.  New films are all showing up online in one form or the other.  The carriers and the content community need to play ball with one another or else no one will make any money.

Content, including advertising, are all in play.  The environment is chaotic now.  Investors cannot wait until things completely settle down, otherwise they will lose any opportunity at getting at the front end of a good deal.  The content plays today involve not only the actual creative piece but also the technology that created the content.  It is a Wild West environment but it is what it is.

Femtocells are all the rage.  See my analyses entitled, "Femtocells – The Femto Forum Needs To Avoid The Mistakes of the LTE Gang", "Femtocells – All The Rage – But Why?", and "Qualcomm Enters The Femtocell Business".

Femtocells will facilitate the content business in the following ways.  Spectrum is a limited resource for the wireless carriers.  When a carrier deploys a network it does so in a manner in which frequencies can be reused over and over again.  This is the basis of the cell site deployment – frequency reuse.  However, it is easier said than done.  Years ago, cell sites were deployed with antennas that could allow a single carrier to serve 1000 subscribers in a given cell serving area; keep in mind the are of service was on the order of a 1 to 15 mile radius circle.  Now we have cell serving areas ranging in size of a single 10,000 square foot office floor to the size of a single one block foot print.  Smart antennas have been developed.  MSCs (mobile switching centers) are now intelligent Internet Protocol based severs.  Base stations improved to the point at which they could dynamically manage frequency shifts for individual users as they move from serving cell area to serving cell area.

Femtocells are going to ratchet up the intelligent base station.  I am not privy to what individual vendors are doing.  However, femtocells vendors would do well if they consider developing self learning femtocells.  Self learning networks are conceptually capable of doing the following, dynamically communicate with the main base station to use unused frequencies in the area, self re-tune the network as new cell sites are deployed, detect unused frequencies in the main base station’s serving area, and shift user frequencies as demanded by the main network.  Supporting video and music is a foregone conclusion.  The real meat of the femtocell will be its ability to intelligently communicate and coordinate its activities and needs with that of the main base station and main serving cell site.

The intelligence embedded in the femtocell has the ability to take wireless telecommunications even further, specifically wireless enterprise networks for the workplace.  Getting more embedded into the workplace will open up new avenues for the wireless carriers; ranging from data processing to plain old corporate communications.

Wireless has the potential to do almost as much as wireline.  Until wireless carriers can deploy as much bandwidth to single customer as a wireline carrier can via fiber optics, I have to give the advantage to wireline carriers.  Then again since the wireless carriers are also wireline carriers it probably does not make much difference.

The wireless enterprise space may be an area of opportuntiy for the MVNO.  The big carriers hate doing business with small businesses.  Hence, the small business arena may eb the right palce for the wireless enterprise MVNO.