The voice on the cell phone belongs to Chetan Sharma. He is speaking from New Delhi although he lives in Oregon, where he runs a telecom-industry consulting firm. The connection is clear. It's annoying too. Cell phones don't work in my office in Manhattan you know, the alleged global media center. Sharma's message is as clear as his voice: things are really improving in the mobile-phone ecosystem. "If you look at all the dimensions, the U.S. is primed to be the leader in the next five to 10 years, especially in terms of broadband."
This reset in the industry will present challenges to both cell-phone customers and telecom investors, and it comes as a shock to those of us left fuming can you HEAR me? at the state of wireless service in the U.S. The disconnect was underscored by a conversation with Tina Teng, a senior analyst for IHS iSuppli, a technology-research firm in El Segundo, Calif. Teng too was discussing the impressive new 4G wireless technology currently being rolled out and how it would bolster call quality for us all. But during the chat, her voice dissolved into digital ground glass.
How did we get to be the Disunited States of Cell Phones? Through the beauty of deregulation (see also: airlines), we emerged not only with dueling standards (CDMA and GSM) but also with dozens of providers. Many became capital-constrained, leaving us with a patchwork network, at least until the industry consolidated.
Apple's iPhone changed the game, igniting an arms race between AT&T and Verizon. More bars in more places cost more money, and in the past two years, Verizon and AT&T have each spent $15 billion on their networks. The fight is moving to the next generation, 4G technology, and the pair will spend an additional $15 billion or so this year.
This month, when Verizon launched its version of the iPhone, tech journos raced around cities with both phones to compare coverage and awarded the best-reception crown and advertising ammo to Verizon. The iPhone has also been hugely important to AT&T as it has made a transition from a landline company to a wireless and Web-backbone outfit. How important? The iPhone allowed AT&T to rack up 6 million net new subscriptions and $4.7 billion in sales in two years.
In truth, all the yammering over call quality is just noise in the channel because data traffic, driven by video, will overtake voice this year, according to Cisco. That's because of the profusion of all those other data-sucking connected devices, such as laptops and tablet computers (like iPad).
This device-ification should be good news for the shareholders of Verizon and AT&T, but data doesn't earn the dollars that voice does and voice revenue per subscription is falling. The carriers' challenge is to boost data revenue, which is why they're trying to herd us toward tiered data plans and away from today's all-you-can-eat pricing. Another issue is that potential new revenue streams from these connected devices are heading to what the industry calls "off deck." The winners are companies that can capture revenue from advertising without sharing it, like Facebook and Groupon.
So the stocks of both Verizon and AT&T sell at a discount to Apple, although their dividend yield is over 5%. Where along the mobile value chain is there opportunity? Colby Synesael, a senior analyst with Cowen & Co., suggests the firms that own those eyesore cell towers, like American Tower, could outperform the service operators. So might data-center firms that provide "back haul" when you Web surf on a phone.
The wireless ecosystem promises to be fluid think of the seesawing fortunes of handset makers like Nokia. Any company that misses a beat "can be knocked out for a full cycle for three to four years," says Sharma. Look at companies that have global scale, he adds.
Cell-phone users will be the clear winners. The U.S. should be completely 4G by 2013. Until then, I'm just hoping my calls in Manhattan can rise to the quality of those in New Delhi.