Silicon Insights: The Wireless Economy

Wireless stocks have been taking a real beating lately along with all of the telecom and technology stocks.

Profits are down, telecom as a sector is losing its Wall Street luster and everyone is being punished because of the demise of the dot-com economy.

Other reasons for the poor performance of wireless stocks have to do with the announced delays of third-generation (3G) wireless networks around the world. NTT DoCoMo, which was to have deployed the first true 3G network, has now delayed commercial service three times and it's looking doubtful that current projection of going live in October are accurate.

Meanwhile, the European wireless community has come to the realization that its own 3G networks — based on UMTS or WCDMA — will also be several years later than anticipated.

But they will be able to add upgrades to existing networks to offer packet-data services in addition to voice by the end of this year. The data speeds will be slower than 3G networks promise, to be sure, but they will be fast enough to provide customers with real value.

In the U.S., our next-generation network roll-outs on AT&T Wireless, VoiceStream and parts of the Cingular Wireless network will be a combination of 2.5G systems using the same technology as is being used in Europe. We will see full 3G data capabilities from Verizon, Sprint PCS, Nextel and perhaps Leap Wireless and Alltel.

Wireless Life in the U.S.

The number of new wireless customers is still growing. Sprint PCS for example, just published its last quarter's results and has added almost a million new subscribers while lowering its churn rate (the number of customers who leave the network). Other U.S. wireless operators are doing just as well.

However, all of the wireless operators are in an investment mode. They are building more tower sites to enhance their coverage and upgrading their systems to offer data services. In other words, they are investing in the future, so today's bottom line doesn't look quite as robust is it might otherwise.

This investment also impacts the rest of the wireless industry. Companies that plan to provide information services to those who will have access to data have pushed back their business projections six or 12 months. And handset manufacturers, also are counting on the new network capabilities in order to sell millions of new devices, are also caught in a tough spot.

European networks are late to market, and the timing of data-capable handsets in the U.S. is likely to be more in-line with projections when the networks are able to offer advanced data services.

Positive Signs Emerging

While the financial community will judge the recovery of the wireless economy purely on quarter-by-quarter financial reports, I am looking at signs that will appear long before these results are made public. During the past six to nine months with belt tightening, companies stopped making use of outside consultants, sent fewer people to industry trade shows and bought fewer industry reports.

The positive signs that I now see emerging include an increase in the number of consulting projects that are back in the pipeline, a renewed uptick in the number of research reports and services being purchased, and the Cellular Telecommunications and Internet Association's announcement that its Wireless IT show that will be held in early September in San Diego is going to be bigger than ever.

What this means to me is that the wireless industry has revised its business plans based on the delays in next-generation network deployment, availability of devices, and, of course, the impact of the dot-com bust. What companies have seen once they crunched the new numbers, and the new time lines, is that even with the delays and market downturn, wireless is alive and well.

Today one in every six people in the world has a wireless phone, and even though many parts of the world may have reached a saturation point, with new services coming online there will be many years of positive growth for the wireless economy.

The wireless economy is not reliant on dot-coms nor is it part of the telecom economy. The Wireless Economy will quickly emerge as a separate, distinct and exciting new economy for the new millennium.

Andrew Seybold is a consultant and top computer industry analyst. He is considered by many to be the leading authority on the mobile computing industry. He's based in Los Gatos, Calif.