A ComScore report shows that traditional PCs still account for over 93% of online traffic, with mobile phones at about 5% and tablets the rest. Among the appliances, Apple’s iOS devices represent most of the web traffic. I think this is an interesting data point when you consider the evolution of the Internet and Internet equipment.
First, it’s pretty clear that wireline is still where most bits are pushed, and I think equally clear that’s where most content is delivered. People typically think “entertainment” when they’re at rest, and most often in their residence or a hotel room somewhere. Mobile devices like iPads that are capable of being used in more places are still limited as entertainment portals because most of those “more places” aren’t considered suitable for entertainment by their users. Yes, we’re going to see changes here, but it’s likely that for the next two or three years the traffic balances won’t be radically changed wireline versus wireless.
That leads to the second point. Mobile broadband is a driver for equipment to the extent that it’s a supplement to metro/wireline. That’s why companies with RAN positions and a good understanding of the mechanics of voice as it evolves from TDM to EPC/LTE have an almost insurmountable edge. They have most of that incremental iron, and it’s hard for those who don’t to sell a story that’s differentiable.
Then to the third point. Wireless is most “incremental” to those who don’t have any metro/wireline infrastructure at all. Players like Sprint are forced to build a whole wireless aggregation network on raw capacity because they don’t have any facilities in place. To get ubiquity, operators have to cover a bunch of territory where they don’t have facilities, no matter who they are. That means a big capital burden for everyone, but likely a crippling one for those with no “home territory” to leverage for capacity. That is likely why Sprint is said to be in cash trouble right now.
Which brings us to point four. Mobile consolidation and rumored problems with Sprint’s financials are the result of low margins. It’s easy to read a telco financial and think “Hey, these guys are raking in a ton of money” but forget that they faced astronomical first costs to get there and that they’re able to expense many of these only over a long period. Their ROI is low, and that keeps others from wanting to be in the market. It also limits the ability of even the big guys to invest.
The real value in mobile, then, isn’t bits any more than it was in wireline. Both need a notion of higher-level services to supplement basic profits. It’s like voice of old; you don’t make money on dialtone even though you need it to make money. You make money on custom calling services, etc. It’s those supplemental services that the OTT people are addressing more effectively. It’s those services that the network operators, both wireline and wireless, have to play strongly in for them to sustain their profit and revenue growth, and thus their investment. Apple’s iOS dominance in traffic and its recent iMessage service demonstrate that the mobile services space isn’t going to be based on bits, or on IMS, but on cooperative services between appliances and hosted logic. Own those and you own the revenue growth of the industry. And the best operators can hope for is one of the two—a draw.