Wireless Watch: Expect a Rebound in 2010

The wireless industry looked like bad news one year ago. As the financial markets roiled, analysts warned investors in wireless stocks to brace themselves. Research firm IDC predicted that in 2009, companies such as Nokia (NOK), Motorola (MOT) and Samsung, which manufacture cell phones, would face dismal sales. According to IDC's forecast, sales of traditional handsets, one metric to judge the growth of the wireless industry, would plummet by 20.3% globally.Fortunately, that staggering forecast did not come true -- the wireless industry bucked the economic slowdown. According to research firm Gartner, cell phone sales for the year were just about flat -- globally they fell only 0.7% in 2009 to 1.2 billion units.

Wireless players spent 2009 consolidating their businesses and preparing for the future. Apple (AAPL) made significant inroads into the sector. Sales of the iPhone continued to grow, and by the third quarter, Apple held about 17% of the global smartphone market, behind Nokia and BlackBerry-maker Research In Motion (RIMM).

New Wireless Innovations, New Networks

In 2010, you can be sure Apple will continue to be a formidable player. Despite the problems AT&T is having with its traffic-congested wireless networks, Apple will continue to find ways to generate more traffic -- most likely by developing an iPhone that can handle multiple apps at once. Why shouldn't you be able to chat on the phone and use the GPS app at the same time?

AT&T won't be the only carrier in need of greater bandwidth. Verizon (VZ) announced plans for its fourth generation (4G) wireless technology known as Long Term Evolution (LTE). The nation's biggest carrier is planning to launch its LTE services commercially in 25 to 30 U.S. markets in 2010. The network will be the first mobile broadband network in the U.S. to be based on the LTE standard.

AT&T (T) and T-Mobile also announced plans to commercially launch their LTE networks after 2010, while Sprint (S) is already building out its high-speed mobile WiMAX network. Interestingly, Sprint has said that with the deployment of its next-generation network, it may also change the way it prices its services -- shifting from charging by the minute to charging by gigabytes of data usage.

After years of anticipation, 2010 could well be the year that mobile video becomes widely used. It will be one of the biggest drivers for 4G technologies. A recent Cisco (CSCO) study estimated that in just three years, a whopping 64% of mobile data traffic will be for video, compared to just 19% for data services. According to Cisco, video traffic will rise more than 400% over the next three years.

Cisco isn't the only one gearing up for that emerging business. So too is San Diego-based Qualcomm (QCOM). The wireless chipmaker, which operates a mobile-TV platform known as MediaFLO, has recently started providing wireless chipsets that combine 3G and 4G wireless technology. The idea is to help carriers transition to the next generation of wireless technology.

Already, there is lot of interest in these chips, which will be available in the second half of 2010. Manufacturers such as LG Electronics, Novatel Wireless (NVTL), Sierra Wireless (SWIR), Huawei Technologies and ZTE are testing them. Qualcomm is also developing another group of chips for smartphones that will give them multimedia features such as high-definition video recording and playback, 12 megapixel cameras and 3-D gaming. But smartphones with these chips probably won't be released until 2011.

Enter the Nexus: Google's Game-Changing Phone

The biggest news in 2010 could well be Google's (GOOG) cellphone operating system. This year, Android made significant inroads, launching on Motorola handsets. According to mobile advertising firm AdMob, 27% of ad requests on its network in November came from Android handsets – up from 20% in October.

Now, Google says that it will build its own phone in 2010, dubbed the Nexus One, and it could rock the business models of handset manufacturers. The reason: The phone will operate with any wireless service provider -- a move that shifts some of the power from the telecom companies to the consumer.

Behind the success of the Nexus One will be apps -- thousands of them. Today, Google says there are about 16,000 apps available for the Android operating system, but IDC predicts the number will skyrocket to 75,000 by the end of 2010. That pales in comparison to the 300,000 or so apps IDC says the iPhone will have, but the growth rate is impressive nevertheless.

One big issue all the wireless players may have to address is net neutrality. Wireless carriers such as Verizon and AT&T believe that if the FCC enforces net neutrality, it could hurt their businesses because there is limited wireless spectrum. Allowing any device or any application (think along the lines of Skype) onto existing wireless networks would not only lead to more traffic and congestion on the networks, but also could derail the lucrative voice business of operators.

Despite the many challenges and opportunities 2010 holds for the wireless industry, the overall outlook is positive. Gartner predicts that after a flat 2009 there will be a 9% rise in overall handset sales in 2010. That sure beats what analysts were saying one year ago.
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