Silver Lining

Recent economic news has been grim. Retail sales this holiday season are likely to be soft, if not downright ugly. Wireless retail sales will suffer along with the rest.

Amid all of the doom and gloom of the past few quarters, there have been a couple of glimmers of hope from the wireless sector, which should fare better than other technology-based industries overall.

Rays of hope have been cast by mobile enterprise services, primarily in a few niche markets. Nextel (www.nextel.com) and Sprint PCS (www.sprintpcs.com) are the two carriers leading this charge, based on WAP penetration rates. (See Figure 1 on page 22.)

Although voice has room to grow in the United States, value-added services represent a potential revenue stream that is hard to ignore. Carriers are facing steep capital expenditures for next-generation networks, additional spectrum and government mandates such as E-911 and wireless number portability. Add to that scenario the recent economic downturn, and the result is that carriers are finding revenue in hard-to-reach places — like wireless data.

Nextel, for example, has been quite successful in selling such services to its subscriber base. The carrier entered the wireless data market with a large percentage of business users. Ninety percent of Nextel subscribers have phones and plans paid for by their employers. That rate far exceeds that of other top five carriers.

With retail sales to consumers suffering along with the rest of the economy, carriers should take a serious look at their mobile enterprise offerings, according to Caroline Allison, a Strategis Group consultant (www.strategisgroup.com).

“The mobile-enterprise space is just starting to heat up,” Allison said. “It's not hot yet. Certainly, the theory is that the enterprise will lead in adoption of high-speed data and applications. Some carriers that have been much more consumer-focused in the past are really starting to revisit some of the enterprise applications.”

For this market to take off, the industry must address issues such as the lack of valuable applications and viable high-speed networks.

“A couple of mobile-enterprise companies have emerged and are developing applications targeted toward specific vertical markets,” Allison said. “Certainly, there are some developers like Wireless Knowledge (www.wirelessknowledge.com) that cater much more to a broad base and are not targeting verticals at all. Overall, wireless data is not quite as exciting at this time as it was last year. There was a lot of hype surrounding 2.5G and 3G this time last year. The overpriced 3G licenses out of Europe has really put a damper on that excitement, along with the drops in stock prices that have made carriers realize they do not have the resources they originally thought they would have to invest in the deployment of 2.5G and 3G (networks) as well as the applications.”

Enterprising Carriers

Nextel's strong WAP penetration rate is a result of the carrier's combination of a strong business-subscriber base and customized wireless data applications focused on vertical industries and early adopters, according to Allison.

“Nextel has traditionally targeted the business market in general, and it's a natural transition for them to traverse over into mobile enterprise applications,” she said. “They are what I would call the market leader in facilitating mobile-enterprise applications and in bringing on partners that have targeted certain vertical markets.”

Sprint PCS also has a strong wireless-data strategy, according to Allison. As Nextel focuses on niche markets with specialized mobile-enterprise applications, Sprint provides broader offerings for the general business user seeking remote access to data, along with applications such as wireless e-mail and messaging.

“(Sprint PCS) wants to facilitate basic business applications — pervasive computing and messaging as an add-on to regular voice service,” she said.

Tim Dunne, Nextel vice president of business development, said its enterprise strategy has been reinvigorated by focusing on customized solutions, partnerships with companies such as Siebel (www.siebel.com) and PeopleSoft (www.peoplesoft.com), and J2ME application-development efforts.

“We are focused on both vertical and horizontal applications,” he said. “Horizontal applications such as 2-way messaging and e-mail are really taking off. We are also focused on verticals as good targets for wireless enablement of IT support, field sales, field service, fleet management, dispatch — we see those as the early-adopter segments you can get great penetration in.”

The carrier's sales strategy for wireless data solutions is not focused solely on vertical or horizontal applications, Dunne said. Nextel often has parlayed a vertical-solution deal into discussions of horizontal-application needs.

“With an application like fleet management, you can tie it in with other functions, which broadens the possibilities,” he said.

Up-market selling has created additional revenue streams for the carrier and is part of an education process Dunne said will boost overall wireless-data-adoption rates.

In addition to strong business sales, Nextel now is establishing a retail presence. Earlier this year, it bought the chain of Let's Talk Cellular stores, which subsequently were converted to Nextel-branded stores. Shortly thereafter, consumer confidence dipped significantly.

Carrier	WAP Penetration Rate	Total Subscribers (2Q01)
Alltel	1%	6.4 million
AT&T Wireless	4%	16.4 million
Cingular	1%	21.2 million
Nextel	15%	7.7 million
Sprint PCS	10%	12.8 million
Verizon Wireless	4%	27.9 million
VoiceStream	1%	*5.4 million
* (1Q01 data)
Figure 1. Carrier WAP-Penetration Rates
Source: The Strategis Consulting Group and carrier quarterly reports

When asked if such an economic trend could affect retail wireless sales negatively, two carriers contacted for this article declined to comment.

Dunne said that Nextel, although relatively new to the retail market is “learning and growing” and is “probably not as exposed as other carriers” to variances in consumer confidence.

“We are very focused on solutions and solving problems for companies,” he said. “We focus on the enterprises that have a high likelihood to convert to wireless data.”

Pick Your Battles

Nextel's success selling wireless-data services to businesses may not translate to other carriers. Capitalizing on wireless data services successfully means focusing on your own strengths.

“You have to think about customer bases and what you are trying to do,” Strategis' Allison said. “Alltel (www.alltel.com), for instance, has a high percentage of customers in rural areas who generally — although not in all cases — have less-sophisticated needs than urban customers. Alltel, then, may have less of a reason to offer mobile-enterprise services. Then there are the carriers that have lots of large enterprise accounts.”

Even those carriers that have established business relationships selling services to the Fortune 500 have not leveraged that network into significant wireless data uptake.

“It all goes back to WAP subscriber base,” Allison said. “AT&T Wireless (www.attws.com), which touts itself as one of the leaders in the wireless-Internet space, only has 4% (WAP penetration of its base). That is considerably smaller than Sprint's, which is 10%, or Nextel's, which is 15%. That is a major indicator. There is subscriber composition. Then there is rural compared to urban.

“A carrier has to make a strategic decision as to whether it makes sense for them to take on certain vertical markets when they have less than a 1% WAP penetration rate among their subscriber base,” she added. “And Cingular (www.cingular.com) and Alltel have less than 1%. It is that rate you have to keep looking at because it is very telling as to what will drive a carrier to want to explore value-added services.”

There still is a lot of room for voice to grow in the United States. Add to that the reality that E-911 costs are imposing large capital costs on carriers, and it becomes fairly clear why those carriers with only a 1% WAP penetration rate are not marketing wireless data services to consumer or business subscribers more actively. They simply can't afford to do it all at the same time, Allison said.

“Combine the economy and scaled-down expectations for take-up of high-speed wireless data services, and any way you look at it, this year has been a real disappointment for carriers,” she said. “They can only hope for better next year. I think they will push mobile data services and applications next year.”