02 November 2009

Business models for 4G mobile systems

This article over at Forbes essentially points out that there are two different business models implied by the upcoming technology: one that provides for higher bit rates and new services and another that minimizes costs.
The Big Four are scrambling to offset any drop in calling revenue by shifting their focus to new wireless opportunities. They are just beginning to spend tens of billions of dollars deploying new "fourth generation" cellular technology to greatly expand their data-moving capacity and make all sorts of new wireless devices possible, from e-books to dog collars that let you track Fido's whereabouts. Linquist [of MetroPCS] just signed contracts to buy the same 4G technology for a very different reason: He plans to use it to radically improve his ability to carry phone calls--and do it much more cheaply.


The new gear is so powerful that he will be able to simultaneously increase the quality of cell phone calls while cutting the cost of providing each minute, from just under a penny today to closer to a tenth of a cent. Linquist charges 2.1 cents a minute, just under half of the industry's average revenue. He'll continue cutting, confident his singular focus on running the cheapest voice network will keep his costs well below those of the rest of the industry.

A decade ago there were three phone businesses: local, long distance and cellular. The first two have already collapsed, done in by advancing Internet and cellular technology and the cutthroat competition they unleashed. Americans paid $110 billion annually for long-distance phone calls nine years ago. It's now down to $55 billion and still shrinking. Local phone companies took in $126 billion at its peak eight years ago; that sum has fallen to $86 billion and is dropping fast.

Another interesting quote (it is always nice when data is included):

MetroPCS has pioneered the use of new technology that lets it pack more bits into high-traffic areas. On a recent afternoon in East Los Angeles, dozens of parents waited to pick up their kids from school, many chatting away on their phones. While most calls linked invisibly to large cell phone towers, the MetroPCS subscribers unknowingly connected to a tiny antenna no bigger than a car radio antenna that dangled from a nearby telephone pole. From there the calls traveled via fiber-optic cables that snaked alongside old phone wires back to a dingy building and then to the main network. These clever minicells are only one way the company keeps chopping the cost of providing each customer with unlimited calls. Providing unlimited calls now costs the company $16.82 per customer per month, down from $18.23 a year ago.

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