LTE Wireless and the Upcoming Dominance of the Smartphone

Apple's iOS and Google's Android operating systems will battle for prominence

   

There’s little doubt that as wireless carriers upgrade their networks to the high-speed technology known as LTE, cellphone and tablet manufacturers, app developers, and online advertisers will do everything they can to exploit LTE capabilities.

It will be a smartphone world.

Research firm Strategy Analytics, for example, said this week that it expects shipments of LTE-compatible smartphones to reach about 67 million units by the end of 2012, up from 6.8 million units last year. Because its LTE network is more fully developed than those of its competitors at this point, Verizon (NYSE:VZ) is likely to drive smartphone phone usage in the U.S., while NTT Docomo (NYSE:DCM) will lead the way in Japan and SK Telecom (NYSE:SKM) will drive growth in South Korea.

Likewise, smartphones made by industry leaders such as Samsung (PINK:SSNLF), as well as those produced by Motorola (NYSE:MMI) and Nokia (NYSE:NOK), will be among those that dominate the market. Apple’s (NASDAQ:AAPL) next iPhone, which is rumored to be LTE-compatible, like the recently released iPad, is expected to join them later this year and, in the U.S. at least, gobble up huge amounts of market share.

Speed and price tradeoffs

LTE (long term evolution), the fastest wireless Internet connection available on a cellular platform, is becoming the industry standard for wireless operators and mobile device manufacturers because it can accommodate downloads of movies, photos, and music up to 10 times faster than 3G networks or 4G systems that have not yet upgraded to LTE.

Verizon now has the nation’s largest LTE footprint, with about 200 million subscribers who can access its LTE network, and says it will have more than 260 million LTE subscribers access its 4G wireless pipeline by the end of the year. That’s well ahead of the 150 million smartphone users who will be able to access AT&T’s (NYSE:T) 4G LTE network by the end of 2012.

By comparison, Sprint (NYSE:S) will not begin offering 4G LTE service until this summer, and only a limited number of customers will be able to access it by year’s end. Deutsche Telekom’s (PINK:DTEGY) USA T-Mobile, meanwhile, won’t offer LTE service until next year. Still, with just 10% of the 650 million smartphones shipped this year expected to be LTE-compatible, T-Mobile and Sprint may not be as disadvantaged in the 4G LTE fight in the short term.

In addition, researcher IDG points out, carriers may have to offer generous subsidies to ignite sales of LTE-compatible phones, which could prompt them to increase rates on their data plans as they try to recoup network upgrade costs. That, in turn, could help propel customers to cheaper data-plan rates offered by Sprint and T-Mobile.

The LTE iPhone and tablet factors

Even though T-Mobile is the only major U.S. carrier that doesn’t offer the iPhone, the company said earlier this year that it is building out its LTE network and modifying its existing 3G and 4G networks to be compatible with Apple’s iPhone no matter which competitor the consumer buys the smartphone from. The move is part of T-Mobile’s strategy to win back some of the 802,000 net contract subscribers it lost during the fourth quarter, primarily because it doesn’t sell the iPhone.

The potential success of that strategy also could hinge on the popularity of 4G LTE-capable tablets. Early feedback suggests that LTE tablets could struggle, though, if other models eat up data like Apple’s new retina-screen display iPad. Apple sold three million new iPad units during its first weekend of sales, but customers discovered that it is capable of burning through a 5GB monthly data cap in less than two hours. In fact, manufacturers will have to find ways to address a number of other technical issues that could stem from LTE’s high-speed performance, including rapid battery depletion, heat generation, device size and weight, and processor efficiency.

Mobile’s path ahead

Business news website Business Insider recently assembled a slide-show overview of the mobile market that draws on analyses of company filings and research by Gartner, IDC, Flurry Analytics, Strategy Analytics, Boston Consulting Group, Mary Meeker, Kleiner Perkins, Morgan Stanley Resarch, Berg Insight, and others.

Titled “The Future of Mobile,” the overview shows, for example, that the number of smartphones sold exceeded the number of PCs sold in 2011, and that by 2016 the number of smartphones sold will dwarf the number of PCs sold. There currently are about 835 million smartphone users and about 5.6 billion feature phone users, the analysis shows. By 2016, smartphone sales are expected to exceed feature-phone sales.

The number of tablets sold, meanwhile, is expected to pass the number of PCs sold in two to three years.

Where the developers are

The mobile market is, of course, an application developer’s playground, and likely will become more robust over the next four years. By 2015, use of the Internet will be four times more likely to occur from a mobile device than a PC, according to Business Insider’s analysis.

Among operating systems designed for smartphones, the principal platforms are Apple’s iOS and Google’s Android. The market share of the Symbian platform, the dominant platform as recently as mid-2010, is now in a distant third place.

Symbian had been a feature of phones made by Nokia, which in February 2011 announced it would migrate to Microsoft’s (NASDAQ:MSFT) Windows Phone 7, although market share for Windows mobile is relatively tiny, even compared to that for Research in Motion’s (NASDAQ:RIMM) BlackBerry. The upcoming release of Windows 8 for mobile could of course change that if it gains traction with consumers.

Another mobile platform, based on the coding language HTML 5, is gaining ground. However, the Business Insider analysis shows that app developers prefer iOS over Android, which has several iterations that developers must try to accommodate, including the latest version of its 4.0 platform, otherwise known as Ice Cream Sandwich. In addition, the analysis shows, iOS “is where the money is” in terms of app sales and the potential for revenue for developers from advertising features built into the apps.

Developers do favor writing apps that work well with Google’s network of online services, which generate the majority of mobile advertising revenue in the U.S.

“Google itself is clearly gearing up to leverage its network effects, one example being the alteration of its privacy policies to allow sharing of user data across its services,” Scott Ellison, vice president of mobile and connected consumer platforms at IDC, said in reference to a study co-produced by Appcelerator and IDC. Developers’ top uses of social platforms, that study’s authors noted, remain notifications, status updates, and authentication.


Article printed from InvestorPlace Media, http://investorplace.com/2012/03/lte-wireless-and-the-upcoming-dominance-of-the-smartphone-vz-t-aapl-goog-ssnlf/.

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