Will The Wireless Industry Do The Right Thing?

The market’s recent status has been well documented, with ARPUs remaining stubbornly low and high churn rates reflecting a pervasive lack of customer loyalty. New subscriber growth rates appear to be peaking far earlier than once expected and the "wireless Internet" has failed to deliver a user experience capable of driving even a fraction of the anticipated WAP adoption rates. 3G offerings will eventually be rolled out in the U.S., but to what effect? With little nascent consumer demand and large price tags, 3G devices and services are likely to face an uphill battle – particularly in the absence of a single "killer app" to showcase 3G’s highly touted capabilities. The convergence of these dynamics poses serious questions for the wireless industry, and how each participant chooses to respond in the upcoming months will speak volumes about their character.

There are three basic courses that wireless carriers can take in response to these market challenges. The first is to enter an aggressive acquisition mode, purchasing weakened companies for pennies on the dollar in order to grow capacity and increase revenues. However, because even the comparatively strong carriers have taken substantial hits to their stock value, investors will be particularly wary when these companies assume additional acquisition debt, albeit at bargain basement prices. These carriers will have to cut expenses and curtail future technology expenditures in order to offset such investments, which will ultimately have a negative impact on their ability to expand into new opportunities down the road.

The second option is to take a conservative "wait and see" approach. The industry is entering a major transition period in which new technologies, services, models and partnerships will reshape the market. Those carriers who choose to bide their time on the sidelines seem content to risk passing up an early lead because of the payoff in avoiding expensive false starts and dead ends. However, this approach carries its own risks. Once such a carrier decides it is time to enter a new market, they must have the resources, leadership and vision to get up to speed very quickly or risk playing catch-up to capture the leftovers in an already saturated market.