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April 14, 2009

Playing the Mobile Data Explosion

SNL Kagan has an article out today discussing the potential upgrade to 4G wireless networks. The article quotes a recent forecast from Cisco Systems (CSCO) with some astonishing statistics:

• Global mobile traffic will exceed two exabytes/month by 2013 (An exabyte is equal to: 1 billion gigabytes; 1,000 petabytes; 250 million DVDs);
• Global mobile traffic will increase 66-fold in five years;
• Nearly 64% of the world's mobile traffic will be video by 2013;
• Mobile video will grow at a CAGR of 150% between 2008 and 2013;
• Mobile broadband handsets with higher than 3G speeds and laptop air or data cards will constitute more than 80% of global mobile traffic by 2013;
• Latin America will have the strongest mobile growth at a 166% CAGR, followed by the Asia Pacific region at 146%; and
•Asia Pacific will account for one-third of all mobile data traffic by 2013.

The point of this article is support a more rapid upgrade cycle to 4G networks and the benefits that would provide to communications technology vendors. My interest is more on the provider side although I do own CSCO is my personal accounts and a small handful of client accounts.

In general, I am skeptical of rapid upgrade cycles despite the overwhelming strains that could develop on mobile networks. I went to my best source on wireless technology, Bob Faulkner, who I met when we were both writing for RealMoney.com. Bob supported my generally skeptical view by nothing that "the operative phrase is 'underlined the long evolutionary path it will follow'."

This quote is from Verizon which the article goes on to note believes that "3G networks will provide the bulk of support for mobile wireless consumption for at least the next 5 to 6 years."

In other words, don’t get too worried that 4G upgrades are going to such a massive amount of capital and make investors look at us like cable companies.

I think the telcos are in good shape on the wireless side because of the datapoints from CSCO that opened this article. Yes, voice ARPU is under pressure from the economy, wireless penetration saturation in industrialized economies, and quality, emerging providers like Leap Wireless (LEAP) and Metro PCS (PCS)

However, what really matters is that total wireless traffic is continuing to grow very rapidly. This will support overall ARPU as penetration of smartphones continues to rise rapidly and as small add-ons for video services become part of the monthly wireless bill just as digital cable, HD, and DVR services provide incremental ARPU to the cable industry.

Winners in mobile data explosion will include AT&T (T) and Verizon (VZ) in among domestic service providers and Apple (AAPL) and Research in Motion (RIMM) in smartphones. I also continue to own NII Holdings (NIHD) as a play on Latin American wireless growth.

CSCO, T, AAPL, and NIHD are held in Northlake client accounts including in my personal accounts.

Posted by Steve Birenberg at April 14, 2009 08:54 AM in Telephone