Leading Wireless Carriers Confront ChangeLeading Wireless Carriers Confront Change

Last week's ouster of CEO Gary Forsee leaves Sprint Nextel, the No. 3 wireless carrier in the United States, in search of not only a replacement but a strategy to compete with rivals Verizon Wireless and AT&T Mobility.

Sprint's predicament is largely of its own making--the difficulty of blending two networks after the $35 billion purchase of Nextel Communications in 2005, the loss of subscribers to Verizon and AT&T, and investor doubts about Forsee's $5 billion gamble on a nationwide WiMax network. In announcing Forsee's resignation, the company said it will record a net loss of 337,000 "post-paid" subscribers for the third quarter.

But the turmoil at Sprint is only the italicized version of what all of the Big Four wireless carriers--AT&T, Verizon, Sprint, and T-Mobile USA--are going through. The big cellular carriers are plagued with declining average revenue per subscriber (known in the business as "ARPU" and considered its most critical metric). They face competition from new deep-pocketed rivals such as Google. And they're grappling with innovative new services such as Wi-Fi, WiMax, and whatever comes next on the 700-MHz frequencies to be auctioned off by the FCC. As a result, they're struggling to shift their business models.

Forsee's downfall is just the latest signal that the incumbent carriers are grasping for ways to move beyond bandwidth to provide added value in the form of Web services, content, and new kinds of connectivity--businesses in which they have little experience and must often compete with nimbler rivals. Against this backdrop, the carriers in many cases are being forced into deals and initiatives they wouldn't have considered a few years ago, with mixed results.

Verizon Wireless earlier this month debuted its Voyager phone, manufactured by LG, the first consumer phone from Verizon Wireless to include a full Web browser. Customers will now be able to move beyond the carrier's "walled garden" of branded content and services from partners, often carrying ads and for-fee add-ons.

T-Mobile USA has begun a broader introduction of Wi-Fi in the form of its HotSpot @Home service, following a trial in the Pacific Northwest. Acknowledging that the service could eat into existing revenue from cellular customers making calls over Wi-Fi, T-Mobile executives have said that change is inevitable and they must take risks to adapt.

Even AT&T's deal with Apple to be the exclusive U.S. provider of services for the iPhone, which has brought with it thousands of new subscribers, could be seen as a deal with the devil: iPhone users are buying the Apple device, not AT&T's service, and new owners are finding ways to unlock the device from AT&T's network. Steve Jobs is said to be demanding a cut of service revenue in negotiating future carrier deals for the popular device. And Apple has said that it plans to eventually open the iPhone to outside developers.

Another camel's nose in the carriers' tent is that of Google, which is developing an operating system for mobile phones and has said it will "probably" bid in the upcoming 700-MHz auction. Google has struck a series of deals, mostly with overseas carriers, to get its services and applications on users' mobile screens. "Google alone has the heft and the business and social influence to bring the incumbent players to their knees," says Carmi Levy, an analyst with AR Communications.

CHANGE BRINGS DISRUPTION

Ultimately, the carriers face a dilemma: If they don't move into new products and services, and strike deals with erstwhile competitors, they risk becoming irrelevant; but when they do, they hasten the demise of their existing business models.

"If the carriers don't partner, they lose control of the users, and the users will find a carrier that does allow open access. This is already starting to happen," says Jack Gold, principal at research and consulting firm J. Gold Associates. "The bottom line is, the carriers are trying desperately to find a way to stay relevant and not become just a commodity data pipe for end-user access."

What does it mean for IT managers if the carriers are humbled? The news is mostly good. The end of carrier dominance will likely lead to more options for enterprise voice and data plans, more device choices, and, eventually, lower prices.

No radical market reshaping comes without its share of chaos, though. Expect a couple of years of uncertainty in the enterprise mobility market, carriers fighting back, and new players making hard-to-verify promises before the dust settles and the real benefits show up.