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Upfront - Getting Over the Great Recession

Sat, 09/25/2010 - 8:13pm
Monica Alleven, Editor-in-Chief

How do you explain the rise of $200 smartphones during the worst recession since the Great Depression?

The wireless bug has bitten, and it’s not going anywhere. How else do you explain millions of people shelling out, at a minimum, $500 for an iPad when we’ve been suffering one of the worst economic slumps ever? Even college and university students are using iPads in place of laptops and plain old pen and paper. Granted, a lot of the usage is trial-based or funded by grants, but somebody’s got to pay for them.

Monica AllevenA National Bureau of Economic Research committee says the recession that started in December 2007 actually ended in June 2009, but everyone knows there was no “recovery” in the eyes of many unemployed Americans. Yet somebody (somebodies?) is/are still buying phones. At last check, U.S. smartphone penetration was around 20 percent and moving upward. Worldwide, IDC’s latest projections call for smartphones to grow 55.4 percent this year compared with 2009.

Yes, the economic train wreck has left its mark on the wireless industry, whether it be through layoffs, reduced spending or inability for startups to raise capital. Direct wireless carrier employment fell more than 7 percent between 2008 and 2009; the number of direct carrier employees totaled 249,247 at the end of last year, according to CTIA data.

Whether you call it downsizing or “right” sizing, mobile operators made adjustments to their employment rosters, but they’re still spending like crazy. Just turn on any TV, and you see millions of dollars being poured into the economy by way of advertising.

Then, of course, there are those ongoing network investments happening all across the country. Even in this troubled economy, AT&T plans to invest $18 billion to $19 billion this year, including an increase of about $2 billion in wireless network and backhaul investment over 2009. (Of course, just in case the FCC is watching, company executives make sure to point out those figures are “assuming the regulatory environment remains favorable.”)

economy, wireless industry, AT&T, Apple, second quarter, RIM, network investments, recession, iSuppliIf operator spending and an overall ability to keep adding net subscribers weren’t enough evidence to indicate a relatively healthy industry, certain device suppliers are not exactly hurting. Apple posted record revenues of $15.7 billion and a nice quarterly profit of $3.25 billion in its third fiscal quarter. CEO Steve Jobs called the iPhone 4 the most successful product launch in the company’s history. You might write that off as an Applelicious endeavor, but it’s not the only one.

Even Research In Motion (RIM), which many analysts already have put out to pasture for its failure to keep pace with iOS and Android, surpassed expectations for its second fiscal quarter. BlackBerry smartphone shipments grew more than 45 percent over the same quarter last year, and the BlackBerry subscriber account base grew about 56 percent over the prior year. It’s not all about public companies. Venture capital spending inched upward in the second quarter, albeit only 2 percent over the first quarter, according to a report by GigaOM Pro analyst Peter Crocker. Wireless companies even eked out some IPOs this year, and M&A activity is expected to accelerate into 2011 as companies take advantage of cash reserves and low valuations.

QUITE A PHENOMENA
Where is all this going? iSuppli expects worldwide subscriptions for wireless service will reach the 5 billion mark in September. Here’s what Dr. Jagdish Rebello, senior director and principal analyst for wireless research at iSuppli, says: “If the importance of an event can be measured by the number of people it affects, then the proliferation of wireless communications stands out as one of the most significant phenomena in the history of technology. Wireless communication now has spread to every nation, every age and every income level, becoming a basic staple like food, clothing and shelter. Wireless now represents the biggest stage that any technology market has ever played on, offering unlimited opportunities for members of the mobile communications supply chain.”

“Unlimited opportunities,” indeed. A lot of people in the wireless industry predicted this would happen, or if they didn’t predict it, they at least had a hand in inventing technology, business models and associated ingredients that made this come to be.

Things could be a lot worse. While the U.S. economy is topic No. 1 in so many political campaigns, it’s worth noting that the wireless industry continues to roll along at a pretty healthy pace. The question is: What would it look like if the Great Recession had not come along and reared its ugly head?

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