Explosion in data usage adds to mobile providers' bottom lines

By Steven Overly
Monday, February 14, 2011

To spot the changes transforming the telecommunications industry, one need not look further than carriers' television commercials. Companies such as Verizon, Sprint and AT&T talk about the robustness of their networks, mixing a string of superlatives with jargon such as 3G, 4G or LTE.

They're no longer just jockeying for your phone calls.

The explosion in data usage by consumers and businesses alike has cracked open new revenue streams for telecommunications providers and the companies that sell equipment to support their networks. Executives and analysts say it's symptomatic of an ever-connected society in which many people now expect to be within a fingertip's reach of the Internet.

"When you think back in terms of telecom, it used to be voice, then voice and messaging, and now we have a whole slew of video and data services," said Steve Edwards, the senior vice president of carrier services at Neustar. "The whole telecom industry is radically changed and continues to change. And it's not just a technology piece, it's starting to transform business models."

Smartphones and tablet devices may have the most tangible impact at the moment as they continue to claim a larger slice of the mobile phone market each quarter. The devices enable users to send picture messages, update social networks, watch video or download music directly from the palm of their hand.

Data lie behind all of those transactions and that consumption has contributed healthily to the bottom lines of major mobile providers that charge monthly rates for those and other services. In fourth-quarter earnings posted at the end of January, both AT&T and Verizon highlighted double-digit growth in data revenue compared to the prior year.

"We still see this element of the wireless business exploding, so we're going to continue to invest in capacity and try to out run it," said Rob Forsyth, AT&T's regional vice president and general manager.

That's a trend McLean-based Primus Telecommunications hopes will feed its business providing voice, video and other data services over Internet lines. As more mobile users gain access to the Web while on the go, a new market for the company's software applications and products has emerged.

"As more and more smartphones are purchased in the market, we'll be able to do things like video calls," said Thomas Mazerski, the company's president for U.S. retail services. The company's lack of traditional voice services in the United States may also give it an advantage over larger competitors that have stronger U.S. networks but still depend on that revenue.

"We're different in that other companies you'll talk to may have traditional voice services, as well as revenue associated with them. We don't have that issue here. We're just looking at" Internet-based services, he said.

But the traditional telecoms are also using the data revolution to look at business opportunities beyond phones. The examples offered up by mobile carriers are varied. Health monitors can now wirelessly transmit vitals from a patient at home to his doctor. Shipping companies can remotely track the location of their fleets. Automobiles come equipped with gear to read aloud your Facebook updates. They all require data.

"The way to think about it is to think beyond the phone," said Sprint spokesman John Taylor. "We're still investing in smartphones, that's a big part of our business. But for us and I think for our competitors, it is about connecting more than just your phone to that network."

Forsyth at AT&T added: "It's a revenue stream that we hadn't considered three year ago on connected devices. Connected devices may not bring as much revenue as smartphones, [but] it may have a very favorable margin that we would enjoy just as well."

But ballooning data don't come without challenges. The networks in use now were not built to accommodate massive volumes of data, particularly at the speed necessary to quickly download music or livestream video without constant buffering.

Indeed, all of the major carriers are in the midst of modernizing networks to expand coverage of high-speed mobile broadband, also known as 4G. Verizon, for example, plans to expand LTE later this year. Sprint announced in December it would phase out the Nextel network it bought in 2005 and design future infrastructure to accommodate more data.

"What I find is a core trend is, if you can't connect to it, you can't use it," said Elisabeth Rainge, an analyst with IDC. "So whether it's cloud or an application or Flickr or e-mail, the connection is so fundamental. The changes and challenges facing the telecom industry are still very much operational."

That may bode well for another local telecom company, Linthicum-based Ciena, whose technology is used in the networks themselves. A majority of the company's work is still supporting wired systems, but Senior Vice President for Corporate Marketing and Communications Tom Mock said many of those clients also maintain wireless networks.

"It became clear to us that a lot of the things we've been doing for years on the wire-line side would apply to the wireless networks as well," Mock said. "A big part of our business is about helping service providers increase bandwidth and making that bandwidth intelligent, because just increasing capacity doesn't create a lot of value."

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