Wireless Behemoths AT&T and Verizon Had Better Not Miss the Internet of Things

The vision looking forward for wireless networking
will need to be creative if carriers are going to
continue to rake in the huge profits they have seen
in the past.  The Internet Of Things (IOT) may be a
way for wireless carriers to avoid becoming 'data pipes'
for the next generation of innovators.

As reported by Businessweek: It’s been quite a wireless party over the past five years, with Verizon (VZ) bringing in $319 billion (via Verizon Wireless) and AT&T (T) taking $291 billion. But the end of the telecom giants’ money-printing era may be in sight.

The frightening thing for wireless providers is that the world is running out of fresh consumers to pay for service. A report published on Thursday by technology market-research firm Ovum predicts that mobile industry revenue will decline for the first time ever in 2018. New connections will have slowed to about 4 percent annually by then, while wireless revenue will grow at less than half that rate, the study maintains.

This doesn't inevitably doom such companies as AT&T and Verizon, neither of which has suffered through a year with profit below $4 billion in more than a decade.

Indeed, Ovum hasn't taken into account the so-called Internet of things, in which wired consumer products and industrial equipment send and receive information over wireless networks. This report assumes that the telecom companies bring in no fresh revenue in this area—which decidedly won’t be the case. Ovum’s own unpublished estimates put machine-to-machine wireless revenue at $44 billion by 2018, up from $13 billion last year. That number could be overly pessimistic because it includes only industrial usage, not demand by consumer products with wireless connections.

The promise of Internet-connected factories, cars, and dog collars is no secret. Just this week, AT&T said it is collaborating with GE (GE) on Internet-connected industrial equipment. Some companies will make a lot of money here. But after years of reclining on ever-growing stacks of wireless revenue, will the telecommunications giants move quickly enough to maintain revenue and profits?

“The wild card is whether telcos can adapt quickly enough to take advantage before the opportunity gets usurped by others,” says Sara Kaufman, an analyst at Ovum who worked on the report. “Obviously the telcos have a huge compelling reason to make every effort to do that, but we’ve certainly seen that telcos, generally speaking, don’t move quickly and adapt.” Kaufman lays out two potential futures: one in which telecoms figure out a way to develop services for the Internet of things and one in which other companies do. In the first scenario, the party probably continues; in the second, telecommunications companies become dumb pipes selling connectivity at low prices to businesses that reap most of the rewards.

Recent precedents abound in which telecoms lost out by failing to exploit changes in how people use such wireless services as group messaging and voice-over-Internet calling. The Internet of things could represent a more fundamental shift. AT&T and Verizon need to figure it out.