AT&T CEO Sees Future Smartphones With Less Storage as Functions Go to Cloud

Virtualization and the complete transition to more efficient LTE networks could help bring down the costs of mobile handsets as storage and processing power requirements shrink in coming years, said AT&T CEO Randall Stephenson. “Fascinating, underlying trends” going on within the wireless infrastructure are leading to a “downward bias” in capital requirements for carriers and a residual impact on handset costs, he said Wednesday at a J.P. Morgan investor conference webcast from Boston.

In the last 12 months, AT&T made a commitment to “targeted architecture,” which Stephenson defined as LTE on the wireless network side, Ethernet on the transport side and Internet Protocol broadband and cloud, not DSL, he said. In the second half of this year, volumes on AT&T’s 3G network will peak and “begin to decline,” he said. The company won’t add capacity to 3G and instead will put all investment into LTE, some “50 percent more capital efficient than 3G,” he said. He cited a compounding effect that will translate to Ethernet transport, also 50 percent more efficient than older DS1 transport. Virtualization of storage and computing can also reduce costs as much as 70 percent, he said. “If you can virtualize the switching and routing of data in a data center, it is not an intellectual or scientific leap to move that virtualization into the network itself."

As a result of the shift to the cloud, Stephenson envisions storage requirements of handsets going down and processing requirements shrinking, while acknowledging “a big debate about that.” More and more processing will be done in the network and the cloud and less in the handset, he said. “If you believe all of that, what are the implications to the handset itself? Probably fewer requirements,” he said, “and the cost of the handset should, over time, go down.” Lower handset costs, though, won’t start to emerge until about 2015 when there’s “pervasive” LTE coverage and the “motivation” and infrastructure to make it happen, he said.

Addressing whether revenue per home will continue to move up for wireless providers as market saturation grows, Stephenson said he'd be “surprised if it did not” but revenue-per-home growth won’t come from “sending bills to end-user customers.” Instead, it will come from content developers and app developers, “because there will be players in the ecosystem who are motivated to draw more traffic to their particular content or website,” Stephenson said. He outlined possible models where content producers are willing to defray consumers’ end-user fees in exchange for ads or monetization of data. He envisions a “sharing of that revenue stream in the ecosystem,” saying content and application developers will be driving the model.

On whether data usage caps in place on the wireless side might transfer to broadband in the home, Stephenson said the cost dynamics won’t make that necessary. On the mobile side, “you put another megabyte of data on the mobile network, there’s a direct, immediate and responsive cost dynamic attached to it,” he said. Pricing is set up to reflect the economics underlying the wireless business, he said, again referring to secondary business models that will support the current model and drive traffic to websites. That model could move to the fixed-line world eventually, he said. “But I don’t think the motivations are as strong."

While expressing enthusiasm for next-gen AT&T business segments -- Digital Life, Connected Car and the ISIS mobile payment business -- Stephenson said “they're not going to move the needle on top-line growth” in 2013 but will begin “scaling.” The company last month introduced its Digital Life home security and home automation platform in 15 markets kicking off what an executive called “aggressive” plans to be in 50 markets by year-end (CED April 26 p1).