Top five take-aways from CTIA

[Editor’s note: This column has been republished from Jeff Bussgang’s blog Seeing Both Sides. It also ran on PE Hub.]

The annual wireless industry trade show, CTIA, had some interesting trends this year. Putting aside the fact that Las Vegas feels like a ghost town, cab lines are uncharacteristically short, and my personal frustration that I find myself agreeing with an arch-conservative economist Arthur Laffer’s editorial in today’s WSJ on how Obama’s estate tax policy creates perverse Vegas incentives (!), here were my top 5 Take-Aways from CTIA:

1. The Lights Are Still On. The wireless industry is clearly a bright spot; secular trends for the industry’s growth and innovation remain strong. That said, the show was meaningfully affected by the recession. On the positive side, 2008 saw one trillion text messages (up 3x from the previous year) and double-digit growth in revenue and subscribers. Content and applications are exploding as everyone is trying to follow the iPhone’s pioneering moves and (finally) smart phones and the mobile internet are becoming mainstream in the US. That said, conference attendance was down 20 percent as compared to last year by some estimates and the show floor had a much, much emptier feel than usual.

2. Innovation is happening, but VC investment isn’t. An analyst firm Rutberg & Co reports that overall VC investment in wireless was down 30 percent in 2008 as compared to both 2006 and 2007, sharper than the 15 to 20% percent average VC investment decline in technology. I predict 2009 will also be a bad year for wireless VC investments. The conversations I had with VCs all rhymed:

• “There are very few big ideas left in wireless.”
• “We already have a number of chips on the table and don’t see the need for more.”
• “The bar is very, very high right now.”
• (Most damning) “The big guys (carriers, handset players, operating system owners) own too much of the value chain — there’s too little room for entrepreneurs.”

3. Device fragmentation is here to stay. The iPhone’s explosion from nowhere over the last two years is impressive, but the entrenched competitors, Blackberry and Palm, are fighting back. Blackberry’s open application store was a ho-hum launch, but at least they recognize that a thriving, open application store is now table stakes, and all the major content players are jumping on board. One carrier executive told me that every device manufacturer (think Nokia, LG, Samsung) is coming to them looking for help on their content and application store strategy. That’s not going to make things any easier on the leading application developers.

4. Video is mobile’s Next Big Thing. Everyone is talking about delivering high-quality video on mobile. With 22 million consumers in January 2009 accessing the mobile internet according to Comscore, double last year and likely to double again in 2010, rich content on the phone is clearly the next big thing, and video is a huge driver of that. GenY consumers are watching news, weather and sports on their phones as if it were the normal function of the device as opposed to a full-blown miracle as compared to only 5 years ago. (Full disclosure: I’m an investor in mobile video leader Transpera and so am highly biased here, but I’m also seeing the numbers explode!)

5. Carriers seem to finally get it, but it’s too late. Carriers are seeing their content revenue (ringtones, ring backs) flatten out and seeing voice minutes saturate, so they are all over applications and advertising. That said, it’s probably too late. The industry is ripe for disruption. The landline businesses are dragging the diversified players down and their entrenched, proprietary strategy will be hard to sustain as the world moves more open and off-deck. The commoditization of communications infrastructure is a movie we’ve seen over and over again (see Railroads, Bankruptcy of) and it may take 10-15 years, but we will see it again here. The communications companies are at risk at becoming the next Newspaper industry if they don’t adapt fast.

Anyone else there have other observations? Comment away or send me an email. You can also follow me on Twitter at www.twitter.com/bussgang.

Jeff Bussgang is a general partner at Flybridge Capital Partners in Boston.