Not since doing end user research in 2000 have I seen an emotional response of this magnitude. At that time, flat panel displays were being introduced as desktop computer monitors (notebooks had already been based on panels for a long time, but were rare in the client mix because of their $1,000+ premium). The desktop displays were still high priced, and the response by all segments was notable: everyone loved the panels when the survey didn't mention price. They warmed right up to panels of any size, but when conjoint analysis matched panels with realistic sales prices (e.g., $1,250 for a 17" LCD), they cooled right off. I made the judgment call that when panel prices came down, adoption would be widespread.

Having gauged that response on a purely emotional level, I would say that notebooks enabled with Wireless Wide Area Networks (WWANs) invoke a level of affinity and enthusiasm closer to that gold-medal flat-panel response than any capability that I've seen introduced since.

One anecdote comes to mind indicative of this market sentiment. I happened to get an upgrade on a flight this past year, and I was seated on the aisle across from a gentleman who had his notebook open as the plane was loading. He was happily typing away, and I could see Web pages from where I sat. Others could see, too. Pretty soon a guy in a pressed shirt and tie leaned over to him and said, "Are you connected to the Internet?" And the guy said, "Yeah," and proceeded to show the other guy the antenna from his PC WWAN card. Everybody in the cabin was either listening or frankly getting up to see better. The scene could have been ad copy for a WWAN service provider.

Analogously to flat panel adoption, WWAN penetration will also be inhibited by price, but based on what I've seen, I'm ready to forecast a fairly important attach rate to notebooks over the next five years as prices come down (and capabilities increase). Although an argument can be made for WWAN attach to desktops, the market will be almost entirely a notebook phenomenon.

The value proposition differs slightly between commercial customers and consumers. Commercial customers want convenience and reliability: to get online anytime while traveling without having to ask their host's permission or pay extortionist fees to a local provider. For these customers, an all-you-can-eat plan makes the most sense. Consumers, on the other hand, are not quite as mobile as business users, and may use a wireless wide area connection only occasionally. This segment is more likely to be responsive to a pay-as-you-go scheme. The "killer app" for both these segments is essentially ubiquitous connectivity, unrestricted access at a decent data rate.

2005 Baseline

The first year when WWANs had any impact at all was 2005, when offerings for the most part came directly from carriers like Cingular, Sprint, and Verizon, and radios were mostly PC card types. The volume of these cards has grown slowly since 2002, when they first began shipping, but they were still numbered in the low hundreds of thousands in 2005, primarily because of high service pricing, low data rates, and difficulty of use. The difficulty of use issue is one of the key factors driving vendors to embed their WWAN offerings. The vendor can preconfigure much of the setup, and the user has only to interact with a simple interface to make a few service and setting choices.

The first company out of the embedded WWAN gate was Sony, which in May 2005 introduced an ultraportable notebook with an embedded second-generation wide area radio, the EDGE-based VAIO T-Series, offered in partnership with Cingular for $80 per month with unlimited usage or $50 per month with a two-year contract. Although the T and follow-on TX are sold primarily through retail channels, Sony indicates that most of the traffic buying the WWAN-enabled notebooks would be classified as business users. Late in the year, Sony brought out similar capabilities on its explicitly-business BX series notebooks. The downlink speed of these EDGE-based systems averages about 100Kbps, certainly better than a 56Kbps modem, but really nothing to write home about. Because of the expense, the fact that the notebook was tied to a particular carrier and plan, and the low data rate, Sony WWAN-enabled notebook penetration was somewhat limited. But because of its early lead in embedded WWAN attach, Sony constituted the bulk of WWAN notebooks in 2005.

The next company out of the WWAN chute was Lenovo, which in November brought out its wide-screen Z Series with embedded EVDO WWAN capability. Lenovo partnered initially with Verizon and was the first to bring out a true 3G capability with downlink data rates of 400-700Kbps.

Both Sony and Lenovo intend to expand their offerings in 2006, moving embedded WWAN into more of their notebook lines, bringing on more carriers as service partners, and upgrading their technologies.

But in some sense 2005 was just a warm-up for things to come. Dell, HP, and Panasonic announced WWAN business notebooks at CES in January, with shipments expected to begin in earnest in 2Q06. All vendors have indicated that they intend to spread the capability to other lines later in 2006 and into 2007.

Competing Technologies

Another important aspect of WWAN adoption will be its ability to replace 802.11 and supplant WiMAX. Although 802.11 is widely available today, it has major limitations. Among them are that lighting up a large corporate campus with access points is costly. A full infrastructure can run into six figures. On a national level, vendors and partners have tried to assemble a "warm fabric" out of hot spots, but coverage is spotty at best and nonexistent in remote areas.

In one ambitious case, Greene County, North Carolina, one of the poorest rural districts in the United States and formerly one of the most economically dependent on tobacco, received a huge subsidy as part of the tobacco industry's settlement with the Justice Department. The county decided to invest its windfall in, among other things, lighting up the entire county with 802.11 access points. The plan called for putting antennas on the water tanks found on many farms in the area. Equipment alone was budgeted at $300,000. Given that the county is about 265 square miles, it is possible to estimate the theoretical hardware cost of putting up 802.11 networks to cover the entire United States, which has an area of 3,537,441 square miles. Using the Greene County ratio, the cost of illumination would be about $4 billion. By contrast, the cellular carriers already have an infrastructure in place for transmitting data and can upgrade it to 3G for considerably less money than the cost of a wholesale project to put 802.11 all over the place.

In addition, 802.11 frequencies can interfere with other electronics, such as medical equipment and microwave ovens. Finally, 802.11 does not allow for roaming. In one classic case, I was in a hotel and had signed up for the WLAN in the room. I had to go downstairs to wait for someone in the lounge and signed on to the wireless network there. I was asked to register and pay again. After notifying the hotel management, I was credited for one of the sessions, but even within the same establishment, roaming was impossible. Of course, this shortcoming is even more true for moving between establishments and cities, from indoors to outdoors, and across the nation.

WWANs give the user something unobtainable via 802.11: freedom. The carriers already have the back-end infrastructure, both technical and financial, to handle roaming, which is a standard feature of cell phone coverage. Once a customer has a data plan in place, he or she can connect anywhere in the coverage area, which will expand for 3G networks in the United States throughout the forecast period. Although 3G networks currently cover about half the U.S. population, and this coverage is growing slowly but steadily, utilization is still low. Carriers will only expand network coverage aggressively when utilization rates pick up, which should occur toward the back half of the forecast period.

Now, 802.11 does have some compensating benefits, and it is important to recognize them. For example, 802.11 is an established standard, and while cellular networks differ in different parts of the world (and even, in the case of the United States, within the same country), 802.11 is the same everywhere. Many notebooks today come equipped with embedded 802.11 radios, and a notebook bought in the United States works perfectly well on wireless LANs in Japan, China, Italy, or the United Kingdom. Also, some governments and public-private partnerships are investing in creating free public access, and some partnerships are working on technology to share access, either for free or at low cost. These developments will tend to sustain 802.11 over time. However, the footprints of major 3G networks will be sufficiently large to create a vast roaming area good enough for many users, and 3G's other advantages will tend to take share from 802.11 throughout the forecast period.

Finally, a note about WiMAX or 802.16, a much-touted technology for an 802.11-like service that can transmit wireless data at high speed over a metropolitan area. Since it has a much wider range than 802.11, WiMAX infrastructure is supposed to be much cheaper. WiMAX can achieve a theoretical maximum data rate of 75 Mbps over a 30 mile range. However, true average download throughput is likely to be much lower, and WiMAX has yet to be tested in the real world. It's still a technology of the future. Also, users don't really need speeds that high. UMTS-HSDPA, the 3G scheme used by Lenovo, gets from 550Kbps to 1.1Mbps downloading, which, if you can really get it, is plenty for most of the tasks that people actually do. And although WiMax is sometimes positioned as a low-cost wide area network solution, infrastructure and endpoint costs are likely to be similar to 3G. Also, WiMax providers will need to purchase spectrum to ensure quality of service.

Thus, it seems likely that, once embedded WWAN technology catches on, it will tend to take over from other wireless schemes because it will have a much wider coverage area, a better story on financial and technical handoff between networks, and — with embedded hardware and software — a simpler usage model. When service and hardware costs come down, which they will as scale increases, WWAN-enabled notebooks will become the norm for commercial users and even many consumers.

Forecast
Based on an assessment of 2005 shipments and assumptions about decreasing costs and improving usage models, Endpoint believes that the U.S. embedded wide area wireless notebook market will rise to nearly 20 million units in 2010 (Figure 1).

Figure 1
http://www.ndpta.com

The attach rate for U.S. commercial notebooks will hit better than 55%, and the consumer notebook attach rate will reach nearly 16% (Figure 2).

Figure 2
http://www.ndpta.com

Assumptions

The following assumptions were used as input to the forecasting model:

* Attach for WWANs will be entirely notebook; zero desktops will be equipped

* Forecast includes only notebooks with embedded radios; cards purchased separately or in the aftermarket are excluded

* Although hundreds of thousands of PCMCIA cards were sold in 2005, the embedded market was still tiny

* Sony constituted the bulk of the market in 2005

* Lenovo introduced 3G at end of 2005, accounting a small portion of the year's attach

* 2006 will be the first year of wider adoption, with Dell, HP, and Panasonic joining Lenovo and Sony in the market with integrated units; other companies may announce later in the year

* Major drivers include independent access while traveling and greater coverage than 802.11

* Short-term inhibitors include slower data rates than wired, cost, onerous conditions on access plans, and a lack of standards; these factors will be mitigated over the forecast period

* Service prices will decline from ~$80/month in 2005 to $25/month in 2010

* Forecast is for hardware attach only, not activation rate

* Although activation rates are not included in the forecast, they will likely rise from low double digits in 2005 to more than 50% in 2010

* All major (and many tier 2) vendors will have integrated offerings in their lineups by 2008

* Data rates above 200Kbps will be sufficient to stimulate the market

* Carriers and PC hardware OEMs will make significant investments in demand generation

Conclusions and Recommendations

Although the WWAN attach rate for notebooks in the United States is currently quite low, the market is only at its inception. A happy convergence of propitious factors will lead to widespread market adoption over the next five years.

For PC hardware OEMs, the advice is clearly: get this capability in your lineup if you haven't already. Also, there's a great marketing story to be told about WWANs: they confer freedom, a core American value. Tasteful advertising campaigns that play off this theme are likely to strum the heartstrings and open the wallet. Co-op relationships with carriers represent a good way to share marketing costs.

As far as technology is concerned, vendors should recognize that technology will improve over time, but that waiting for higher speed links will delay market entry and the ability to build product and brand awareness in the space. A prudent strategy will involve bringing out first products essentially now with the best technology available today, and to launch subsequent generations with more advanced technology as it comes on the market.

Activation rates are low now and will remain below hardware shipment levels throughout the forecast period, although the gap will narrow, but one feature that would help stimulate usage of the capability is Web activation, a simple method for users to sign up. It is important for users to get a sense of instant gratification during the signup experience.

Finally, hardware vendors should give some thought to the effect universal connectivity will have on form factors. The high degree of mobility implied by WWAN access will place demands on OEMs to come up with better mobility features, such as longer battery life (with an assumption that the wide area radio will be on constantly), lighter weights (perhaps dispensing with the second spindle, the optical drive, on more models), smaller sizes (for enhanced mobility), and daylight screens (to improve outdoor readability).

For carriers, be aware that this will become a major market and an important source of new revenue. To stimulate this market, service pricing should be brought down as soon as is practically possible. Also, carriers should consider creating pay-as-you-go plans to reach into lower demographics that do not like to be committed to a monthly payment and to appeal to casual users who want to access the network only once in a while. Such session-based pricing will stimulate general demand as well. Any doubts about the efficacy of pay-as-you-go can be instantly dispelled by observing how widespread it is in the 801.11 world. Of course, partnerships with PC hardware OEMs will be important. An important part of these partnerships will be joint investments in awareness campaigns and demand generation, focusing on marketing elements such as promotional offers, tie-ins, and advertising.

For those investing in alternative wireless technologies, keep an eye on this development. You may want to throttle back if this forecast appears to be coming true. Particularly for backers of 802.11 and WiMAX, WWAN could be a disruptive development.

Finally, the technology needs a better name. 802.11 has greatly benefited in terms of public awareness from the Wi-Fi moniker. WWAN needs a similar handle. Endpoint will be working with the industry to try to establish such a name over the next weeks and months. Suggestions are welcome.

© 2006 Endpoint Technologies Associates, Inc. All rights reserved.