Impacts to Wireless on Motorola's Division

Motorola, Inc. recently announced that it was going to spin off its handset division. This announcement has been anticipated for some time, and foreshadows further changes in the wireless industry that will take place as a result of the completion of the Federal Communications Commission's (FCC) wireless spectrum auction and further WiMAX deployments worldwide.

Focal Points:

• Officials from Motorola recently announced that they were going to separate the company into two distinct units. One unit will focus on building wireless handsets, and both company units will be publicly traded. Company officials said that they expect the move will happen in 2009, after the appropriate regulatory approvals have been received. The move comes amid stockholder pressure from Motorola's recent performance. Industry analysts have widely speculated that this spin-off would occur after the departure of Motorola's previous CEO.
• Motorola's stock price rose 2.7 percent following the announcement of its plan to split off its handset division, but then fell 5 percent the following day. The stock's current price is almost half it its 52-week high of $19.68. Part of the reason the market was unreceptive to this news is that some large investors were pushing for Motorola to break the company up into as many as four separate companies. The fact that the company split in two disappointed some investors.
• The US Department of Agriculture (USDA) recently announced that is was going to invest $267 million into bringing Worldwide Interoperability for Microwave Access (WiMAX) to rural areas of the United States. This move has come after members of Congress reprimanded the USDA for not more aggressively supporting broadband network connectivity to remote areas. This money is in the form of a loan to Open Range Communications, Inc. The plan is for Open Range to build out WiMAX connectivity in 518 rural communities across 17 states. Open Range will use this loan to offer both WiMAX and satellite communications in these rural areas. The offering is intended to cover up to 6 million people over the next five years.

Experton Group believes wireless networks will go through some fundamental shifts in the next two years. Basic economic issues will force further consolidation of the wireless markets. This will lead to an increase in wireless pricing in most areas of the country, since the broadband spectrum auctions were largely won by two large carriers. Without further handset innovation, the split-off for Motorola will not succeed in creating more competition. Investment will be needed for that, and unless it comes, which is unclear in today's economic climate, it is more likely that Motorola's traction will erode, and Nokia will continue to dominate the wireless handset market. IT executives should develop a network support model that includes mobile networks and handsets, with a focus on standard features that do not require custom support.