Wireless December 23, 2009, 8:53PM EST

Managing the Wireless Data Deluge

Smartphones are forcing wireless carriers to meet surging demand for data, creating a huge opportunity for the many companies that help them

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It wasn't so many years ago that U.S. wireless carriers wanted nothing more than to convince their customers to use their phones for more than talking. Having invested billions to bring data applications like Web browsing and video to their networks, carriers saw little interest from consumers.

Of course, that was before the latest generation of smartphones like Apple's (AAPL) iPhone, Motorola's (MOT) Droid, and Research In Motion's (RIMM) BlackBerry made using wireless data applications so compelling and popular. Now there's a new problem: Networks are starting to groan under the surging demand, causing service to deteriorate for everyone. Helping wireless companies cope with ever-escalating demands for data with software and services is turning into a huge opportunity for companies that service the wireless industry.

Updating the networks to handle the greater volume of wireless data could mean massive expenditures for carriers such as AT&T (T), Verizon Wireless, the joint venture of Verizon (VZW) and Vodafone (VOD), and others in the coming years. Capital spending by major carriers in the U.S. could rise to $28.7 billion in 2011 from $19.3 billion in 2009, according to research firm IDC. That surge in spending could prove to be good news for companies that sell products and services to the wireless industry.

Software companies such as Oracle (ORCL) and computing giant IBM (IBM), as well as smaller concerns like Camiant and Bridgewater Systems (BWC:CN), which provide software for managing subscribers' data usage, are gunning for new opportunities to help wireless carriers better manage their networks.

Subscriber Management

Meanwhile, Qwest (Q) and Level 3 Communications (LVLT), which help carriers handle more traffic could benefit, as well. And so could infrastructure players like American Tower (AMT), Crown Castle (CCI), and SBA Communications (SBAC), which own cell towers.

Software that helps carriers manage subscribers' data use can shave 10% to 20% off the cost of supporting growing data traffic, according to wireless consultant Chetan Sharma. So far, fewer than 10% of carriers have implemented so-called subscriber management software, which can tell carriers how much data particular subscribers are using, and which applications they're allowed to access.

Research firm Infonetics expects the market for this type of software to grow from $145 million in 2008 to nearly $800 million by 2013, benefiting startups such as Blueslice Networks, Camiant, and Bridgewater, and larger companies like Oracle, IBM, and Alcatel-Lucent. At Bridgewater, whose customers include Verizon Wireless as well as Sprint (S) and Clearwire (CLWR), sales are growing at a healthy 30% annually and are expected to reach $60 million in 2009, the company says. "We believe we are at an early stage of a large market here," says Ed Ogonek, Bridgewater's CEO.

Telecom equipment makers are starting to get in on the traffic management game themselves. In 2008, Nokia Siemens Networks snapped up Apertio, whose software helps carriers authenticate and manage subscribers, for $205 million. "There's definitely an opportunity for some M&A activity," says Shira Levine, an analyst at Infonetics.