Divergence: The Next Hot Industry Buzzword

Remember when convergence was all the rage? Wireless, wireline — everything was going to blend together like a giant fruit smoothie. Your mobile phone was going to be your remote control; your cousin was going to be your spouse. Convergence was the ultimate industry metabuzzword. Well-respected industry trade publications even used it in their tag lines.

So why isn’t financial reality catching up with our fanciful dreams and marketing presentations? Instead of that smoothie, convergence today seems more like trying to meld that last sliver of soap onto the new bar: Squeeze as hard as you want; it’s just going to fall apart again when it gets wet.

Wireless and wireline technologies can’t even seem to coexist very well within equipment vendor product portfolios. Nortel Networks is the latest example. In a research note today, Merrill Lynch analysts argued that Nortel could be worth more if it sold off its wireless business, “whose profits have peaked.” The resulting two entities would have a combined value that is 35% higher than Nortel is worth today, Merrill Lynch said.

Obviously, this suggestion is probably inspired by Motorola’s recent decision to spin off its struggling mobile handset business from wireline segments like broadband access gear and set-tops. But even that dramatic move is “more political maneuvering than a serious plan to address Motorola’s problems,” according to Ed Snyder, an analyst with Charter Equity Research, raising the question in his own research note this week of whether Motorola should just shut down its mobile division. “Like Ericsson in 2001 and Siemens in 2005, we believe Motorola is caught in a tightening spiral of losses, layoffs and declining traction in phones that will culminate in management closing or giving away the handset business,” he said. A tightening spiral of losses—now that’s a convergence metaphor with real relevance to today’s market.

Alcatel-Lucent is another painful example of a vendor whose wireless business has been a drag on its wireline side. Its latest outlook is for a rough first quarter and another year of flat revenue.

In the carrier world, convergence has been a rare feat, too. Verizon is blazing a trail, to be sure. But how many can (or will) follow its lead? Alltel, CenturyTel and Sprint all split up into separate wireless and wireline players. SureWest sold off its wireless assets, arguing that triple-play providers don’t need an in-house wireless business (and that the two businesses are too different anyway).

And then there’s the showroom-floor model of convergence–IMS, which stands for It’ll Materialize Someday. Enough has been said about that already.

Maybe when dark clouds weren’t gathering on the macroeconomic horizon, ambitious notions of convergence might have seemed more attainable. But when times are hard and money’s tight, break-ups more easily occur.

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