In 2014, Apple, Aereo and big telecom mergers will generate headlines, along with important legal rulings about “net neutrality” and U.S. surveillance, oversight and transparency. Upstart companies like Uber, Airbnb, and Square will enjoy dramatic growth, and some will announce plans to go public. Smartphones and tablets will continue to spread worldwide as cities and countries race to boost broadband speeds. Here are six tech stories to watch in 2014.
1. Apple will sell more than 30 million iPhones on China Mobile, at the high-end of Wall Street expectations. It’s hard to overstate what a coup Apple’s recently announced pact with China Mobile to sell the iPhone is for CEO Tim Cook. Without question, this is the biggest business deal of Cook’s two-and-a-half year tenure, and the consummation of years of negotiations overseen by his late mentor, Apple co-founder Steve Jobs. China Mobile is the world’s largest wireless carrier with 760 million subscribers.
After years of meteoric gains fueled by category-busting product launches like the iPod, iPhone and iPad, Apple’s revenue growth has slowed. Apple’s stock price was essentially flat for 2013, although the shares soared 33% in the second half of the year, reversing steep losses in the first six months. Some Apple analysts and shareholders have expressed concern about Apple’s vaunted innovation machine, but those fears are overblown. The latest iPhone and iPad models are huge hits, and Apple will soon report the highest quarterly sales in the company’s 30-year history. New international markets will help re-accelerate Apple’s growth — and there’s no bigger emerging consumer technology market than China.
2. The United States “Open Internet Rules” will suffer a serious defeat in federal court early this year. Telecom giant Verizon has sued the Federal Communications Commission, arguing the agency lacks the authority to enforce the principle of “net neutrality” which is designed to prevent Internet service providers like Comcast, Verizon, and AT&T from favoring their own services in order to disadvantage rivals. In practice, that means that the broadband providers are prohibited from blocking or slowing down services like Skype or Netflix on their wired networks.
A losing verdict in the U.S. Court of Appeals for the District of Columbia Circuit will be a setback for the Obama administration’s technology policy, and will present a thorny challenge for new FCC Chairman Tom Wheeler. If the court rules the FCC lacks the authority to enforce the Open Internet Rules, Wheeler could move to reclassify broadband service under existing telecommunications law, restoring the agency’s regulatory authority. That, however, would trigger a major showdown between the FCC and broadband giants like AT&T and Verizon, which are extremely powerful on Capitol Hill. More likely: the court asks the FCC to change its rules and reach an agreement with the industry.
3. The U.S. Supreme Court will agree to hear the major TV broadcasters’ case against Aereo, the upstart online video company that has been giving ABC, CBS, NBC and FOX fits. This prediction is a very close call, because the Supreme Court declines to grant certiorari in most cases. However, given that the broadcasters and Aereo have both asked the high court to hear the case, I believe that will tip the scale, along with the fact that there is a looming U.S. circuit split, where federal courts in different jurisdictions disagree on the legality of Aereo’s technology.
Aereo picks up free, over-the-air broadcast signals using an array of tiny antennas, and sends those signals to customers via the Internet for about $10 per month. Aereo says that because each user receives programming over the Internet via his or her own leased antenna, the system is legal, and so far the federal courts have agreed. The broadcasters maintain that Aereo — which doesn’t pay for the TV signals it captures over the air — is violating copyright law and stealing their programming. “This exceptionally important case warrants this Court’s immediate review,” the broadcast giants wrote in their most recent brief. Aereo agrees. It’s time for the Supreme Court to weigh in.
4. In 2014, several young consumer tech companies are poised for explosive growth — and some will announce plans to go public. From taxi-hailing to ride-sharing to cloud-hosting and mobile payments, these new businesses are using the Internet and mobile devices to challenge entrenched industries. Upstart firms like Uber and Lyft are changing the way people travel in cities, disrupting incumbent taxi companies. Airbnb is challenging the hotel business model — and encountering pushback in some states. TaskRabbit has created a new online market for everyday tasks like mowing the lawn. Dropbox is making cloud storage and sharing accessible to the masses. Square is leading the booming mobile payments space.
Most of these companies are valued in the billions of dollars, and they’ll soon need new capital to maintain their torrid growth rates. That’s why the next wave of consumer tech initial public offerings will be announced in 2014, with Square, Dropbox and Uber leading the pack. Wall Street bankers are salivating after Twitter’s successful IPO, which delivered millions in fees to Goldman Sachs and other top banking firms. The U.S. equity markets are riding high. Even Facebook, which saw its IPO marred by technical failures and dubious pricing, is enjoying the best stock performance of its short life as a public company. After watching Twitter and Facebook execs and venture capitalists become newly minted millionaires — and in some cases billionaires — there’s little doubt that the latest generation of startup entrepreneurs are eager to join the party.
5. Time Warner Cable, the second largest cable TV company in the United States, will be purchased by smaller rival Charter Communications. This deal will represent a reentry into the U.S. telecom market by billionaire mogul and cable industry pioneer John Malone, whose Liberty Media group owns a 27% stake in Charter. Malone is a legendary figure in U.S. telecom and media markets. More than a decade ago, Malone made a fortune by leading efforts to consolidate the cable industry. Judging by his recent activity, the man once dubbed “the cable cowboy” is at it again.
Last year, Malone struck a blockbuster $16 billion deal to buy British cable giant Virgin Media, creating one of the largest broadband companies in the world. In 2013, Malone made no secret of his interest in buying Time Warner Cable, and his new tactic appears to involve a bid by Charter, which is said to be lining up financing for a deal. Comcast, the nation’s largest cable company, has also been eyeing a bid for Time Warner Cable, but such a deal would face tough U.S. scrutiny. It’s possible that Charter and Comcast will strike a pact to divide Time Warner Cable’s business.
6. Sprint’s reported interest in merging with T-Mobile will face an uphill regulatory battle. In recent years, the U.S. government has shown an increased desire to preserve what competition remains in the wireless market. In 2011, the Justice Department blocked a proposed $39 billion deal in which AT&T, the nation’s number two wireless company would buy T-Mobile, which is the fourth largest mobile carrier in the country. A deal between Sprint, the number three player, and T-Mobile, would face similar, if not as intense, scrutiny. This deal is doable, but even if successful, it’s very unlikely to close in 2014 because of the government review.
Wall Street analysts argue that combining Sprint and T-Mobile could reduce billions in costs and improve efficiencies — often corporate-speak for layoffs — and thus improve the combined entity’s competitive stance against Verizon Wireless and AT&T. According to this argument, a merged Sprint and T-Mobile could actually boost competition by presenting a stronger challenge to the top two U.S. carriers. But technical challenges exist because the two companies have for years operated on different wireless networks. One wild-card may be Charlie Ergen’s Dish Network, which is also said to be interested in T-Mobile, not to mention rival satellite provider DirectTV.
Google, Facebook, and Twitter are conspicuously absent from this list. That’s because each company dominates its part of the tech dog-patch. Google is the overwhelming search advertising market leader, and will continue to be so in 2014 and beyond, powering a multi-billion-dollar cash machine. It’s too early to predict how initiatives like Google Glass or the company’s self-driving cars will develop, but there’s no doubt that wearable computing and robots will have a profound impact on our lives in the years ahead.
Twitter has become a global sensation, adored by its users, adopted by politicians, leveraged by corporate giants, and feared by repressive regimes worldwide. Ironically, Twitter’s 140-character format was the unintended byproduct of early mobile device text messaging limits. Today, Twitter has redefined the way we speak to each other and has connected people worldwide like never before. Twitter raised more than $2 billion last November when it went public. Now, the challenge is to scale the business and develop new revenue products without alienating users.
As for Facebook, Mark Zuckerberg’s juggernaut is far and away the social networking leader, with more than a billion users and no real competition in sight. Eighteen months after Facebook’s troubled IPO, the company is on cruise control, leveraging unprecedented economies of scale to drive revenue growth from new online advertising products. Facebook has billions in the bank, and as long as Zuckerberg, his trusted COO Sheryl Sandberg, and their team maintain a steady hand on the tiller, 2014 should be smooth sailing.
The most important technology story of 2013 was the shockwave delivered by Edward Snowden about the U.S. government’s secret surveillance programs, and the role played by the nation’s largest telecom and Internet companies. The National Security Agency (NSA), the Foreign Intelligence Surveillance Act (FISA), bulk telephony collection and metadata, have become daily fixtures of global news headlines. This story will accelerate in 2014, as the Obama administration, Congress, and the federal courts weigh calls to bring greater transparency, accountability and oversight to U.S. surveillance programs.