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The Small Tech Solution to America’s Massive Mobile Problem

Picture the scene…

One minute, you’re happily tapping away on your smartphone. The next minute… nothing.

You’ve hit a “dead spot” and the signal is lost.

That important call you were on… dropped.

Whatever business you were doing… hold, please.

The streaming music or video you were enjoying… how about silence instead?

It’s happened to all of us. And these days, it’s not surprising.

With the incredible growth of smartphones and tablets – and the applications available on them – our digital data consumption is exploding and putting an incredible strain on telecom networks.

And as mobile data demand continues to rise, the capacity problem is only going to worsen.

That’s why the tech and telecom sectors’ biggest names are busy looking for an equally “mobile” solution…

More Phones… More Data… Same Old Network

The amount of digital data we created last year hit 2.8 zettabytes, according to research firm, IDC. Of that, three-quarters of it comes from consumers.

What’s a zettabyte?

Well, it’s one quadrillion gigabytes. And as we noted a few weeks ago, the entire World Wide Web only contained half a zettabyte of data as recently as 2009.

What’s more, that 2.8 zettabyte number is expected to double by 2015, with a whopping 2,000% surge in global data traffic by 2020.

But as the number of mobile devices grows – and data usage grows with it – the existing network infrastructure isn’t keeping pace. AT&T (T) alone says mobile data consumption on its network has rocketed 250 times higher in just five years.

So how do we go about effectively connecting all these devices to networks and handling the ever-increasing amount of data that they produce?

As it turns out, the cure for mobile problems is… mobility itself…

A Small Solution to a Large Problem

There’s simply no way for mobile networks to keep up with the insatiable data demand without some help.

But this problem has opened up a big opportunity for companies trying to solve it.

Mobile chip giant, Qualcomm (QCOM), and wireless providers are tackling the growth of mobile data by essentially becoming more mobile themselves.

And they’re doing it through small cell technology.

We pinpointed this technology as one of our Seven Most Investable Technology Trends of 2013 back in January.

Simply put, small cells are cellular base stations that are installed in homes and neighborhoods to complement the existing network infrastructure from traditional cell towers.

Unlike cell towers, however, these small base stations are obviously much cheaper and easier to install. In fact, Qualcomm’s Chief Technology Officer, Matt Grob, says a station is small enough to work with a regular home router.

The goal is make these base stations available to mobile users in the surrounding area, offering better, more reliable connectivity and faster speeds.

This is a little-known, yet massive, growth trend. By 2016, the number of small cell stations is expected to top 60 million, according to ABI Research – around 900% growth from the six million deployed last year.

Quoted in MIT Tech Review, Grob, confirms, “We’re working extensively with operators on this particular project.”

The company has also installed 20 stations around its San Diego campus, which means mobile users get a better, faster connection as they pass by.

The question is: Will consumers go for this “communal connectivity”?

Wanna Borrow My Wifi?

There’s no doubt that in densely populated areas, where mobile and data usage is higher, networks could use a hand.

But in some areas, it’s already happening. MIT says Verizon (VZ) and Sprint Nextel (S) customers living in areas with patchy connectivity, who’ve received base stations for “personal” use to improve their signals, may also be helping the masses – even if the owners don’t know it. Verizon and Sprint disable the personal/private configuration feature by default, whereas AT&T does not.

Grob says there needs to be more transparency – both in design and marketing – making it clear that these stations are for the public infrastructure, in addition to their own needs.

But the model is attractive in terms of finding an innovative way of beefing up bandwidth without needing to build more expensive, unsightly cell towers.

He says companies like Qualcomm could work with mobile and cable operators to install base stations in routers. Qualcomm and AT&T have found that it wouldn’t take many base stations in local homes or offices to improve coverage and essentially serve as another network.

Of course, any plan would need to ensure that the connectivity of homes and offices that actually own the base stations isn’t weakened and that online activity is secure.

But with mobile connections expected to increase five-fold between now and 2015, and mobile operators already offering more public Wi-Fi to ease the data burden, this small cell technology and home base station model is the next step toward handling the smartphone and data overload.

Ahead of the tape,

Louis Basenese

P.S. The companies I’m most bullish about in this area are ones that make equipment and components for this small cell technology. One of them is a member of our WSDI portfolio.

With sales already rising, I believe it’s only a matter of time before the company is acquired. I just crunched some numbers to find out how much it would be worth in a takeover – between 100% and 171% higher than its current share price. To get the name of the company – and all the others in our portfolio – sign up for a risk-free trial to WSDI here.