Meet Telecom's New Kingmakers

Get smart or die. That seems to be the message of new research from Deutsche Bank analyst Brian Modoff. He estimates that Apple's (Nasdaq: AAPL  ) iPhone and Research In Motion's (Nasdaq: RIMM  ) BlackBerry accounted for just 3% of mobile devices sold last year, but 35% of operating profits.

Translation: Software, not access, is the key to profits in the mobile market.

We'll need more data to broadly test the veracity of this thesis. But my own iPhone experience suggests that Modoff is onto something. I'm primarily a data consumer; I use my iPhone for Twitter, Facebook, and when I need to make calls, Skype. You might say I'm AT&T's (NYSE: T  ) worst sort of customer.

There are more out there like me. Apple's App Store has served more than 1.5 billion downloads, and researcher Juniper says that the industry is on track to see 20 billion mobile software application downloads per year by 2014, according to trade magazine eWeek.

Venture capitalists are betting that Juniper is right. Kleiner Perkins Caulfield and Byers has established a $100 million fund for developers of iPhone software, and JLA Partners helps to administer the $150 million BlackBerry Partners Fund. To these and other investors, smartphones are more than communications devices -- they're platforms made functional by enterprising software developers.

That's a huge issue for carriers such as AT&T, Deutsche Telekom's (NYSE: DT  ) T-Mobile, Sprint Nextel (NYSE: S  ) , and Verizon's (NYSE: VZ  ) wireless business unit. They're increasingly at the mercy of handset manufacturers and developers alike.

But that's nothing new. Developers have long held the keys to tech industry riches. They helped make Microsoft (Nasdaq: MSFT  ) billions by backing Windows. They're helping to bolster Facebook and Twitter. And now, they're taking over telecom.

Long live the kingmakers.

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Fool contributor Tim Beyers had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy could use just one more cup of coffee.


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