Goodbye MiFi, Hello Smartphone Mobile Hotspot

Wednesday’s anticipated Verizon (s vz) iPhone (s aapl) launch event offered one surprise: users can share the 3G data connection with five devices, turning the iPhone into a mobile hotspot. Since the functionality is built into iOS, it’s likely the AT&T iPhone will see the same (s t), although it’s up to the carrier to offer such a feature. This all follows last week’s Consumer Electronics Show, where the four newest Verizon phones, all running Android and supporting Verizon’s LTE network, will also offer mobile hotspot functionality. With the trend towards using a phone as a hotspot, sales of standalone products such as the Novatel Wireless MiFi (s nvtl) products could be at risk.

Using data from the Novatel Wireless investors site and press releases, I charted the reported revenues from MiFi sales since the company’s second fiscal quarter in 2009, which was the first quarter I could find with MiFi sales information. Data wasn’t provided for the last quarter in 2009, so I estimated it based on the company’s reported revenue mix of Mi-Fi devices versus other revenues. Even if my estimate that quarter is low, the MiFi sales revenue trend is flat to down at a time where connectivity needs are rising.

When I saw my first MiFi back in January 2009, I thought it was a completely innovative product: one small device with one data plan supplies the mobile broadband connection to five or more devices over Wi-Fi. I liked it so much that I bought one on Verizon’s network, and to this day, I still have it and pay $35 for 3 GB of monthly data. Now that the MiFi is entering a third year of availability at a time when mobile broadband subscribers are about to surpass wired broadband subscribers, you’d think there would be an increasing number of MiFi customers like myself. But there aren’t.

Part of any downward trend in sales could be attributable to lower device pricing, but even so, I’d expect the trend to at least be flat in that case: lower prices should make the device more attractive to carriers and customers and therefore revenues would likely still increase. I think that people still don’t know what a MiFi is, which could be hurting adoption. In any case, exact sales numbers in terms of units aren’t available, so let’s consider my chart to be a reasonable proxy.

On top of the lack of MiFi sales growth are the growing number of devices that can be used as a hotspot. In my particular case, both my phone and my tablet can share their 3G connection. In fact, I took my standlone MiFi to CES last week but never fired it up because I have the same functionality duplicated in two other devices that I already had with me. As more handsets include the ability to share a connection, even with an additional fee, a MiFi device seems less attractive.

There’s a few arguments against this line of thought, and of course, each individual’s mobile needs will vary; if a MiFi works for you, then you should keep using it. Using a phone or tablet as a mobile broadband hotspot certainly causes the battery level to drop faster. For this reason, I use one of my mobile mantras: Always buy and carry a spare battery for any mobile device if you can. Toting a second battery for my phone, for example occupies less space and weighs less than the MiFi.

However, devices based on CDMA network technology, such as all of Verizon’s current handset lineup, including the new iPhone (s aapl), can’t be a hotspot and take calls at the same time. That’s another point in favor of the MiFi, but as Verizon moves smartphones to its LTE network this year, the problem could be mitigated in the future if voice traffic flows on CDMA while data stays on LTE. That may not happen until voice standards are implemented for LTE, however, so Verizon voice could rely on CS Fallback from LTE back to CDMA, which would still preclude simultaneous voice and data.

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Novatel Wireless (s nvtl), which has bet big on the MiFi solution, is trying to add value to the device by adding the ability to run apps, but in the long run, I don’t think that will matter. I haven’t yet seen a MiFi app that adds more value to a similar existing feature on a smartphone, for example. For many consumers then, even some that have never even heard of a MiFi, using a smartphone as a mobile hotspot is the more likely future; the window of opportunity for the MiFi is slowly closing, because the function is being absorbed by the smartphone.

Based on the CES experience of not using my MiFi, I’m likely to close down the month-to-month account and simply rely on my phone and tablet to provide 3G data to other devices. But we all have different needs, so I’m curious if you’re in the same boat or you plan to get or keep using a MiFi device. Have it in our poll!

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