Kiplinger's Tech Alerts - January 6, 2016

What to expect in the year ahead? Big growth for small satellites, virtual reality and augmented reality. More industry uncertainty over Net neutrality. A step to the next level for smart watches. And more.

Small Satellite Services Will Soar

More small satellites will mean big opportunities for all kinds of firms. More than 300 small satellites will be launched in 2016, three times as many as in 2013. The new devices will bring lower costs for Earth imaging and data analysis, which will make the information affordable for businesses of all types and sizes. The extra coverage will eventually allow Earth mapping in near-real time.

Costs of satellite technology and launches will continue to fall. The recent success of SpaceX's reusable rockets will continue to drive down launch costs, which are already five times lower than in 2010, according to Goldman Sachs. Multiple small satellites can hitch rides on a launch, as the barrier to entry in the satellite industry continues to fall.

Companies to watch: BlackSky Global, Spire, Planet Labs, SpaceX, OneWeb, Skybox Imaging, Dauria Aerospace, Deep Space Industries, Accion Systems. (Continued below.)

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Virtual Reality Bursts Out of the Gate

Virtual reality is gaining a foothold, notwithstanding a few stumbles and a chorus of critics. Headsets for the best VR systems yet will reach consumers this year. Facebook's Oculus, for instance, just started taking pre-orders for its headsets. Samsung and others already have versions on the market. Since VR isn't new, and updated versions will have flaws, critics will be quick to label the industry a dud. But 2016 will set up the market for years of growth. The coming wave of headsets uses advanced sensors and powerful computer processors that will display lifelike experiences.

Still lacking in the VR realm: The content needed to fuel industry growth. Though Hollywood, professional sports leagues and video game makers are hard at work on VR content, there won't be enough uses to allow many folks to justify the early high prices. That will change once social media become a go-to destination for virtual reality in the next few years. Social media users will be instrumental in creating, uploading and sharing VR videos.

Look for a flood of new business uses for augmented reality, too. Microsoft's first foray into the AR world, HoloLens, makes its way to developers in 2016. The $3,000 glasses overlay a digital world on top of the environment in front of you. Google also has an upgrade of its AR glasses, Google Glass, in the works. Someone donning an AR headset could see a 3-D model of a construction site, for instance. The headsets are tailor-made for business uses, including mechanical work, product design and health care. The initial high costs will make AR widely popular with businesses before consumers jump in.

Companies to watch: Google, Microsoft, Vuzix, Magic Leap, Baidu, Intel, Apple, Sony.

Net Neutrality Shakes Out

Internet providers will tiptoe around Net neutrality as regulators start to crack down. The Federal Communications Commission has yet to fine Internet providers for violating its rules, which took effect in 2015. But the agency is taking a more aggressive stance this year, starting a challenging period for Web firms that aren't sure how rules will play out. At stake for Internet providers: Profits from both subscriber growth and new services. Net neutrality foes are looking closely to see if makers of routers, fiber cables and other network gear take a hit.

We expect Net neutrality rules to face a Supreme Court challenge after a federal court upholds most of the FCC's Internet rules. Uncertainty will linger in the meantime as Web networks quickly evolve. Many online services run the risk of breaking the rules as the FCC starts looking into the matter.

Companies to watch: Comcast, Time Warner Cable, CenturyLink, Google, Verizon, AT&T, T-Mobile, Sprint, IBM, Cisco, Corning, Level 3, Akamai, Netflix, Cox.

Commercial Drones Take Off

The commercial drone industry will take off, now that a federal rule is on the books. Thousands of new companies will get started as firms no longer have to get special exemptions for money-making drone endeavors. But they'll still need to follow detailed rules for small drones, including using licensed pilots, keeping drones within sight and flying below 500 feet. They'll also have to keep tabs on updates from the FAA as it scrambles to put more rules in place.

Debate will rage over privacy issues, spectrum sharing and hazardous flying. Federal regulators are lagging as the market quickly moves forward. The FCC has yet to take a close look at how drones might interfere with Wi-Fi and other wireless networks.

Companies to watch: Matternet, Amazon, Google, Intel, Qualcomm, Facebook, Skyward, AeroVironment, Black Swift Technologies, DJI, GoPro, Airware, Skycatch, Boeing, Lockheed Martin, Northrop Grumman.

Smart Watches Go Cellular

The must-have feature for smart watches: data plans for calls and texts. Most smart watches come with only short-distance wireless connections, such as Wi-Fi or Bluetooth, and still need a smartphone close by to communicate with others or to receive alerts. But a growing number of watches will come with cheap cell plans from providers such as AT&T, which is looking to grow its subscriber list for connected things. Google is paving the way by supporting cell connections with its widely used smart watch operating system.

New ideas will crop up for smart watches with cell connections. Tracking workout routes, texting and dialing 911 will be supplemented with the ability to check sports scores and weather forecasts. The plans figure to be popular and cheap, starting at about $50 for the first year. Also keep an eye out for action cameras and other gear to come with cell connections.

Companies to watch: Google, Samsung, Apple, Fitbit, Xiaomi, Garmin, Microsoft, Withings, Jawbone, AT&T, Sprint, Verizon, T-Mobile.

Tech Tidbits

A big network upgrade will boost cable firms' broadband offerings. A new technology standard, rolling out in 2016, lets cable's Web pipes reach gigabit-per-second speeds, matching the fastest fiber-optic consumer Web service.

Cord cutting will accelerate as more folks ditch cable TV in favor of Internet streaming services. Cable companies will launch cheaper options with fewer channels. They'll also hike Internet prices and tack on data charges to make up for lost cable subscribers.

Despite robust spending on cyber defenses, large cyberattacks will plague Uncle Sam and private businesses. Cybersecurity spending in the U.S. will grow more than 10%, topping $54 billion, according to the Telecommunications Industry Association. But risks remain, including advanced malware and sophisticated hackers, as well as a rising number of connected things.

Smartphones will start using sensors to sniff out pollution. Look for Chinese smartphone makers to be the first to put low-cost, tiny sensors in phones. They're now used in cars. The sensors will come from STMicroelectronics, Bosch and Sensirion.

Hunting for dividends in the tech sector? Investment editors at Kiplinger's Personal Finance analyzed Comcast and CenturyLink, two of the biggest telecom companies in the country. The findings: Comcast is a top pick to earn dividends in 2016, while CenturyLink is at risk of a dividend cut. Read more in "9 Best Stocks to Earn Dividends in 2016" and "5 Stocks at Risk of Dividend Cuts in 2016."