Oct 20, 2009 11:33 AM,

Study: Independents see 4% wireless margins

By Joan Engebretson

Major telcos such as AT&T and Verizon increasingly are relying on their wireless businesses to help make up for declines in their traditional landline voice business, but that strategy has been more difficult for small independent telcos, as data from the 2009 Telergee Benchmark Study shows. The study of 196 independent telcos conducted by the Telergee Alliance, a network of seven certified public accounting firms with telecom specialties, was made available exclusively to clients of Telergee firms and to TelephonyOnLine.

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Twenty-one percent of respondents in the Telergee study offer wireless. Although those telcos saw wireless net income increase 20.2% between 2007 and 2008, their margins were slim. Total wireless operating expenses represented a median 93.7% of total wireless operating revenue.

One reason margins on wireless are so slim for small carriers offering the service is that some of those carriers do not own their own networks, but instead resell the services of another carrier, an approach notorious for its narrow margins. Another issue is that, at a median of $40.93, the average revenue per user for Telergee clients is considerably lower than for larger carriers, such as those belonging to the CTIA national wireless carrier association. Bruce Hoehne, a partner with Telergee Alliance firm Kiesling Associates, noted that the average ARPU for CTIA members is approximately $50.

“In large metro areas, you’re probably seeing more texting and information services being used,” said Hoehne. “Smaller rural carriers aren’t necessarily going to jump into the bleeding edge of new data services. They will wait until the market stabilizes, then make a prudent decision.”

The good news is that as the smaller carriers begin to adopt more cutting edge services, they too may see higher ARPU.

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See TelephonyOnLine for additional coverage of the 2009 Telergee Benchmark Study. Read part one. Independent telcos interested in participating in next year’s study should visit Telergee.com.