Devices drive data usage, operators find

A funny thing happened on the way to the 3G mass market: carrier data revenues turned out to be just as dependent -- if not more dependent -- on the devices they offer than the availability or even the speeds of the data services themselves.

That’s the intriguing interpretation that our wireless editor, Kevin Fitchard, makes in analyzing Verizon Wireless’ Q1 earnings, which were released this week.

Part of that analysis comes from looking at the success of the iPhone, which has helped drive AT&T data revenues even as it runs on the carrier's relatively pokey 2G network. Though AT&T doesn’t break out numbers for the iPhone specifically, the more than 2 million devices sold so far all come with $20-a-month EDGE data contracts, which is driving AT&T data revenues through the roof. AT&T’s Q1 data revenues grew 57.3% year-over-year, while VZW’s grew 48.9%.

Not that VZW is getting left behind. It’s just that without a home-run device like the iPhone, it's left hitting solid doubles and triples, relying on its early 3G start and strong 3G phone penetration to drive its data growth. This week Verizon reported that 23% of its Q1 service revenues now come from data, driven in large part by its 3G handset penetration, which now reaches 58% of its customer base.

What’s the moral of this story? Offering data “services” in and of themselves may not draw customers as strongly as offering highly appealing devices that are based around those services. In many ways, that’s the same story as in the wireless voice market: consumers like -- and buy -- cool devices.

We won’t have to wait long to test this theory: an iPhone with a 3G chip and AT&T 3G service looks to be just around the corner. Will that iPhone need to even further improve its sexy factor to grow market share? Or will 3G alone added to the iPhone drive the phone -- and AT&T’s data service revenue -- to new heights?

Or could the answer be -- and certainly this is what AT&T is hoping for -- that the combo of next-gen iPhone and 3G services represent the perfect alchemy, driving iPhone sales and AT&T 3G revenues to altogether new heights?

We’ll soon find out.

E-mail me at rkarpinski@telephonyonline.com.