Will More Mean Less for Wireless?

A barrage of numbers, charts, graphs and statistics has bombarded the wireless industry heralding completion of the industry's latest studies and surveys. The reports cited "explosive gains" in revenue, "astonishing increases" in subscribers and "tremendous growth" in service. There seems to be more of everything. But will more mean less for wireless carriers?

A Technology Trends report predicted that wireless revenue in the United States will fall this year by around $1.50 per user. The decrease is attributed to acquisition costs of $450 to $500 per subscriber, churn of 30% to 45% and average revenue per unit (ARPU) of around $50. Technology Trends suggested that more carriers per market means decreased profitability for all -- and that carriers should focus future efforts on maintaining the customers they have instead of trying to attract new ones.

At least one carrier disagreed with Technology Trends' suggestions for the future.

"I would argue that because of current trends in pricing, coverage and lifestyles, we are only seeing the beginning of further growth -- and strong growth -- in the wireless industry," said Ken Woo, AT&T Wireless corporate spokesperson. Woo pointed out that market penetration in the United States has just reached 25% -- the magic number, he said, at which market growth tends to take off. Woo cited European markets such as Finland as examples of this growth trend.

"Finland is finishing off this year with 60% to 70% market penetration," Woo said. "That's huge. And their growth started right when they hit that 25% mark."

If market growth hasn't even begun to "take off" in the United States, then the subscriber numbers for last year are even more phenomenal.

In its 1998 Wireless Industry Survey, CTIA reported the largest subscriber increase in the industry's history: 13.98 million new subscribers in 1998 brought the year-end industry total to 69.2 million. That's an increase of more than 25% in one year. That's also the largest growth in a single year since wireless service was initiated in 1983. Is there still more to come?

In Wireless State of the Union, the Yankee Group predicted that subscriber growth will slow, but minutes of usage (MoU) will climb dramatically over the next five years. The report stated that subscriber growth still will increase, but only between 30% and 35% from 1998 to 2003, while MoU will increase four times over the same period.

"We're very bullish on our MoU forecast," said Crispin Vicars, Yankee Group industry analyst. The Yankee Group's stance is in keeping with CTIA's report that MoU is expected to "boom" to 630 billion by the year 2004. Vicars cited significant price drops as the main reason for the predicted increase.

"We're seeing 20% to 25% price reductions year on year in the marketplace," Vicars said. "At the same time, people are using their phones more. So it sort of balances out." Vicars noted that the much lower dollar-per-minute rate coupled with a much higher level of MoU is what accounts for the relatively slow decline of ARPU.

So, should carriers focus on retaining what they already have, or should they gamble on acquiring new subscribers in an increasingly competitive market at the potential cost of less revenue?

"I think any business right now that is concerned about its future will be doing both," Woo said.