It’s hard to make any sense of these times.
But some silver linings exist for the wireless industry.
OK, so it’s grim out there. We’ve got job cuts up the wazoo in what is for most of us the worst economic downturn in our working lives.
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The last two weeks of January were particularly disturbing. The problems transcend industries and go far beyond the Internet bust of 2001. On Jan. 26, seven companies across various industries announced more than 71,400 layoffs. The following day, the number was “only” 11,500 more on top of that.
The bad news just keeps coming. Profits are down; layoffs are imminent. Motorola, Ericsson, Microsoft, Intel and Sprint are all downsizing. Qualcomm’s net income is down 56 percent year-over-year. Heck, even Web titan Google reported lower profits in its last earnings report.
Nokia now expects industry-wide phone sales to be 10 percent lower this year compared to last, doubling its estimate from the previous 5 percent. That’s in line with what we’ve been seeing, although one might now wonder if Nokia will again need to revise that figure. According to Strategy Analytics, global mobile phone shipments fell 10 percent year-over-year in the fourth quarter, making it the industry’s slowest growth rate since 2001.
That slower growth in phone shipments to some degree reflects what’s happening at U.S. service providers. For the fourth quarter, AT&T added 2.1 million net new customers, which was a smaller net gain than the 2.7 million it recorded for the fourth quarter a year ago. Verizon Wireless added 1.37 million customers, its lowest fourth-quarter tally since 2002. T-Mobile USA added 621,000, mostly prepaid, compared with 951,000 in the year-ago quarter.
Is it really as bad as it sounds? Maybe not. Service revenues continue to grow. Data ARPU is up. At $13.99, Verizon leads the way, but AT&T is gaining ground, recording $13.50 for the fourth quarter. Much attention is directed at the smartphone category, which makes sense because those are the devices whereby carriers can reap the most data ARPU.
But are smartphones enough to save the day? How many people who are laid off are going to shell out $200 for a smartphone if it’s not going to lead to greater productivity in a job they don’t have? Even Apple COO Tim Cook acknowledged in a conference call with analysts the fear that the economy may slow the adoption rate of smartphones. Some people will decide they can’t afford one.
No matter. It seems that much of the industry is sticking with the smartphone-as-savior type of philosophy. Verizon Wireless, now the biggest U.S. operator with the addition of Alltel, continues to sell more smartphones; about 37 percent of the retail devices it sells are smartphones. (Verizon’s churn did tick up a bit in the fourth quarter compared to the prior year, most likely because corporate customers turned in their data cards or disconnected third or fourth lines because of layoffs and cost reductions.) On the upside, Verizon Wireless is not seeing customers cut back on data plans.
There’s another silver lining for a segment of the wireless service community. Verizon Communications President and COO Denny Strigl was asked whether the carrier will do anything differently as regional carriers enter its markets. Strigl said that question comes up two or three times a year and no, thank you very much, that’s not Verizon’s primary focus. Its focus is on the retail postpaid market, so the smaller carriers like MetroPCS, Leap Wireless International and Sprint Nextel’s nationwide Boost Mobile might catch a break. The prepaid market is often cited as one that will benefit from the economic upheaval.
Another up note from Verizon: The carrier still plans on LTE market trials later this year, and it is working with its manufacturers. The goal is for commercial availability of LTE in the first half of 2010. Maybe that’s not such great news for rival mobile WiMAX provider Clearwire, but at least some vendors will find opportunities.
Yes, it’s gloomy out there. Some economists say it’s only going to get worse. The good news for the wireless industry is people are still calling one another and favoring wireless over landline. They’re texting like crazy, thanks in large part to flat-rate plans. So for now, forget about Sprint Nextel and its eye-popping 8,000 layoffs. The sky is not falling for most wireless operators. Tune in next quarter to see where the lights are still on.
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