Mobile users could be ringing in a happy new year for US companies: The hard-pressed industry is looking to text messaging to catch on in a big way in 2003, writes Jonathan Moules:
Financial Times (London)
December 27, 2002, Friday London Edition 1
By JONATHAN MOULES
The US wireless market, long the also-ran in the world's mobile phone revolution, had a glimpse of the future yesterday when AT&T Wireless and NTT DoCoMo, its Japanese partner, said they would deploy third-generation wireless technology in four cities - San Francisco, Seattle, San Diego and Dallas - by the end of December 2004.
It was a rare piece of good news in a year that has seen stocks in the US wireless sector drop sharply amid a cut-throat price war between the six national wireless carriers, while growth rates have stalled at barely 50 per cent market penetration, far behind Europe and parts of Asia.
However, the downward spiral in mobile call costs has sparked a revolution in phoning habits, feeding an enthusiasm for mobile chatter that is expected to lift in US wireless revenues next year.
Americans already have a lot more to say on their mobiles than people in other countries. They spend 400-600 minutes on the phone each month, compared with 150-200 minutes in Europe, according to Credit Suisse First Boston - a phenomenon that has helped US wireless carriers generate some of the highest average revenues per user (ARPU) in the world. Although the internecine price war is undermining ARPU, it has so far been offset by Americans switching more of their calls to mobile phones because of the relative cost savings.
Recent plans from Cingular Wireless, Sprint PCS and T-Mobile USA - the second, fourth and sixth-largest players in the US respectively - have driven down the price of a mobile phone call to as little as 2 cents a minute, compared with 4-5 cents from conventional lines, according to research by CIBC World Markets. With deals like this, it is little surprise that American callers are either disconnecting second lines or cancelling their local phone service altogether.
But revenue growth from the cannibalisation of traditional phone services is not the only reason for wireless carriers to be cheerful. In the next 12 months most of these companies are likely to turn cashflow positive, enabling them to cut debt ratios and lower their financial risk. "We are crossing a major thres-hold," says Thomas Wheeler, president and chief executive of the Cellular Telecommunications and Internet Association, the trade body for the US wireless industry.
"This is an industry that has been measured by surrogates. First it was points of presence, then it was subscribers. Now we are getting down to the real measure of a financial institution."
Carriers are also cutting capital spending as they complete network upgrades and take advantage of lower equipment prices. Morgan Stanley estimates this will cut the capital spending to sales ratio to 18.3 per cent in 2004, down from 29.6 per cent in 2002.
This is not to say that the US wireless industry is in rude health. It suffers from overcrowding, with six national players, and has failed to attract users in the youth and pre-paid markets.
"Structurally, this is an industry that has been sick - in the intensive care unit - for the last three years. But it is a sick patient with some signs of improvement," says Luiz Carvalho, senior wireless analyst at Morgan Stanley.
The most worrying scenario for wireless carriers is that American customers have become stuck on using their mobile phones to talk, and will not adopt the more profitable data services that are seen as the source of future growth.
"I still think they have another year of really getting the benefit from voice," says Cannon Carr, wireless analyst at CIBC World Markets. "However, that is a very short-term strategy and frankly it is a dead end."
Short messaging services (SMS), or text messaging, is the application that has driven data use elsewhere in the world. Although it initially appeared to bypass the US, it has started to gain popularity as the nation's carriers have joined universal SMS standards. www.ft.com/telecoms |
