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Is wireless recession-proof?
During yesterday's earnings call, AT&T CFO Richard Lindner fielded queries from the financial analyst community about the current economic downturn and its potential impact on AT&T's business.
This follows a comment made in January by AT&T CEO Randall Stephenson at a CitiGroup event that the company was experiencing some softness on certain segments. That news caused a bit of an uproar among the financial community and prompted Verizon COO Denny Strigl to announce that his company wasn't seeing an impact from the economy.
Lindner said that while there may be some softness in the access lines and some slowing in broadband net adds, he believes that the softness in the economy will not impact wireless, where AT&T is still seeing strong growth and ARPU.
He added that much of wireless' growth is driven by data and that data growth is determined by new devices, such as smart phones, which allow customers to access new applications. Lindner's theory is backed up by ABI Research, which yesterday announced that the potential recession in the U.S. doesn't seem to be impacting handset vendors. In 2007 handset shipments increased by 15.8 percent.
But ABI admitted that while 2007 wasn't tough on handset makers, 2008 may be a slightly different story. The research firm is reducing its 2008 handset market growth forecasts from 13.5 percent to 12 percent because of the economic uncertainty.
I disagree with the idea that consumers will continue to upgrade devices and buy wireless data services in times of economic hardship. I think if consumers are feeling economic pressure, they will start cutting back on unnecessary expenses and wireless data services and handset upgrades fall into that area. I certainly don't expect consumers to downgrade their voice plans or cancel their wireless phone service, but I do think that some wireless bills will go unpaid. And I think that consumers will cut back on some of their discretionary data services. Mobile TV service seems a bit extravagant if you're facing a mortgage crisis.
Of course, this economic situation may be the perfect opportunity for mobile advertising. If consumers are no longer willing to pay for their discretionary entertainment services, they might be much more amenable to advertising-supported content or promotions like Virgin Mobile USA's Sugar Mama advertising program where customers view advertisements and fill out surveys to receive free airtime minutes.
I think it's naive to assume that this industry is recession-proof. I expect to see the impact of the softening economy in the coming quarters. -Sue
Comments
Posted by Jeffrey Stytz | January 25, 2008 - 4:48pm
Hi Sue,
Excellent article. I'm thinking back to 2001/02 as an example of what we may see for 2008/09.
We did see a device slowdown in 2001/2002 as a result of the slowing US economy and the aftermath of 9/11.
There was a significant uptick in sold devices for 2003/04 but was this a result of pent up demand being fulfilled in general or a result of the availability of new phones incorporating cameras, color screens, improved software, games and improved form factors?
I don't see the level of innovation in devices being as significant for 2008/09 as it was for 2003/04 from a consumer perspective.
I don't believe that innovation in form factor, usability and battery life is as visible to the consumer as the addition of cameras or color screens had been.
An absence of the "wow" factor will, in my opinion, influence device demand or lack thereof by the consumer.
I agree that wireless data services could be viewed as expendable by consumers and I have seen customers cut back on services; data plans as well as voice minute plans.
The challenge for 2008 will be to minimize data service disconnects and find ways to encourage growth for existing customer’s data plans.
Can the carriers market data services to the consumer as "got to have" not "cool to have"
Can cell phones and wireless services compete for the consumer emotion against the likes of large screen TVs and Play Stations, Wii and Xbox?
I guess we may see how marketing oriented today’s providers truly are.
Jeff
Posted by Sue Marek | January 28, 2008 - 10:12am
Your comments about the correlation between devices and data are interesting. Surprisingly, Verizon just reported its earnings today and it says it hasn't seen a softening in "discretionary" data services such as ringtones, etc. I'll be surprised if this is still true at the end of first quarter. Sue ÂÂ
Posted by Ainsworth | January 30, 2008 - 5:47pm
I think part of the recession will be adaptation to some cheaper forms of communication. I know that I've relied heavily on text-messaging over voice because it is cheaper to use unlimited text messaging rather than to purchase more minutes.
Phones like the iPhone and other smart phones, will be worth the premium upfront, to get that feature and save money on the long run p/ month.
Adapting the iPhone saved me $30 p/ month over my previous HTC, and gave me more capabilities.
Posted by Anonymous | October 2, 2008 - 4:46pm
I have many people around me in deep financial crisis from A-Z and I must say that Cell Phones are the last thing people in this position give up. Maybe there will be a slow down in the fancy data services but we may actually see an increase in demand for voice minutes as people choose between their landlines and cells. I see people cutting down in the kinds of food they eat, gas consumption, home heat, electricity, vacations, etc before their cell phones. I'm not saying anything is 100percent safe, but wireless is close.
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