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