More than 93 percent of American adults own a cellphone today.
Only 28 percent have smartphones.
There lies the business opportunity for cellphone-carrier giants such as Verizon Wireless and AT&T Inc., companies that will wage an intense war for customers in the next several months in metro Phoenix and around the nation.
In the highly saturated, highly consolidated wireless industry, the top companies are aggressively restrategizing the way they lure customers. One-third of subscribers switch carriers every year, according to industry research. While carriers’ biggest focus will be on the quality and variety of wireless devices they offer, cheaper service plans and faster networks also are part of the equation.
The type of phone, not the carrier, typically drives consumers’ decisions for which contract they sign. Today, iPhones, Androids, and BlackBerrys are driving trend. These mini handheld computers called smartphones have made once-novel text and picture messages almost passe, and the growth of the devices has made waves in the industry.
Since 2007, AT&T’s exclusive contract to sell Apple Inc.’s iPhone has helped it gain market share and remain the nation’s second-largest carrier despite its reputation for a poor network.
News reports and blog posts, however, speculate that the iPhone soon will be available through Verizon Wireless, the nation’s largest carrier, as early as January. It could be a boost for Verizon – and brings into question how lasting AT&T’s recent rise in the market will be.
Meanwhile, Sprint Nextel Corp. and T-Mobile USA are fighting for an expanded share of the marketplace. Neither carrier sells the iPhone, but Google Inc.’s Android technology, common in the phones they offer, has been drawing customers in droves. Windows Phone 7, Microsoft’s newest operating system, also will be available through all carriers and has received strong reviews in advance of its launch this month.
Getting ahead of the competition also means offering a better variety of subscription plans, especially those that are prepaid, at cheaper prices. Carriers won’t bring in as much revenue per user, but they hope it keeps customers from switching to competitors.
Along with inexpensive plans, consumers are now demanding faster network speeds. Each of the major carriers is racing to be the first to deploy the largest and most reliable superfast 4G – or fourth-generation technology -network.
Although Arizona may not be known for its “early adopter” crowd like California, its technology-hub neighbor to the west, wireless competition in the next year could shape the market in the state for years to come.
Modern necessity
Consumers aren’t willing to give up their mobile phones, even during a recession. The average U.S. wireless subscriber used about 824 minutes per month last year, compared with 160 minutes in Europe, according to international group CTIA-the Wireless Association.
One in every four U.S. households – 24.5 percent – used only wireless phones in the last half of 2009, according to a report by the Centers for Disease Control and Prevention.
Of more than 630 wireless models in the U.S., according to CTIA, the growth trend is being driven by popular smartphones such as iPhones, BlackBerrys and, more recently, Android models.
In the third quarter, 28 percent of U.S. mobile subscribers owned smartphones, up 3 percent from the previous quarter, and 41 percent of those who bought a new mobile device were smartphones, according to The Nielsen Co.
Casey Thormahlen, an analyst with IBIS World, said that ever since the iPhone launched, carriers knew that consumers usually sign contracts based off which device they want, not carrier.
“AT&T has benefited the most because of its exclusivity with Apple,” he said.
The iPhone saw explosive growth after its summer 2007 debut. It had 28 percent market share last quarter, according to Nielsen, which was 2 percentage points shy of dethroning Research in Motion Ltd. BlackBerry’s long-standing lead. AT&T also reported a record 5.2 million iPhone activations out of a total 8 million for the same quarter.
But it’s likely consumers won’t see carriers with similar exclusive contracts in the future, Thormahlen said.
“Manufacturers can sell more devices if they’re sold through everyone,” he said.
Newcomer Android, Google’s operating system that debuted in late 2008 with the T-Mobile G1 by HTC, is a prime example. Made by nearly all major manufacturers and sold by most carriers, Android eclipsed both the iPhone and BlackBerry, who nearly tied for second place, in unit sales to new users in the third quarter, Nielsen said.
But with speculation that a Verizon iPhone will happen early next year, which neither Verizon or Apple have confirmed, Credit Suisse predicted last month that Verizon could gain about 4 million new subscribers next year and that roughly 1.4 million AT&T customers would make the switch.
It wouldn’t necessarily be a hit to other platforms, said Roger Entner, a Nielsen analyst.
“It’s choice and variety,” Entner said. “Apple is a very admired brand, but not everyone wants to have an iPhone.”
Entner said Android would keep up, especially because consumers have their pick among different models, carriers and prices. In contrast, there’s only one model iPhone on one carrier today.
Windows Phone 7, an upgrade from the Windows Mobile operating system, also should not be underestimated, said Chris Percy, vice president of AT&T’s Southwest region headquarters based in Phoenix.
People should take the disappointing Windows Mobile and “erase it from your memory banks,” Percy said. “I think they’re going to hit a home run with this one.”
Consumers will also see big improvements in phones compatible with super-fast 4G networks as carriers roll them out, said Chris Nicoll, analyst at Yankee Group.
Users will experience speeds that allow faster downloads and uploads, high-definition video streaming, video-conference calling and devices acting as WiFi hotspots for multiple devices at one time.
“They’ll be entertainment powerhouses in your hand,” Nicoll said. “With 3G, all the pieces weren’t in place for the multimedia experience it promised.”
Thormahlen said carriers would also expand the types of wireless devices offered, such as tablet computers – Apple’s iPad went on sale through Verizon last month – and e-book readers such as the Amazon Kindle and the Barnes & Noble Nook.
Carrier competition
Mergers and acquisitions used to be a key way for carriers to gain subscribers. Verizon became the largest carrier when it merged with Alltel last year. AT&T grew to the size it is today after acquiring Cingular Wireless in 2005.
Now, most of the dealmaking is done. Smaller carriers are scarce, and because nearly everyone has a cellphone, the battle for subscribers is getting more ferocious.
Nearly one-third of wireless subscribers switch providers each year, according to IBIS, meaning carriers will continue to drop prices of monthly bills and handsets, offer more variety of package deals and especially push prepaid plans.
With more than 93.2 million subscribers, Verizon Wireless is the nation’s largest carrier. In Arizona, the company has invested nearly $1 billion – $60 billion nationally – in its network in the past decade, according to Verizon spokeswoman Jenny Weaver.
With about 2,700 employees, a Southwest region headquarters and customer-service center in Chandler, Verizon, based in Basking Ridge, N.J., ranked 50 in this year’s Arizona Republic 100, which is a list of the state’s largest employers.
Dallas-based AT&T, however, has invested $375 million in its network between 2007 and 2009 in the state. It ranked 99 in this year’s Arizona Republic 100, with 950 employees statewide.
“We’ve seen tremendous growth in the last three years,” Percy said. “In my opinion, we get a really bad rap about our network, but we’re proud of what we’ve done.”
AT&T has been making serious gains on Verizon. In the third quarter, it added 2.6 million subscribers, bringing its total to 92.8 million and $31.6 billion in revenue, a nearly 3 percent increase from last year.
Verizon added less than 1 million subscribers with revenue at $26.5 billion.
Overland Park, Kan.-based Sprint, the third-largest carrier with 48.8 million subscribers, and Bellevue, Wash.-based T-Mobile, fourth largest with 33.8 million customers, have smaller networks and a less tech-savvy customer base, making it hard to get ahead, Thormahlen said.
“Only one or two carriers can really dominate in this industry,” he said.
Together, these top four carriers will make up 90 percent of industry revenue this year, an IBIS annual report said.
The CTIA said that the average monthly wireless bill in the U.S., including voice and data, was about $48 in June. The number of prepaid users has grown more than 5 percent since 2007 and accounted for $13.9 billion of more than $155 billion total for the industry in 2009, CTIA said.
The 4G effect
Besides the handsets and the carriers’ deals, network quality matters to potential customers.
Phoenix will be one of the first markets to get Verizon’s 4G network this year, and the upgrade is expected to be fully deployed by the end of 2013. AT&T, in turn, promises improved network speeds nationwide by year’s end, followed by a 4G rollout starting in mid-2011.
Sprint’s was the country’s first 4G network. Its rollout is still under way, although T-Mobile beat it to the Phoenix market last month with a network upgrade offering comparable 4G speeds.
If the term “4G” sounds confusing, that’s because it is.
Simply put, it means faster service for more complex smartphone activities. Current 4G speeds seen so far range roughly between 5 and 21 megabits per second, Nicoll said. He said 4G was largely a marketing term right now.
“It’s an upgraded speed from 3G standards and it requires a new network, so they’re just calling it 4G,” Nicoll said.
Advertisements have been tossing around terms such as LTE, WiMax and HSPA+, with little explanation, Nicoll said. Simply put, they’re terms for different 4G technologies. Carriers also use different technologies for 3G – Verizon and Sprint currently use CDMA, while AT&T and T-Mobile run on GSM.
Sprint’s WiMax network, through its Clearwire subsidiary, was the first 4G network in the country. Its rollout, which started in late 2008, has been slower than expected, and its Phoenix arrival date is anyone’s guess.
“Consumers will see a quicker rollout of the Verizon network and also AT&T,” Nicoll said.
In Las Vegas, regional carrier MetroPCS Communications Inc. this year launched the first LTE network, which is projected to become the dominant technology worldwide.
AT&T is expected to launch its LTE network in mid-2011 but in the meantime will boost 3G speeds through a nationwide software upgrade to HSPA+ technology.
Because its speeds are comparable to those of WiMax and LTE, T-Mobile recently started calling its HSPA+ network “4G” instead of “4G-like,” Nicoll said.
LTE and WiMax will mature over time, Thormahlen said, eventually far surpassing HSPA+ speeds.
Sprint adds a $10 monthly surcharge for those who own 4G devices – such as the HTC Evo, the nation’s first 4G phone – regardless if users have access to the new network. Verizon has not yet announced prices for its LTE network.
Analysts say prices will drop as it becomes the mainstay technology and is adopted by all carriers by the end of 2012, essentially replacing 3G.
How successful each carrier’s rollout will be in attracting customers remains a toss-up, Entner said.
“How will it all change the ballgame?” he asked. “That’s the big question.”
