The U.S. wireless market, long the fastest-growing sector in the telecommunications industry, looks like it’s headed for a wall.
Sales of wireless contracts, the most lucrative segment of the business because it locks in monthly payments over long periods, may have shrunk for the first time ever in the first quarter. One big reason for the sharp reversal: Soaring iPhone sales in late 2011 may have satiated consumers’ appetites for wireless plans.
A decline would mark a turning point for the previously rapid-growth business, leaving carriers such as AT&T Inc., Verizon Wireless and Sprint Nextel Corp. fighting over a shrinking pool of customers. A slowdown also forces device manufacturers such as Apple Inc. and Samsung Electronics Co. to battle more intensely for customers.
The huge fourth quarter fueled by the iPhone took all the air out of the first quarter. It’s now a saturated market.
U.S. wireless carriers shed a combined 20,000 contract customers in the first quarter.
The decline forces carriers to seek revenue gains at the expense of weaker players. That may mean increasing promotional activity by carriers who already are selling smartphones at a loss to lure users into two-year contracts, a practice that has reduced profit margins.
To offer the iPhone, for instance, carriers already pay Apple about $600 per phone and then collect $199 from retail customers, subsidizing the difference with revenue from monthly service charges.
These subsidies have narrowed wireless operating income margins at AT&T to 15.2 percent in the fourth quarter, down from 30 percent in the first quarter of 2010.
What you’ll see in a saturated market are the forces of consolidation and price pressure. Margins in the U.S. have already been shrinking at a faster rate than any other time in the wireless industry. The possibility that the contract-user number dropped in the first quarter could also be factored in.
The industry is maturing. Given that the pie isn’t growing rapidly any longer, it’s now a game of share-shifting.
Within the industry, AT&T and Verizon Wireless probably kept winning users from smaller rivals T-Mobile USA and Sprint Nextel Corp. T-Mobile probably lost 600,000 contract customers and Sprint 125,000 last quarter. Verizon Wireless added 500,000 contract users and AT&T gained 225,000 such customers.
The potential first-quarter drop follows exceptionally strong gains in the previous period, when holiday sales of Apple Inc.’s new iPhone 4S boosted subscriber numbers. The first quarter also is traditionally the slowest sales period for the industry, and contract-subscriber growth may resume after that.
Some analysts say the market may have avoided a contraction in the first quarter. The big four carriers -- Verizon Wireless, AT&T, Sprint and T-Mobile USA -- added 380,000 contract customers collectively.
Sprint, based in Overland Park, Kansas, rose 4 percent to $2.61 yesterday, and AT&T added 0.9 percent to $30.89. Verizon Communications Inc., which owns Verizon Wireless with Vodafone Group Plc, advanced 0.8 percent to $37.74. T-Mobile is a unit of Deutsche Telekom AG.
Gains in the prepaid market -- a smaller, faster-growing part of the mobile-phone business -- means the wireless industry as a whole kept adding users in the first quarter. Still, in that market, which includes carriers MetroPCS Communications Inc. and Leap Wireless International Inc., the growth also is slowing.
The number of new prepaid customers added by the industry in the first quarter was an estimated 2.5 million, an 18 percent decline from the year-earlier growth rate.
If you take out every kid under 10 and every adult over 80, you have a market with 125 percent penetration. It’s no surprise the industry is maturing.
For more technology and electronics related news, visit the Electronics America blog.
For national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.