New Wireless Phones, Services Expected To Fuel Q4 Sales Growth

New York— Carriers, suppliers and retailers expect fourth-quarter wireless-phone sales growth, thanks to a greatly expanded selection of step-up data-capable phones and more aggressive carrier promotions of new wireless-data and entertainment services.

The forecast contrasts with flat to declining unit sales experienced by retailers during the fourth quarter of last year.

New step-up phones due in the fourth quarter include models from Audiovox, Kyocera, LG InfoComm, Motorola, Nokia, Research In Motion and Siemens. Some were unveiled at the CTIA's Wireless IT show in Las Vegas.

The phones' new features include color displays, built-in digital cameras, color display of an incoming caller, and ability to download games, wallpaper and music clips to use as polyphonic ring tones. Consumers will also find more phones with Bluetooth connectivity, sleeker models with Palm-PDA functionality, PocketPC phones, and phones that display e-mail, calendar updates and contact-list updates redirected from a user's desktop PC.

Such phones, said In-Stat analyst Ray Jodoin, will help boost fourth-quarter sellthrough in the United States by about 10 percent in units and dollars compared to the year-ago period. Last year's fourth-quarter unit sales, he said, slipped because of Sept. 11, the economy, and a dearth of compelling reasons to buy a new phone — other than to replace a model that was wearing out or couldn't hold a charge.

Carriers "are highly motivated" to promote new phones and services to reduce churn and up average revenue per subscriber (ARPU), said Best Buy VP Dave Sprosty.

Yankee Group analyst Roger Entner also sees the phones' churn-reducing potential. The decision to leave a carrier will be more difficult because of the investment made in one of the new handsets and in the time spent setting up the new services, he said.

Although handset sales will rise in the fourth quarter, net-new subscriber growth will continue to decline now that U.S. penetration rates have hit an all-time high, said Gartner/Dataquest analyst Bryan Prohm. The number of net new subscribers will remain stuck at 12 million to 13 million per year for the next few years compared to 20 million to 22 million in the late 1990s, he said.

"Subscriber acquisition numbers may not be impressive in the fourth quarter, but new handset sales might be," Prohm said. "There is an interesting diversity of devices not available before in the U.S. Demand will be skewed more than ever to replacement sales."

For retailers, that's good news and bad news. The bad news is that a replacement sale is far less profitable because, in many cases, it's not rewarded by carriers with an activation commission — unless the subscriber switches to a new carrier. Some carriers, however, do pay a commission on a replacement sale if a current subscriber signs up for a new contract, but the offer depends on the customer's credit rating, average monthly bill and numbers of years on the network, one industry veteran said. The dealer must also have POS technology in place to access that information, the veteran noted.

Whatever the profitability of the new phones, retailers said they see exciting products that will spike up handset sales. "It's pretty apparent there's some pretty exciting, cool products that play to the strengths of CE retailers," said Sprosty. "Phones are getting closer to being an entertainment-type device."

"New technologies will reignite the industry," he continued. "A lot of customers will switch services, upgrade their rate plans and upgrade their phones." To that end, Sprosty expects carriers to get more aggressive with their data-plan pricing to reduce churn and increase ARPU.

Carriers are "getting better at landing the message of the value of these devices," Sprosty added, which also helps boost sales.

In the short term, Best Buy is "optimistic" about its wireless-sales growth in the fourth quarter, he added.