Cellular Sales Sail Into Record Books

By Joseph Palenchar On Mar 13 2006 - 8:00am

Factory-level sales of cellular handsets rose last year by 23.5 percent in units to 104.5 million and by 25.4 percent in dollars to $14 billion, and sales will grow almost as rapidly in 2006 because of growing cellular penetration and high levels of replacement sales, a Telecommunications Industry Association (TIA) study found.

The TIA's 2006 Telecommunications Market Review and Forecast also said the number of net new wireless-phone subscribers hit an all-time high in 2005 of 25 million and that 2006's projected net subscriber additions of 23.5 million will be the second highest on record.

With record net new subscriber growth, the subscriber base hit 194.5 million at the end of 2005, more than double the installed base of only five years ago, TIA found. The subscriber base is projected to hit 218 million in 2006 on its way to 270 million in 2009.

Record growth in the number of net new cellular subscribers helped accelerate handset unit and dollar growth in 2005 past 2004's unit and dollar growth of 20 percent and 21.8 percent, respectively, TIA continued. In 2006, the report forecasts a slight decline from the previous two years' growth levels, to 19.2 percent in units and 21 percent in dollars.

For the 2007-2009 period, the percentage growth rates will slow some more until they reach the single digits, TIA forecast. As a result, the compound annual growth rate in sales from 2006 to 2009 will slide to 12.6 percent in units and 14 percent in dollars.

Handset sales growth will moderate, TIA said, in large part because "nearly two-thirds of the U.S. population has already subscribed to a wireless service." In 2005, U.S. wireless penetration hit 65.8 percent and will reach 73 percent in 2006 on its way to a projected 88.1 percent in 2009, TIA said.

By 2009, the annual number of net new adds will fall to 15 million from 2005's 25 million.

Growth in handset unit and dollar sales will follow in tandem, TIA said, rising in 2007 by 14 percent in units and 15.7 percent in dollars, by 9.1 percent in units and 10.7 percent in dollars in 2008, and by 8.4 percent in units and 9.2 percent in dollars in 2009. In percentages, however, hardware growth will nonetheless exceed net new subscriber growth during those years because of “high levels of replacement sales, spurred by the introduction of new features,” TIA said.

“As the growth of new subscribers subsides,” TIA explained, “manufacturers are introducing new handsets with additional features, such as more advanced cameras and MP3 players, to spur the replacement market. New wireless handsets are being marketed as portable entertainment centers, with voice communications as a sideline.”

"Subscribers must upgrade their devices to use new services such as picture messaging, mobile music (ringtones, ring tunes, etc.) and 3D video games,” TIA noted.

Because the subscriber base is reaching saturation, the report said, carriers have turned to prepaid plans — sold directly by them or through MVNOs — “as an additional source of revenue.” Carriers “also hope that by introducing customers to wireless through the prepaid platform, they can encourage them to migrate to the more lucrative postpaid model,” the report said.

As a result, prepaid subscribers account for a growing share of total subscribers. In 2002, prepaid subscribers accounted for 9.4 percent of the total subscriber base, or 12.7 million of 134.6 million subscribers, TIA said. In 2005, prepaid subscribers accounted for 28.9 million subscribers, or 14.9 percent of the total subscriber base. By 2009, that percentage will grow slightly to 15.3 percent of the subscriber base.

With penetration peaking, carriers are also turning to new services to drive up revenues, TIA said. "Growth in wireless revenue will be driven by additional minutes of use for voice services, subscriptions to wireless data packages, the availability of additional revenue-generating applications and subscribers' willingness to trade up to more comprehensive and more expensive plans.

TIA's State Of The Cellular Market
(Percentage change)
Subscriber BasePrepaid SubscribersNet New SubscribersFactory Handset Unit SalesFactory Handset Dollar SalesAvg. Total Monthly BillCarrier Revenue
06-09 CAGR*8.5%9.3%NA12.6%14.0%2.4%11.2%
*Compound Annual Growth Rate (2000-2005 actual, 2006-2009 projected)
Source: Telecommunications Industry Association (TIA) ©TWICE 2006

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