What Powers New Subs?

By Joseph Palenchar On Jan 5 2006 - 8:00am

TWICE: The number of net new subscribers in the first half of 2005 hit an historic high of 12.5 million, up for the third consecutive year. The installed base of subscribers at the end of June hit 194.6 million people, or about 65 percent of the U.S. population. What's driving this growth? Will it extend into 2006?

Bob Laikin, Brightpoint CEO: I believe U.S. wireless penetration rate will reach mid-80 percent range. Key factors driving wireless device growth include the proliferation of MVNOs, wire-line substitutions, acceptance and expansion of the wireless data market and accelerated handset replacement cycles.

Through their brand, content and demographic niches, MVNOs continue to create more wireless awareness in the marketplace. As a result of increased awareness, the handset market has expanded to now include tweens. Additionally, differentiated offerings will continue to stimulate the replacement cycle and generate demand for wireless devices with new features and applications. The commercial deployment of higher data speed networks is also enhancing the user experience and accelerating the growth of converged smart devices on a global basis.

Michael Misuraca, American Wireless president: We believe the primary factors driving growth are products that are practical and services that are more accessible. Handset technology continues to improve, and prices of services and handset are more affordable than just one year ago. As the technology becomes more efficient and less costly, more people can get access and qualify for plans. We have also seen a strong surge in the prepaid market

Whether trends continue largely depends on the economy.

With 65 percent penetration, we remain very optimistic of aggressive growth and forecasting, while the industry continues to amaze us as a whole. With this country being as advanced as it is in terms of technology, I am surprised that the overall wireless penetration isn't higher than it is. There always seems to be room for growth.

James Burke, Motorola GSM product operations, senior director: When the mobile phone was first introduced in the early 80s, it was a luxury — an extravagant gadget. After a few years, it picked up in popularity, bringing us to the current time when the mobile phone is a daily necessity and increasingly a must-have accessory. As more people turn to their mobile phone as the main connector to friends, family and colleagues, the number of phones sold increases and will continue to increase. Add in the gadget-obsessed who need to have one of everything, those who purchase a mobile as a way to stay in touch with their kids, and so on, and it isn't surprising to see the rate at which mobile phone penetration is increasing.

We believe that some of the growth may be attributed to family plans and teens entering the market.

Additionally, with the mobile handset becoming more than a communications device, bringing music, sleek designs and so on to consumers, the device is becoming more than just a phone; it is an entertainment device; it is a way to stay connected to the office with e-mail capabilities; it is a fashion accessory — allowing people to express themselves. All this is extending the user groups for mobile phones, branching out and offering consumers more choice, more selection.

Peter Skarzynski, Samsung Telecom sales and marketing senior VP: Several factors are driving net-add growth. In the past year, most carriers have rolled out family-rate plans and offered “Buy One, Get Multiple” handset promotions. These are targeted at increasing penetration in the teen segment. Samsung is actively pursuing this market as evidenced by our N330 youth phone launched earlier this year.

Prepaid net adds continue to rise as major carriers view prepaid as a way to better target teen and higher credit-risk segments. Virgin Mobile, a prepaid MVNO, has done a very good job of developing content tailored to the teen/20s segment. TracFone has shown great growth as a low-end prepaid MVNO. Of the major carriers, T-Mobile has experienced the greatest increase in prepaid net adds.

We are starting to see carriers launch handsets and accompanying rate plans that address the preteen market (Cingular's Firefly) and older market (with larger keys, simpler user interface, and basic functionality).

Additionally, the number of distribution points for wireless handsets has increased dramatically as mass merchants such as Wal-Mart and wholesale clubs (Sam's and Costco) have entered the wireless market.

Will it continue in 2006? We started to see a slowdown, at least at major carriers, in the third quarter of 2005 vs. the first half. Sprint/Nextel was down. Cingular was down. Verizon was flat for the third quarter vs. the second. T-Mobile had a nice Q3, though a lot of the growth came through prepaid strength.

The key to maintaining net-add numbers is to offer programs that extend penetration to under-addressed segments and break new barriers. For example, why can't everyone have two cellphones or at least two accounts, one through business and the other personal? If business lines were replaced with cellular accounts, penetration rates would drive well over 100 percent. There are untapped opportunities that could continue driving the market.

Along these lines, Samsung is one of the most active handset vendors in working with our carrier partners to roll out UMA/VoIP/Wi-Fi type handsets.

Many developed countries have penetration rates above 65 percent, with some close to 100 percent. With the right programs, services, prices, etc., the penetration rate could go significantly higher. The simple fact is that the age 50+ is the demographic that is underserved in the United States. As the 50+ group passes on, they will be replaced by a younger generation that views wireless as a necessity. Therefore, the penetration rate will increase over time as the U.S. population regenerates.

David Bent, Sony Ericsson product marketing VP: Over the 2005–2006 period, 50+ million people will select their first mobile phone and service from a wide range of options in North America. Consumers have more choices and easier access than ever, contributing to substantial wireless subscriber growth. New subscribers under 25 continue to grow; successful “add-a-line” programs enabled families to outfit teens and tweens with mobile phones and an increased focus on ease of use has brought more late adopters to wireless.

Landline replacement and MVNOs are only part of this growth today, but a recent Yankee Group survey forecast that the mobile virtual network operator (MVNO) market will reach $10.7 billion in service revenue by 2010.

With several foreign markets at 90 percent-plus market penetration, the United States remains a significant growth opportunity for both wireless operators and handset manufacturers.

Bill Stone, Verizon Wireless marketing VP: At Verizon Wireless, we see several things specifically driving growth. First, the youth and older demographics are coming into the category via aggressive Family Share pricing. Second, the offering of more aggressive prepay options that target both credit-challenged and budget, or “control,” customers. And third, the additional penetration of one person with multiple devices.

We expect penetration to approach 90 percent by 2010, based upon continued trends that I've mentioned.

TWICE: Why are more MVNOs entering the market now?

Laikin: MVNOs are entering the market now because U.S. mobile operators have adopted a wholesale strategy to enable themselves to differentiate and reach an expanded demographic. The MVNO business model has proven successful with the early entrants such as TracFone, Virgin Mobile and Boost. MVNOs are attracted by the economic opportunity in the growing robust wireless industry. I estimate that they will have market share in the 15 percent to 20 percent range by 2008.

Glenn Lurie, Cingular national distribution president: As the U.S. market matures, there are as many reasons for entering the market as there are MVNOs. Reasons include brand extension, bundling, loyal customer base, content and the “me too” factor of seeing some success from the likes of TracFone and Virgin. Some carriers are more familiar with the process, which expedites ramp up. Finally, there are multiple middlemen, such as MVNE's [Mobile Virtual Network Enabler], consultants and so on, making themselves available to work on the many details required to enable a MVNO.

In terms of share, it would not surprise us to see MVNOs with 10 percent share of new activations but lower share in customers, given prepaid mix and churn. New entrants will continue, but those without a powerful value proposition and business model will have a difficult time being successful.

Alert to All Users of the Disqus commenting system:

Because of a recent global security issue, the Disqus website recommends that all users change their Disqus passwords. Heres a URL about the issue:









Enjoy the greatest pictures taken from famous shows and events this year.

Current Issue


This TWICE webinar,  hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.