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TIA: Handset Sales Poised For More Growth

3/24/2008 02:00:00 AM Eastern


Wireless subscribers are trading in their phones at an accelerating pace, driven by the proliferation of multimedia phones and smartphones as well as by the expansion of carriers’ high-speed data networks, according to the Telecommunications Industry Association (TIA).

The trend is driving up unit and dollar sales of handsets even though handset penetration hit the 79.4 percent mark at the end of 2007, TIA said in its 2008 Telecommunications Market Review and Forecast. In fact, factory-level dollar growth is outstripping unit growth because consumers are stepping up to smartphones and multimedia phones, all of which take advantage of high-speed wireless data services that in turn are driving up carriers’ revenues, the association said. “Advanced data applications will drive [carrier] service revenues; smartphones that facilitate advanced data applications will drive device revenues.”

For the third consecutive year in 2007, manufacturers’ average selling prices rose, this time by 4.3 percent to $147, following an almost uninterrupted stretch of declines from 1988 through 1996. Average selling prices rose in 1997 only to fall every year after that until 2005, TIA said. The average selling price rose in 2005 by 4 percent, then by 8.5 percent in 2006, TIA said. The association forecasts prices to rise at a compound annual growth rate of 1.8 percent from 2008 to 2011 to hit $158. (See table #1, top right.)

Also since 2005, handset manufacturers’ revenue growth outstripped unit-sales growth and will continue to do so through 2011, TIA said. In 2007, revenues grow 13.4 percent to $20.3 billion on unit-sales growth of 8.5 percent to 138.2 million, TIA said. (See table #2, right.)

Smartphone share: Much of that dollar growth is driven by accelerated sales of smartphones, whose sales grew in 2007 to account for 15 percent of U.S. factory-level unit sales from 3 percent in 2003, TIA said. “We expect that share to more than double to 32.5 percent in 2011, fueled by the rollout of new services that require high-end phones,” TIA said.

“Traditionally, due to their high cost, smartphones were targeted to the business community, which needs access to email,” TIA added. “Smartphones are now also being targeted to the consumer market.” More people are opting for smartphones, TIA added, “as hardware and software become cheaper and the networks run faster.”

TIA found smartphone unit-sales growth outpacing the growth rate of standard handsets, including PDAs, by a rate of 47.9 percent compared to 3.6 percent in 2007. Beginning in 2008, unit sales of standard handsets will decline through 2011 at a compound annual rate of 2.1 percent, but smartphone sales will grow during that time at a compound annual rate of 25.9 percent. (See table #2.)

Similarly, “the proliferation of advanced data applications has led to a proliferation in the number of handset models, with different handsets specializing in different applications,” TIA continued. “Handsets are being marketed as portable entertainment centers, with voice communications as a sideline.”

Happy apps: Many of those handsets’ data applications use carriers’ data services, which account for a growing share of revenue, TIA found. In 2005, carriers’ revenues from data services accounted for only 6 percent of total carrier service revenues of $113.5 billion, but that percentage grew in 2007 to 16 percent of carrier revenues of $139.4 billion. In 2011, TIA forecasts data to account for 34.8 percent of carriers’ total revenues of $192.9 billion. (See table #3, above.)

“As subscriber growth slows, and with competition driving down rates for voice minutes, traditional voice communication will become substantially less important as an industry driver,” TIA said. The migration in landline phones from circuit-switched to low-cost VoIP is also putting downward pressure on wireless voice pricing, the organization said.

As a result, “in order to avoid becoming marginalized, wireless operators are introducing advanced wireless data services that still command premium pricing.” TIA explained.

Data applications include text messaging, over-the-air music downloading and streaming, game downloads, video streaming, live TV, GPS-based driving instructions and other non-voice services. Revenue from such services grew 78.9 percent in 2007 compared to voice-revenue growth of 3.7 percent, TIA said.

Almost half of wireless subscribers use text messaging, and about 20 percent of subscribers access the Internet to browse the Web or access email, TIA said. Other applications are also becoming important. Downloads of music ringtones and full-track songs generated $1 billion in revenues in 2007, with video game downloads, multiplayer wireless gaming and mobile TV providing another $600 million, TIA said.

Average spending: As a result of these activities, monthly phone bills are going up, boosting carrier revenues in 2007 for the first time in three years even though the growth of the subscriber base slowed to the single digits (8.8 percent) for the first time in 2007, TIA found.

The average bill rose in 2007 to $48.60, up from the previous year’s $47.59, and TIA forecasts continued growththrough 2011, when the average bill will hit $57, the highest since 1994’s $61.44.

For more cellular market data, see p. 16 for a report on a Consumer Electronics Association consumer survey on cellular data services.

Carrier Data Revenues Soar

in $ millions

Total Revenue % Change Data Revenue % Change Data As % Of Revenue
2005 $113,538 $6,900 6.0%
2006 $125,457 10.5% $12,300 78.3% 9.8%
2007 $139,385 11.1% $22,000 78.9% 16.0%
2008 $152,388 9.3% $32,000 45.5% 21.0%
2009 $165,807 8.8% $43,000 34.4% 25.9%
2010 $179,025 8.0% $54,500 26.7% 30.4%
2011 $192,888 7.7% $67,200 23.3% 34.8%
08-’11 CAGR* 8.5% 32.2%


U.S Wireless Subscribers

in millions

Subscribers % Change New Net Subscribers % Change
2001 118.4
2002 134.6 13.7% 16.2
2003 148.1 10.0% 13.5 -16.7%
2004 169.5 14.4% 21.4 58.5%
2005 194.5 14.7% 25 16.8%
2006 219.7 13.0% 25.2 0.8%
2007 239.0 8.8% 19.3 -23.4%
2008 255.0 6.7% 16 -17.1%
2009 267.0 4.7% 12 -25.0%
2010 275.0 3.0% 8 -33.3%
2011 282.0 2.5% 7 -12.5%
08-’11 CAGR 4.2%
*Compound annual growth rate

Source: Telecommunications Industry Association (TIA) 2008 Telecommunications Market Review and Forecast, which cites CTIA-The Wireless Association, FCC, In-Stat, TIA and Wilkofsky Gruen Associates © TWICE 2008


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