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Telecom, Media Giants Converge At Wireless 2006

Las Vegas — All the talk at CTIA’s Wireless show used to be about talking. And all the key players were telecom companies. This year’s show could not be more different.

During the April 5-7 event, the big talk will focus on voice, data and mobile entertainment. Telecom giants will share the spotlight with executives from media giants AOL, CBS, Disney, EMI Music, ESPN, HBO, MTV and Yahoo. The industry will debate the impact of a growing number of mobile virtual network operators (MVNOs). They include Disney Mobile, which will launch its service during the show.

Suppliers here will also debate and demonstrate emerging wireless technologies, including two — digital video broadcasting-handheld (DVB-H) and Qualcomm’s MediaFLO — designed to broadcast multiple channels digital audio and live or prerecorded video programming to handheld devices without using up cellular-network capacity. Both are expected to be commercially available to consumers in 2006, with DVB-H offered by Crown Castle’s Modeo unit in the 1.6GHz band and by Qualcomm’s MediaFLO unit in the UHF-TV 700MHz band in select markets.

WiMAX for voice and data will also be seen and heard in demos by Motorola and Samsung, which will demonstrate the Korean-banded WiBro version of the technology.

More than 35,000 people expected to attend the show will also get a chance at the Nokia booth to sample UMA (Unlicensed Mobile Access) technology, which enables hybrid cellular/Wi-Fi phones to hand off voice calls from cell sites to a home’s Wi-Fi network.

Attendees will also get a chance to see some of the first W-CDMA high-speed downlink packet access (HSDPA) phones, which accelerate average download throughput over W-CDMA and let subscribers download up to six songs in a minute from one song a minute, Samsung said.

Carriers are looking to such advanced services to generate revenue growth despite expected declines in net-new subscriber growth, and handset suppliers are looking to the carriers’ new services to accelerate replacement sales and stimulate step-up purchases.

In its 2006 Telecommunications Market Review and Forecast, TIA pointed to “limits to [the industry’s] subscriber-growth potential, as nearly two-thirds of the U.S. population has already subscribed to a wireless service.” In 2005, wireless penetration hit 65.8 percent of the U.S. population and will reach 73 percent in 2006 on its way to a projected 88.1 percent in 2009, TIA said. (See table 1.)

“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 concludes.

Percentage growth in the number of net-new subscribers will slide from its four-year high of 14.7 percent in 2005 to 12.1 percent in 2006 and into the single digits during the subsequent three years, TIA said. As a result, the 2006-2009 compound annual growth rate will slump to 8.5 percent. By 2009, the annual number of net new additions will fall to 15 million from 2005’s 25 million.

The decline in net new subscriber growth, in turn, will translate into slower growth rates in cellular subscription revenues, TIA said. Carriers’ revenue growth dropped from 31 percent in 2000 to 14.8 percent in 2005, and growth will slip to 9.3 percent in 2009, TIA forecasts.

The good news for handset suppliers is that “high levels of replacement sales, spurred by the introduction of new features,” will drive handset unit-sales growth despite a shrinking number of net new subscribers during the 2006-2009 period, TIA said.

In the United States, growth in factory-level handset unit and dollar sales will rise 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, TIA projects. (See table 2.)

Dollar sales growth will exceed unit sales growth because of the introduction of new services, TIA explained. In fact, the association found that the average factory-level price of handsets rebounded in 2004 after six years of decline, enabling dollar sales to slightly outpace unit sales growth that year and in 2005. “Dealer prices for handsets turned around in 2004 and will continue to edge up as new features increase costs,” TIA projected.

Likewise, The NPD Group found average handset retail prices going up, moving from $53.92 in the second quarter of 2005 to $62.70 in the fourth quarter, as a greater percentage of phones sold were equipped with advanced features. (See table 3.) MP3-playing cellphones, for example, accounted for 2.9 percent of phones sold in the second quarter but rose to 5.5 percent in the fourth quarter. Camera phones’ share of sales rose from 42 percent, to 49 percent, during that time. And the share of Bluetooth-equipped phones rose from 9 percent, to 16 percent.

For now, however, subscriber use of many of these features is low, according to another NPD survey, but senior In-Stat analyst David Chamberlain expects “music and video to be very important in 2006” and foresees “big changes over the next two to four years” in subscriber adoption, largely because of fatter wireless pipes. “The transition to higher bandwidth networks will make a very big difference in adoption by mobile consumers,” he said. “There have been many things we weren’t able to do because of bandwidth limitations. Now that we have bandwidth, the types of services are getting to the point that they will start to meet consumer expectations.”

By all measures, the advanced-services adoption rate has nowhere to go but up, NPD statistics show. (See table 4.) In January, only 1.1 percent of subscribers streamed video to their handsets, and only 2 percent used their phone as an MP3 player. A total of 12 percent sent picture messages that month. That compares with 40 percent who sent SMS or text messages.

Despite low usage, interest in mobile music and video is higher than interest in downloadable games, Chamberlain said. Mobile media includes streaming audio, streaming video and playback of stored music files that are mainly side-loaded from a PC rather than downloaded over the air, he said.

A recent report by Rutberg & Co. Research found current video-over-cellular services “experiencing encouraging levels of gross subscriber additions,” but churn and actual usage are issues because “content availability, channel-changing time and device/image quality.” Those experiences will drive carriers to offering DVB-H or MediaFLO to deliver multiple audio and video channels, the company concluded. “Across our conversations with European and U.S. carriers [during the recent 3GSM World Congress],” the company said in a report, “We found a consensus that 3G networks will be insufficient for future demand of mobile video, including television, and that alternative broadcast networks will be required.”

In the United States, Sprint said it plans to launch MediaFLO trials in the summer, and Verizon Wireless has promised a commercial launch in October in select markets, Chamberlain said. Both technologies will be commercially available to consumers in select markets in 2006, he added. For Sprint, however, MediaFLO and DVB-H technology are “not essential to have now,” said Oliver Valente, product development senior VP.