Maturing Wireless Industry Turns to Prepaid and Mobile Broadband to Offset Waning Profits and Capture Greater Revenues
Rising Smartphone Subsidy Pressures, Declining Mobile Voice Usage and Loyalty Erosion Prompts Wireless Carriers to Revisit Customer Relationships
NEW YORK, March 26, 2012 - The accelerating pace of smartphone adoption and data usage, increasing capital expenditure driven by the transition to 4G networks, and declining mobile voice usage is creating significant pressures on existing revenue models and profitability for wireless carriers, according to respondents to a survey conducted by PwC US titled: No wires attached: 2011 North American wireless industry survey. The survey finds that as the industry continues to mature, prepaid and mobile broadband services will represent increasingly important revenue opportunities for operators.
"The mobile industry has reached a point where the economics of the current subsidy model associated with acquiring new and upgrading existing customers to costly smartphones have become increasingly difficult to sustain," said Pierre-Alain Sur, global communications industry leader, PwC. "Customers are becoming less loyal and the average length of postpaid customer relationships has declined to 48 months in the 2011 survey, from 59 months in the 2010 survey. Carriers are revisiting their approach to customer relationships and considering new ways to retain subscribers such as device buyback initiatives, leasing programs, and 'bring your own device' approaches."
Smartphone sales represented 48 percent of total device sales, up 30 percent from the 2010 survey, and accounted for 51 percent of upgrades, up 36 percent from the 2010 survey. Prepaid plans continue to represent a significant and growing portion of carrier revenues as consumers opt for less expensive, no-commitment wireless plans. Prepaid services now represent an average of 29.2 percent of total service revenues, up from 22.5 percent in the 2010 survey.
Furthermore, the survey finds that, for the first time, mobile voice usage is starting to decline, triggered by the increased penetration of price-sensitive customers and the replacement of voice usage with data services such as text messaging and e-mail. The average minutes of use (MOU) per postpaid subscriber has seen a significant decline, shrinking from 720 MOU per month in 2010 to 638 MOU per month in the 2011 survey.
To keep pace with increasing subscriber consumption of data-intensive services, wireless operators are migrating quickly to the most efficient networks. In the 2011 survey, 82 percent of responding carriers indicated that at least 90 percent of their subscriber base was covered by 3G technology, up from 67 percent in the 2010 survey. In the 2011 survey, seven operators indicated that they are deploying 4G technology, up from just three companies in the prior year survey.
"There is significant pressure on carriers to migrate to the most efficient networks while needing to address the issue of spectrum scarcity. We are beginning to see carriers shut off legacy networks and force customers to migrate to new technologies," said Dan Hays, U.S. advisory wireless leader, PwC. "The challenge ahead will be to balance slowing subscriber growth and pricing pressure with investment in much-needed network improvements to enable the broader move to smartphones. To drive future growth, operators are expected to pursue new partnerships that create greater value for customers and consider network sharing agreements in order to prevent network redundancy."
About the Survey
The PwC 2011 North American Wireless Industry Survey is an annual publication that covers the financial and operational reporting policies and practices of wireless service providers. The 2011 survey comprises all the major U.S. and Canadian operators and is conducted by PwC's Entertainment, Media and Communications industry practice, which prepares the survey questions, solicits company participation, and compiles and analyzes the survey results. The survey period covers calendar year 2010 as well as certain information as of June 30, 2011. Companies participate voluntarily, and individual survey results are kept confidential by PwC.
The full report is available at: www.pwc.com/us/wirelesssurvey.
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