- The Washington Times - Thursday, November 9, 2006

NEW YORK (AP) — Cell-phone companies, which have spent billions of dollars to upgrade their wireless networks, are trumpeting quarter after quarter of strong gains in revenue from services other than phone calls — from messaging and games to music and video clips, as well as wireless Internet access for laptops.

But a closer look at the numbers raises some question as to whether these flashy new features can be relied upon for long-term growth in the wireless business or if they will merely serve as a way to stay even, making up for revenue lost to fierce price competition on the voice side.

Verizon Wireless, a standout performer in the U.S. cellular market, recently set another industry record by nearly doubling its third-quarter revenue from non-voice services to $1.2 billion, led by text and picture messaging, ringtone sales and laptop subscriptions.

And in another sign of data’s growing significance, Verizon reported that nearly 31 million of its 56.7 million subscribers are using non-voice services, up 43 percent from a year earlier. Data revenue accounted for 14.1 percent of the quarter’s revenue from services, up from 8.4 percent a year earlier.

But broken down another way — by individual subscriber — the numbers posted by Verizon Wireless offer some mixed messages. Once again, it’s easy to see that data usage is soaring: On average, subscribers were paying $7.16 a month for services beyond their calling plans, an increase of nearly 70 percent year-over-year. Overall, however, the combined monthly bill for calls and data usage rose less than 1 percent to $50.59.

In dollar terms, that means the increase of nearly $3 per user in data revenue was almost entirely offset by another decline in monthly revenue generated by phone calls.

Verizon Wireless, owned jointly by Verizon Communications Inc. and Vodafone Group PLC, has plenty of company in battling this chronic industry ailment.

Over at Cingular Wireless, owned by AT&T Inc. and BellSouth Corp., monthly data revenues are expanding rapidly, having grown 46 percent in the third quarter to $6.32 per user. Despite that gain, the average revenue per user from both voice and data barely rose to $49.76 per month, meaning that declining receipts from calling all but swallowed the roughly $2 per month gained on the data side.

At an industry trade show in Singapore last month, a presentation by a Cingular executive featured a slide titled “Data [average revenue per user] can fill the void caused by declining Voice [average revenue per user].” The slide included a bar graph spanning the years from 2001 through 2009, showing no gain in the United States over the past six years, and projecting a tiny decline over the next three.

At the very least, such data help explain why cell-phone companies are pouring so much energy into an expanding array of multimedia offerings. Verizon, for example, recently introduced a technology to give the graphics and animation on its phones more snap. The company also plans to start a live TV service for cell phones, and is said to be negotiating with YouTube to enable subscribers to download popular video clips to their handsets.

Yet despite any frustrating trends, Verizon and Cingular are enjoying explosive growth and profit margins that make them the pride and joy of their corporate parents.

At Verizon Wireless, for example, total revenue has grown 18 percent or better in each of the past four quarters. But the engine of growth has been new subscribers, with the customer base expanding by 7.5 million over the last 12 months.

The salad days of subscriber growth may continue for an additional five years or longer. But at some point, probably in less than 10 years given the current growth rates, there won’t be enough potential first-time cell-phone users left to fuel the industry’s growth.

Already, roughly three-quarters of the nation’s 300 million people have cell phones, according to a running tally maintained by CTIA-the Wireless Association.

On the brighter side, industry executives say prices for voice service have steadied dramatically after years of price wars, suggesting that data may become more a source of growth.

“Over the last 12 months, prices are higher on single-line plans,” said Robert Dotson, chief executive of T-Mobile USA. “You can’t find a $19.99 plan now.”

Richard Lynch, chief technology officer for Verizon Wireless, also sees stability taking hold for the calling business.

“One could argue that it’s dropping ever so slightly, but it’s not a worrisome trend that’s falling off the end of the cliff,” he said. “I’m not going to lie to you and say we never worried about it. Sure we have. But we keep driving down our cost structure, and data is clearly the upward driver in our whole revenue picture.”

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