Hit by higher smartphone subsidies and lower voice usage, mobile carriers are working hard to find other ways to make a buck, a consulting report finds
Facing greater expenses, the wireless industry is trying to drum up profits by relying more on such services as prepaid and mobile broadband, says a report out today from PwC.
Surveying wireless carriers in the U.S. and Canada last year, PwC found a variety of challenges to their profitability.
Rising smartphone subsidies have forced providers to pay more up front for the privilege of carrying certain smartphones. Though obviously popular, the iPhone requires carriers to pay a huge subsidy, crimping per user profit.
And though providers have been pushing smartphones to their customers, the resulting rise in data usage is forcing them to spend more money to keep up with demand. Smartphones accounted for 48 percent of all device sales last year, up 30 percent from 2010.
Further, a greater reliance on e-mail and text messaging has triggered a decline in traditional voice usage. The average number of monthly voice minutes used per subscriber fell to 638 last year from 720 in 2010.
"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, PwC's global communications industry leader. "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."
As a result, the industry has been looking for other ways to keep earnings and sales alive.
One strategy has been the use of prepaid plans, according to PwC.
"Prepaid plans continue to represent a significant and growing portion of carrier revenues as consumers opt for less expensive, no-commitment wireless plans," the report noted. "Prepaid services now represent an average of 29.2 percent of total service revenues, up from 22.5 percent in the 2010 survey."
Carriers have also been relying on mobile broadband plans to boost income. As more subscribers expect to be connected all the time, they've moved beyond data plans for their smartphones to plans for their tablets and portable PCs. For now, a variety of broadband and hotspot features are available, but PwC expects these devices and services to evolve over the next year or two.
Facing households with multiple mobile devices, some carriers have been considering hared data plans as a way to provide lower-cost but more comprehensive access. Verizon Wireless recently said it will offer such a plan by mid-year.
Carriers are even trying to retain subscribers by offering incentives, such as device buyback programs and leasing plans, according to the report.
Finally, the industry is pushing customers toward faster and more efficient networks.
A full 82 percent of the carriers surveyed said that at least 90 percent of their customers are now covered by 3G, up from 67 percent in 2010. And seven of the carriers pointed out that they're rolling out 4G networks, up from just three the prior year.
"There is significant pressure on carriers to migrate to the most efficient networks while needing to address the issue of spectrum scarcity," PwC U.S. advisory wireless leader Dan Hays said in a statement. "We are beginning to see carriers shut off legacy networks and force customers to migrate to new technologies."
But even here, challenges remain. Carriers need to continue to invest in their networks despite the expense and the slower growth in subscribers. Looking ahead, PwC expects providers to look into network sharing agreements and other types of partnerships to spread the cost.