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Electronics Production | February 13, 2007

Wireless carriers face subscriber slowdown

After rising by an average of 25 percent in 2004, 2005 and 2006, global mobile phone subscriber growth will decelerate to 12.8 percent in 2007, according to iSuppli's Wireless Systems service.
At the ongoing 3GSM event in Barcelona, Spain, manufacturers are expected to show their latest products, ranging from high-end music-enabled wireless handsets and smart phones that are designed to appeal to sophisticated users in developed regions, to Ultra Low-Cost Handsets (ULCHs) that are targeted at low-income users in the third world. These products can counteract the impact of the subscriber slowdown by drumming up new revenue streams and by attracting new customers that previously couldn't afford mobile phones. But will these efforts be enough to maintain growth in mobile phone hardware and service revenues?

Subscriber slowdown
The slowdown will continue during the following years, with subscriber growth dropping to 9.6 percent in 2008, to 7 percent in 2009 and to 5.7 percent in 2010. Figure 1 below and attached presents iSuppli's estimate and forecast of mobile-phone service subscriber growth rates.

In parallel with the slowdown in subscriber gains is a major drop-off in production growth for mobile phones. In 2004, 2005 and 2006, mobile-phone unit production grew by an average of 19.3 percent. In 2007, the growth will slow to a mere 9.1 percent, followed by 6.9 percent in 2008, 4.8 percent in 2009 and 3 percent in 2010.

The slowdown in new subscriber growth and the deceleration in mobile-phone sales translates directly into deteriorating market conditions for wireless carriers, said Dr. Jagdish Rebello, director and principal analyst for iSuppli. “Carriers and their mobile phone suppliers need new strategies to counter the impact of this phenomenon.

So what can wireless carriers do amid this historic shift in market conditions? iSuppli has a few observations.

Quality over quantity
With fewer new subscribers to be found worldwide, carriers need to focus on squeezing more revenue out of their existing customers in developed regions. One way to boost the Average Revenue Per User (ARPU) is to offer enhanced services that subscribers are willing to pay for.

In pursuit of this goal, wireless carriers are offering services including Internet access, mobile television and music playback capability, all of which command a higher ARPU than basic voice communications. By 2010, the market for mobile-phone content, including music, video and gaming will expand to nearly $36 billion, up from $7.7 billion in 2005, according to iSuppli's Mobile Multimedia Content service.

However, even new mobile content services are in a constant state of flux, with ringtones already having peaked, ringback tones gaining momentum, and mobile TV services just debuting worldwide.

Applications such as digital imaging, mobile TV, video and audio streaming, music downloads and interactive gaming are imposing significant changes on mobile-phone design, requiring higher resolution displays, more powerful processing, increased memory densities, removable flash cards and local interfaces to connect to PCs, such as USB. Carriers that can marry compelling content and services to affordable yet attractive hardware stand to increase their ARPU and counteract the impact of slowing subscriber growth.

Embrace the ULCH
Developed regions of the world have reached near saturation of mobile-phone subscribers. In 2006, North America achieved 93.2 percent wireless subscriber penetration, with South Korea at 83.2 percent and Japan at 74.2 percent. This is the major factor behind the worldwide slowdown in subscriber growth.

In contrast, the globe's developing nations and regions have much lower wireless penetration rates, with Latin America at 48.3 percent; China at 24.4 percent; Africa, the Middle East and Australia at 23.6 percent and India at a mere 13.5 percent. However, this situation is changing rapidly, with penetration in 2010 rising to 65.5 percent in Latin America; to 36.6 percent in China; to 34.8 percent in Africa, Middle East and Australia and to 31.5 percent in India.

For wireless carriers to achieve any significant increase in subscribers during the next three years, they must find a way to tap into growth in the less-penetrated regions. In less-affluent countries including India, the key to cashing in on this growth is to offer ULCH phones, i.e. phones that cost $40 or less.

For India and other developing regions, the next phase of growth will be driven by low-end phones, Rebello said. To serve this area, manufacturers need to drive down their phone costs.

Many mobile-phone makers have jumped into the ULCH business, offering phones priced at $30 to $40. To support this trend, semiconductor suppliers have begun offering single-chip solutions for ULCHs that dramatically reduce the Bill-of-Materials costs for such phones. Wireless carriers must leverage such solutions to offer phones that are not only inexpensive, but that appeal to the specific needs of consumers in these regions.

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