RealTime IT News

Carriers Inch Ahead as Phone Makers Suffer

Mobile carriers, smartphones and the economy
While the recession is prompting layoffs and salary freezes across the tech landscape, the wireless industry is weathering the storm better than others.

But with dwindling growth rates and weakening margins, it's clear that wireless players are feeling the chill as well, according to the latest stats from research firm Strategy Analytics.

Mobile carriers, for instance, continued to see subscriber growth throughout 2008, according to a new report from the firm. Yet that growth is increasingly sluggish -- dipping from 9 percent in 2007 to 6.5 percent last year, and from an annual increase of 21.5 million subscribers to 17 million. For the coming year, Strategy Analytics projects growth of only 5.7 percent, or 16 million mobile subscribers.

While wireless carriers are moving to cope with slowing growth, many mobile phone manufacturers are seeing sales in outright decline. Strategy Analytics said fourth-quarter handset sales were off 10.5 percent compared to the same period a year ago -- dropping from to 329 million to 295 million.

The news signals new levels of weakness in an industry that had shown signs of being better prepared than other when it came to riding out the recession. Mobile users continue gobbling up new phones like the Apple iPhone and the latest BlackBerry models by Research in Motion (RIM).

But it's easy to forget that Apple (NASDAQ: AAPL) and RIM (NASDAQ: RIMM) fans represent only a sliver of worldwide mobile phone users -- and they can't offset a larger decline.

In particular, analysts placed the blame on businesses and consumers' efforts to scale back on expenses like multiple devices.

"We have been seeing a consolidation by users down to one device rather than multi-devices for e-mail and voice in the enterprise segment," Susan Welsh de Grimaldo, a senior analyst at Strategy Analytics, told InternetNews.com. "The largest contributor to the slowing growth in 2008 was a 44 percent drop in multiple subscriptions, as businesses find smart devices with multiple functionality a good solution, rather than using one device for voice and another for e-mail."

Carriers face the recession

While the research firm doesn't expect wireless carriers to repeat last year's costly rate plan war to try to gain new subscribers, it believes they'll come up with alternative strategies to offset slowing growth: innovating with new technology, plans and pricing.

"Carriers are facing fewer gross adds this year, mainly due to the maturing of the market, but the current economic situation is not fundamentally undermining profitability," Welsh de Grimaldo said. "We expect to see positioning for value and more flexibility in plans to address both enterprise and consumer belt tightening in the current economic downturn."

Top carriers Verizon Wireless and AT&T, which last year showed a tremendous resilience to the market downturn, will continue to find themselves locked in battle for dominance -- and increasingly, becoming the only two games in town, Welsh de Grimaldo added.

[cob:Pull_Quote]"These two will jockey for technology leadership on advanced network technologies and increasingly represent a larger share of total subscribers and service revenues," she said.

Cost-savings will remain a top priority as well, despite carriers' relative health. Several, including AT&T (NYSE: T) as well as No. 3 Sprint (NYSE: S), began cost-cutting programs last year. In mid-2008, AT&T first laid off 5,000 workers and than another 12,000 in December, even after posting strong quarterly revenue growth.

In November, Sprint began offering voluntary severance packages to reduce headcount. The carrier also cut costs by trimming office supplies, encouraging employees to print less and minimizing cafeteria services.

"Cost savings will be a key mandate for 2009 and 2010," Welsh de Grimaldo said. "Carriers will be pushing for savings in many areas, particularly network-related operating savings and controlling cost of customer acquisitions and service."

The smartphone impact

But carriers are only one side of the coin. The trend toward consolidated mobile devices means greater competition for phone makers -- most of whom are already hurting thanks to a steep decline in overall sales.

Strategy Analytics said in a separate report that global mobile phone shipments dropped a whopping 10 percent in the fourth quarter of 2008, with just 295 million devices sold.

That performance weighed on the industry's full-year sales, pushing growth rates down to 5 percent -- its weakest levels since 2001, according to the report.

The trends don't bode well for beleaguered Motorola, which slipped from third place in the industry to No. 5 due to a lackluster performance in 2008. Despite debuting a slew of new handsets during the year, the company shipped just 19 million handsets in fourth quarter -- a big drop from the 41 million units it moved during the fourth quarter of 2007.

To help it weather the downturn, the company delayed its long-discussed plans to spin off its mobile device unit -- a move that had initially been designed to help the division refocus and recover its lost market share. Motorola also ended 2008 with layoffs, salary cuts for executives and pay freezes for staff.

Page 2: Nokia, Palm and Apple