"Headwinds" for U.S. Mobile Service Providers

Mobile data services have for the better part of a decade been the clear near-term driver of revenue growth for mobile service providers, roughly driven by smart phone adoption. So, oddly enough, we now see carriers making tough decisions about how fast they actually can grow those smart phone businesses.

A key issue in recent years has been the practice of subsidizing the retail price of smart phones to spur adoption. But operators seem to be rebelling at the idea of continuing to do so at current levels. In some cases that might mean new fees when upgrading to a new smart phone.

In other cases, carriers will try to convince customers to buy devices that are easier to subsidize. Some will even try to stabilize smart phone adoption rates, adding new accounts, but not as many as might be added if carriers conducted more aggressive marketing.

Those steps will help carriers protect their dropping profit margins, but at the risk of slower smart phone adoption.

"Over the longer term, we believe the wireless industry faces the twin headwinds of 100 percent penetration and, eventually, decelerating smartphone additions as the base reaches saturation," Jefferies' analysts wrote. "Voice revenues are already in decline. We believe a material drop off in the growth rate of data revenues from slowing smartphone adoption, particularly in 2H12, is a growing risk," Jefferies says.