U.S. Mobile Business Now is Unstable

There are growing signs that the U.S. mobile service provider market is unstable, in terms of market structure, and on the cusp of changes that could include a significant wave of provider restructuring, despite the failure of the AT&T bid to buy T-Mobile USA. 

"What is clear for now, in our view, is that the current strategy, indeed the entire current business, isn't working," said Craig Moffett, an analyst at Sanford C. Bernstein. Moffett seems to be referring to the whole business operated by regional U.S. wireless carriers. 

To be sure, Moffett has been saying that the U.S. mobile business is saturated since at least 2009. 

Oddly enough, to some of us the new stresses resemble the earlier transition from dial-up Internet access to broadband access. In this case, the transition is from feature phone to smart phone business models. 

In that earlier transition, many suppliers that had made a business of supplying dial-up access found they no longer could compete in the broadband business. Now, in mobile, it appears that the cost of supporting handset subsidies is pinching operating revenue, while the cost of building fourth generation networks likewise will hit earnings. 

Of the "big four" U.S. mobile carriers, only T-Mobile USA seems to have experienced a subscriber loss. 

In its second quarter of 2012, AT&T added 1.5 million net new customers. Verizon Wireless added 1.2 million net new subscribers. Sprint added postpaid net additions of 442,000 postpaid net additions. But T-Mobile USA, one the "big four" U.S. mobile service providers, lost 510,000 subscribers in the first quarter. 

The immediate stress is heavy for the regional mobile providers, often using prepaid models. 

Regional or prepaid service providers clearly have had a tougher 2012 than had been the case in the mid-2000s, for example. Leap hasn't been profitable since 2005, for example. MetroPCS profits dropped 63 percent during the first quarter of 2012.

A study undertaken by Tellabs suggests that mobile service provider profitability could become extremely challenging for some mobile operators within three years, with costs surpass revenues for many operators.

In North America that could happen by the fourth quarter of 2013 or as early as Q1 2013. Developed Asia Pacific service providers could see problems by the third quarter of 2014. In some cases this could happen as early as Q3 2013, Tellabs said. 

Service providers in Western Europe could run into trouble by the first quarter of 2015. In some cases this could happen as early as the first quarter of 2014.