Wednesday, October 17, 2012

How Much Can Consumer Communications Spending Grow?

How much can consumer spending on communications, including mobility services, broadband and other services continue to grow, as a percentage of total household spending? The answer to that question could well determine the health of the global telecom business.
And there are clear indications that household spending on a range of communications services and appliances has been growing over the past couple of decades. In fact, a spending rate below three percent was the norm until the recent Internet and mobile era.

In part, you might argue, that is logical. People now are buying multiple services (broadband access, video entertainment, mobile telephone service, fixed telephone service) where in the past they were only buying a single service, namely fixed network telephone service.

There also are some indications that overall spending on devices and services is reaching unprecedented levels.

U.K. household spending on communications, broadly defined, are as high as 12 percent of total household spending, the U.K. government says.  That figure seems unprecedented and out of line with historic percentages in most markets. If such levels can be reached, then there is room for overall spending on devices and services to more than double.

In the U.S. market,  household communications and information technology spending has recently been in the five percent of spending range. That includes both “communications” subscriptions and devices such as computers and other “office” technology.

And there are clear indications that consumers are spending a greater percentage of their disposable income on mobile services, in particular. Even there, though, there are nuances. People surveyed on behalf of the Cisco nternet Business Solutions Group seem to find mobile broadband a discretionary item. 

Cisco Internet Business Solutions Group found that despite consumers’ fondness for smart phones, they do not prioritize their mobile data spending accordingly. 

Most consumers in all countries surveyed would cut mobile data services first or second if they needed to reduce their household communication and entertainment expenditures.

Why haven’t consumers adapted their spending priorities to favor mobile data? Possibly because when consumers do use their smart phones for data access, the research shows that about 80 percent of mobile Internet activity is not truly mobile, but nomadic
That has potential implications. In future recessions, might consumers try to save money by cutting back on mobile data, in addition to subscription video and fixed network voice service? The data suggests there is a possibility of such behavior, as fixed network broadband and mobile voice are the most-important services. That suggests the last services to be cut would be fixed broadband access and mobile voice.

U.S. consumer spending on phone services rose more than four percent in 2011, the fastest rate since 2005, according to Department of Labor statistics.

And mobility now drives much of that spending. In fact, families with more than one smart phone sometimes pay more for mobile service than they pay for cable TV and home Internet access.
The longer term issue is how much more spending can grow, as a percentage of total household spending. The question assumed more importance recently during the Great Recession of 2008, but is an on-going question in light of robust consumer adoption of smart phones and tablets, for example. In principle, widespread use of those devices could change spending on communications.

Though surveys taken in 2009 and 2010 seem to indicate that consumers were cutting back on communications and multi-channel video entertainment spending, other data from the Bureau of Economic Analysis suggests that did not happen; in fact, such spending increased between the start of 2008 and the middle of 2010, for example.

Since the recession started in the fourth quarter of 2007, U.S. consumers have apparently been cutting back on their spending. But Bureau of Economic Analysis data suggests that consumers have been cutting more in some areas than others, and actually have increased spending on many communications services.

BEA show aggregate personal consumption expenditures were up 2.9 percent, or $285 billion, between the fourth quarter of 2007 and the end of the second quarter of 2010, for example.

Mobile device spending was up almost 17 percent since the fourth quarter of 2007. And spending on communications and multi-channel video services was up by five percent.

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