Saturday, June 20, 2015

44% of U.S. Homes are Mobile Only: Why That is a Problem for Mobile

About 44 percent of U.S. households now are “mobile only,” meaning the households do not buy fixed network voice services, according to the CTIA. The prior year, about 39 percent of U.S. homes reported not buying fixed network voice services.

You might argue that is a good sign for mobile service providers. But other data points to a troubling sign of market maturation. The number of homes willing to substitute mobile for fixed service is shrinking.

Average revenue per user is declining, and has been dropping since a 2012 peak.

Also, in 2014, for the first time, U.S. mobile revenues dropped.

To be sure, that is something of a statistical artifact, as U.S. service providers are booking more device revenue, and losing recurring service revenues, as part of the shift to device installment plans.

On that basis, revenue in 2014 continued to grow. Of course, that makes a greater proportion of service provider revenue "variable," and dependent on consumer willingness to upgrade devices frequently and buy top of the line devices. 
But service provider revenues are likely to be as subject to long term decline in the U.S. market as in other markets where declines are happening already, or are projected to happen within the next few years.

Some might argue that is a cyclical development. Others might simply point out that as penetration has reached 110 percent, most people who want to use the service already do so.

That five percent increase in the fixed network abandonment rate might be important. At a five-percent annual decline rate, the whole business disappears in about two decades.

Sprint, for example, recently asked the Federal Communications Commission for permission to shut down its long distance voice operations, entirely, by September 2015.

The problem appears to be that the business costs more than it generates in revenues.

Verizon’s revenue from fixed network operations also is declining sharply, for example.

Increases or declines of any quantity at a 10-percent rate are serious matters.

Sowmyanarayan Sampath, Verizon Communications SVP of transformation says Verizon’s copper-based revenue is declining eight percent to 10 percent a year.

At that rate, the revenue stream disappears in a decade. So far, mobile substitution has not advanced at those rates.

It always is possible that service providers will manage to create substitute products that slow the rate of decline. And, at least for a time, substitution rates could decline as the remaining customers should be those for whom the product remains relevant.

But you might argue that where mobile operators at one time might have cheered mobile substitution, they now have bigger problems, namely the maturation of the foundation products for the mobile revenue stream.

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