Less Revenue Per User

By Reuters - Print this article Print

Less revenues for the telephone companies coming? More than likely. 


Wall Street expects an increasing portion of wireless subscriber growth in the first quarter to come from people who pay for calls in advance, who tend to be more fickle than post-paid subscribers, who are locked into monthly bills.

Some prepaid users also have poor credit, which can disqualify them from monthly plans. But with 85 percent of U.S. consumers already owning cell phones -- many of them on one- or two-year contracts -- prepaid is where the growth lies.

"It was noticeable last quarter and it's going to be more noticeable this quarter," said JPMorgan analyst Jonathan Chaplin, referring to the prepaid trend.

A weaker economy may also make it hard for wireless providers to make up some of the growth shortfall with second subscriptions, like data cards for laptops. And even monthly subscribers may try to lower their bills, for example moving to $59 monthly plans from $79 plans.

"I don't expect customers to give up their wireless phone because of the economy but perhaps not spend as much on a monthly basis as they once did," said Stanford Group analyst Michael Nelson.

The outlook is worse in the wireline segment, as more consumers are expected to switch to cable service providers' "bundled" packages of video, Internet and phone.

Housing foreclosures and job cuts may accelerate the trend of people disconnecting their home phones.

Consumer wireline accounts for around a quarter of revenue at AT&T and Verizon. With each wireline cancellation, these companies also lose an opportunity to sell higher-margin services like high-speed Internet and video.

Bear Stearns' McCormack forecast a 5.2 percent fall in residential primary line losses at AT&T, and an 8.3 percent fall at Verizon. Sanford Bernstein analyst Craig Moffett said he thought the situation was worse for Verizon than for AT&T, but wireline losses are likely to hurt both in the long run.

Janco's Jaegers said Denver-based Qwest Communications International Inc (Q.N: Quote, Profile, Research) may be particularly vulnerable since it operates in areas with high foreclosure rates. She sees Qwest's residential line losses increasing to around 10 percent.

Increasing bankruptcies and slower economic activity could hit corporate customers too, analysts said.

"There's going to be a lot of focus on the enterprise telecom business. A lot of people are waiting for that piece to be impacted by the economy," said Bear Stearns' McCormack.

(Editing by Gerald E. McCormick)

This article was originally published on 2008-04-18
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