Will U.S. Mobile Market Revenue Suffer as Market Becomes Unstable?

When markets become unstable, predictions based on past trends likewise can become unstable. In the U.S. mobile market, T-Mobile US has within three quarters reversed a years-long pattern of customer losses, and in the third quarter of 2013 became the mobile service provider that gained the most customers, especially postpaid customers, of any supplier in the business.

Sprint likewise has shuttered its churn-laden Nextel service, which has been responsible for most of Sprint’s turnover problems over the past half-decade. That should allow Sprint to stabilize its churn.

In 2014, Sprint likely will launch a new growth assault, backed by SoftBank resources. All of that means prior forecasts of revenue, subscriber share, average revenue per user and profit margin are likely to change much more substantially than has been the case over the past five years.

Given expected more intense competition, one might assume that churn levels will grow, average revenue per account will face pressure, and that gross revenue could even decline, as Yankee Group analysts now project.

“Deeper in the numbers lurk even more interesting trends worth watching,” says Yankee Group Senior Analyst Rich Karpinski. “The operator saw its ARPU drop quarter-over-quarter by $1.40 and year-over-year by $4.49, at a time when most rivals are improving user monetization.”

In other words, competing on price has implications. If Sprint, as expected, launches a new assault based, in part, on value pricing, overall revenue in the U.S. mobile market could stall, or even decelerate, as Yankee Group already predicts.

What is not clear is whether U.S. market trends will mirror Western European trends. Notably, U.S. service providers have been growing Internet access revenues much faster than Western Europe’s mobile operators. In part, that is because of both wider adoption and the ability to raise prices for Long Term Evolution access.

Up to this point, European service providers have not had notable success boosting prices even for the latest fourth-generation Long Term Evolution networks. Mobile data plan retail prices have been dropping, in many countries, since early 2013, according to ABI Research.

ABI Research now has found that Long Term Evolution 4G network tariffs also are falling, either in actual posted prices or as measured by “cost per bit.”  

Comparing mobile Internet access pricing between the second quarter of 2012 and fourth quarter of 2012, 73 percent of countries surveyed have reduced the “effective cost” of their 4G tariffs to a significant degree.

The effective cost, measured in terms of “dollar per gigabyte,” has dropped by 30 percent. In the U.S. market, service providers generally have maintained retail prices, but introduced larger data quotas.

In Australia, Sweden, Japan, and Saudi Arabia the operators lowered the monthly fee but have kept data quotas unchanged.

That state of affairs poses questions, such as whether mobile service providers actually will be able to drive higher revenue, in the near term, from LTE access services.

“ABI Research is concerned that a number of operators have introduced 4G pricing plans at the same, or even lower, price points than 3G,” stated Jake Saunders, VP for forecasting. “In Norway, Telenor has introduced 4G tariffs that are cheaper than 3G.”

A new competitive environment in the U.S. mobile market could have similar results.