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Going from Calls to Connections

October 27, 2010

At first glance, the global cell-phone industry appears to be experiencing a golden age. Worldwide sales of mobile devices grew 15 percent in the first half of this year compared with the same period last year, thanks in part to a flood of new smart phones, according to the technology research firm Gartner. In the United States, mobile-phone carriers’ revenue hit a record $152 billion in 2009, nearly quadrupling what it was a decade ago. And yet the industry’s future is uncertain.

Even in developing countries, such as India, cellular phones are ubiquitous.

The long boom in mobile communications has been fueled almost entirely by more people making more phone calls. In 1999 the average American subscriber spent just under three minutes a day chatting on a cell phone. By 2009, average daily usage had jumped to nearly 22 minutes. Even today, in a world of Web-friendly cell phones, Netflix-enabled iPads, and 3G-­compatible laptop computers, simple phone calls still produce more than three-­quarters of the industry’s revenue in the United States.

But after three decades of growth, new demand for voice service is hard to come by in the industrialized world. More than eight out of 10 people in the United States, Japan, and Europe now own a mobile phone, and their voice usage seems to be leveling off. The average AT&T customer chatted for 22 minutes per day in the third quarter, down slightly from 23 minutes a day in 2009. Companies like Britain’s Vodafone, which has networks throughout the Middle East and Africa, still have a chance to reach largely untapped populations–but their potential new customers tend to have much less money to spend than the old ones.

Faced with stagnation in their largest voice markets, carriers are racing to roll out data-friendly networks that can support new applications (see “Feeding the Bandwidth Beast”), including video on demand and services that let people use their cell phones to connect their laptops to the Internet. The carriers’ rush to develop new data services promises to be a boon for equipment makers such as Alcatel-Lucent and Motorola. The next-generation gear these companies are selling should roughly triple wireless capacity, easing congestion in airwaves now overwhelmed by iPhones, Droids, and BlackBerrys.

The shift toward data is what drove this year’s decision by the cellular industry’s main trade group, CTIA, to change the terminology in its semiannual survey so that it now tallies wireless “connections” (i.e., devices) rather than wireless subscribers (i.e., people). The change has had the happy effect of diverting attention from the slowdown in traditional-subscriber growth, since a mobile-phone subscription and a subscription for a laptop’s high-speed Internet card count the same in the survey. Whether selling those new wireless connections proves as lucrative as selling phone calls remains to be seen.

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Illustration by Rose WongIllustration by Rose Wong

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