July 24, 2008

Data services will drive the future of mobile business

AT&T, the largest wireless carrier in the U.S. measured by number of subscribers, announced its second quarter earnings yesterday. The results include some key pointers to the future of wireless consumer services.

At $30.9 billion, AT&Ts total consolidated revenue for the second quarter ending June 20, 2008 grew by 3.6% compared with revenue for the second quarter of 2007. Comparatively, its wireless division revenue grew by 15.8% over the same period to $12.0 billion, spurred mainly by data services.

I believe data will be the main driver for wireless carriers' profits in the future. Increase in competition to gain subscribers will make voice a commodity business with limited margins. This is true for most global markets, including China and India, soon projected to be the top two mobile markets in the world. U.S. has been behind on advanced data services compared to more evolved markets in the Orient and Europe, but with the launch of iPhone (exclusively on AT&T in the U.S.), American consumers are getting a taste of the data-driven wireless future. And their initial response indicates bright prospects for these services, as a killer gadget influences mass changes in the behavior of American users who thus far have primarily used their cell phones for calls.

Mobility, broadband connectivity and integrated services that encompass voice, data and video are driving a new world of communications," said Randall Stephenson, AT&T Chairman and CEO, during the company's earnings announcement.

Let us take a closer look at the performance of AT&T's wireless data services:

- Wireless data revenues grew 52.0% versus the year-earlier quarter to $2.5 billion, reflecting continued strong adoption of services such as Internet and data access, e-mail and messaging.

- Wireless Internet access revenues more than doubled versus results for the year-earlier second quarter, while revenues from e-mail, messaging and data access all delivered greater than 50% growth.

- Text messaging volumes tripled versus totals for the year-earlier quarter, and multimedia message volumes increased more than 170%.

- At the end of the second quarter, approximately 18% of AT&Ts postpaid wireless subscribers had an integrated device, up from 8% one year earlier. On average, these subscribers have ARPUs roughly double the company average. AT&T customers have 13 million 3G devices between them.

- AT&T expects continued strong growth in wireless data services as more customers choose data plans and advanced wireless devices such as the new iPhone 3G, which was launched as an AT&T U.S. exclusive on July 11. In the first 12 days following launch, sales of the iPhone 3G were nearly double levels achieved in AT&Ts 2007 iPhone launch.

These are pretty impressive results, especially in the current U.S. market that lacks many mobile applications or services due to carriers' stronghold on the mobile ecosystem with few incentives for content owners and technology companies to innovate. This should change going forward because the recent auction of the new wireless spectrum in the U.S. binds winning carriers to keep devices and services open. Additionally, industry's efforts like Android, the open source software development platform, should ensure that the world's second largest mobile market by subscribers can match services offered by its smaller rivals like Japan and South Korea.

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