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The New Net Add Chasing the Road Warrior

One of today’s fastest-growing wireless services has little to do with placing a call using the hottest new handset. Many new wireless subscribers will not be dialing their new devices; they will be plugging them into their laptops as they strive for constant high-speed data connectivity.

Early adopters and high spending business professionals, particularly road warriors, were the main targets for wireless carriers in 1995. Then mobile phones began to enter the mass market as prices fell and carriers targeted mainstream consumers. With the advent of broadband access services over 3G networks, however, these early adopters and business professionals are once again among the prime target segments for carriers.

Mobile voice service is part of everyday life for the vast majority of US consumers. Wireless penetration has grown from around 27 percent in 1995 to over 70 percent today. Wireless subscriber growth is now hitting a plateau, though, with remaining opportunities expected to come from under-penetrated segments, such as early teens, senior citizens, non-English speakers and credit-challenged consumers. Acquiring subscribers in these groups is more challenging, and can be more expensive, now than it was during the high-growth era for carriers.

No Phone . . . No Minutes: No Problem

These high-ARPU (average revenue per unit) customers will represent a key growth engine for the wireless industry over the next several years. In this time of slower basic-subscriber growth, PC modem data users are the new Net Add for wireless carriers. NPD believes that these data-centric subscribers will represent an increasingly important performance indicator for carriers, just as RGUs (Revenue-Generating Units) became a key metric in the cable industry, as satellite competition intensified and the cable operators’ own service mix expanded to include voice and broadband data users.

Consumers are now accustomed to instant access. High-speed broadband connections in the home now far outpace dial-up service and laptops outsold desktop PCs for the first time in 2004 and increased their lead over desktops again in 2005, according to NPD sales tracking data. For frequent business travelers, having a speedy connection for the laptop is the next logical step for ultimate mobile connectivity, and with typical speeds of 300kbps to 700kbps in the current generation of 1xEV-DO and HSDPA networks, PC aircards and embedded modems are beginning to give Wi-Fi hotspots a run for their money.

Just like voice customers in the early 1990s, these new subscribers will provide an above average monthly ARPU and will come to the table with lower price sensitivity than most rank-and-file consumers. Unlimited usage price plans average $60 per month, down from $80 last year – a trend that will undoubtedly continue as the market matures. The real benefit for carriers is that users will still need a subscription for voice calls. This multi-subscription user will help advance penetration rates, while increasing overall revenue opportunities.

Carriers Are Geared Up

Verizon Wireless was the first U.S. carrier to launch 3G high-speed data. Based on CDMA 1xEV-DO technology, Broadband Access was launched in limited markets in 2004. This type of high-speed service is now available in more than 60 markets nationwide.

Sprint Nextel was next in July of 2005 with the 15-city launch of its Power Vision high-speed data offering. Also based upon 1xEV-DO technology, Sprint plans to expand to 60 markets by early 2006.

Cingular’s December 2005 launch of Broadband connect HSDPA service in 16 markets upgraded their slower EDGE data service to a speed that is on par with – or, according to some, better than – Verizon and Sprint. Coverage will expand to include major markets throughout 2006.

Plug Me In

Sales of PC cards used by carriers at launch have been growing steadily. They are primarily supplied by Novatel, Sierra Wireless, Option Wireless, and Sony Ericsson. Novatel sold more than 120,000 PC cards in 2004 while Sierra Wireless generated more than $124 million from PC cards alone in 2004. New 3G based cards have drawn great interest from road warriors and consumers who want to enhance their connectivity.

The latest market twist noted by NPD is laptop computers with built-in 1xEV-DO and HSDPA modems. Manufacturers that have either announced or released new models include Lenovo, Panasonic, HP, Sony, Itronix, and Dell. Many of the same makers of PC cards also manufacture the modems integrated into these laptops. Just as Centrino and its ilk provided a critical boost for Wi-Fi a few years back, NPD data supports the contention that broader market adoption of integrated 3G laptops will be a huge stimulus to the growth of broadband subscribers.

Sign Me Up

The two main inhibitors to wider adoption of 3G data access today are network coverage and in-building performance; however, all the leading industry players are working to enhance their system access capabilities. Verizon believes that their larger footprint and early lead gives them the current edge in the battle for the road warrior. Sprint and Cingular are about six to nine months behind, but they plan on closing the gap over time. Combining the data thirst of today’s road warrior with the latest 3G PC cards and laptops should produce a whole new breed of net adds.

-- Glen LeBlanc, Research Director, Wireless Services