Wireless users will be willing to spend more on monthly wireless service over time as a result of enhanced service offerings often included with digital service, according to a report released by CIBC Wood Gundy Securities Corp.
In its report, “Projecting Wireless Telecommunications Growth,” the New York-based firm said it expects the number of total subscribers to be less important than the number of minutes each subscriber uses because enhanced services, lower prices, extended battery life and improved network quality will change consumer behavior.
“Perhaps the most compelling reasons for increased wireless growth and usage are all of the enhanced features provided by digital networks and phones,” wrote the firm. “In conjunction with improved service quality, these enhanced service offerings create additional impetus for wireless growth and usage, since each new feature provides a subscriber with one more reason to buy and use wireless phones.” Enhanced services include services such as built-in voice mail and text and number messaging, call waiting, call forwarding, caller ID and call conferencing.
Lower per-minute prices give subscribers the incentive to substitute wireline telephone use with wireless use, said CIBC. This will propel minutes of use and average revenue per user (ARPU).
Historically, analog cellular carriers have loaded their networks with low usage subscribers, continued the report. These carriers have experienced declines in both ARPU and minutes of use because the growth of this customer segment has averaged minutes of use downward.
“Since cellular pricing has in fact trended upward until recently, lower ARPU reflects the fact that new cellular users in the past several years are much more apt to be low-end or security-only subscribers, compared to higher-end business and/or longer-term users that have been cellular subscribers for two or more years and continue to use their phones more frequently,” stated the report.
CIBC attributes most of the increase in the low-use subscriber base to the marketing efforts by the cellular carriers. Since many have reached near maximum capacity on their analog networks, carriers can better support users who pay monthly service fees but put little additional strains on the network.
ARPU should normalize as carriers eliminate capacity constraints and seek out high-end users and encourage overall use, said the report.
“The combination of normalized ARPU, higher [minutes of use] stimulated by the elasticity of demand, and continued growth in total wireless penetration serves to grow the overall size of the wireless market, which explains why the wireless pie will expand to support more than two wireless operators,” concluded CIBC.
