An interesting post over at Tech Trader Daily, looking at a Wall Street research note wondering what would happen to US mobile operators if the country’s economy went into a recession:
Bernstein Research analyst Craig Moffett took a look at that question in a research note today, and for investors in telecom services, the answers he offers are sobering.
For starters, Moffett points out that the wireless carriers are entering a period of slow growth. He notes that wireless penetration is already at 80% in the U.S., and is not likely to exceed 90%. Already, he notes, almost every adult American has a wireless phone, and service is reaching demographic groups once considerable unreachable – like kids under age 10. And while he agrees that data subscriptions will grow rapidly, he contends they will be too small to compensate for the coming slowdown in new subscribers.
And if there is a recession, things could get a bit ugly. Moffett notes that in the 2001 recession, wireless net subscriber growth dropped in half in two years – and that at a time when penetration rates were about 30 percentage points low. “The issue is not whether consumers disconnect their phones in a recession, but rather, whether new consumers can continue to enter the market at the same pace,” he writes. “The wireless segment of the telecom stocks does not appear to discount stability during a recession, but instead sustained growth.”
There seems to be a flaw in the logic there — that new subscriber growth can continue, even as the market reaches saturation. That’s pretty questionable, regardless of the state of the economy. In a recession, the bigger problem would be ARPU shrinkage as consumers look to cut costs. That’s a big concern for operators, though basic voice and messaging services are probably essential enough that they’re insulated to a certain degree. In fact, I’d venture that fixed-line operators would be under more threat, as cost-cutting by consumers could accelerate the move to drop landlines completely and go mobile-only.
But the implications are bigger for mobile content and service providers, and for operators’ ancillary subscription services, like mobile TV for instance. Yet another reason to get into ad-supported content, perhaps.
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