Wireless market closing in on saturation point

Wireless market faces a saturation situation

In Verizon's third-quarter results last week, the company tallied its wireless customers at 63.7 million—that number includes 1.8 million new ones.

Though the marketer didn't specify whether the gains came from first-time cellphone buyers or by luring existing ones from competitors, it nevertheless seems a bit of a feat in this wireless nation. The question is: How much more growth can still be wrung from the market, and at what point will carriers simply trading share with rivals?

According to Mediamark Research, sometime between September 2006 and this April, the percentage of people living in U.S. households with one or more cellphones exceeded the number of people living in households with landlines, 86.2% to 84.5%.

Perhaps an even more telling trend is that a greater percentage of homes now are wireless only vs. homes relying on landlines.

"We're at, or near, saturation," said Rob Enderle, principal analyst, Enderle Group, San Jose, Calif. Barriers to cellphone purchase have fallen, offering even lower-income populations the ability to buy them. The only remaining untapped markets are younger teens and the elderly, he said.

Mediamark which studied 13,000 U.S. adults in private households, found last year that 14.5% of adults lived in landline-only homes and some 12.4% of homes were cellphone-only. By the time the next study was conducted in the period ending April 2007, the percentages flipped: 12.3% of homes were landline-only and 14% cellphone-only.

Driving that change were young, single consumers, particularly those living on their own. Specifically, the study found for the leading marketing target—18- to 24-year-olds living in a single-person household—more than half, 57.1%, do not have landlines. The cellphone-only lifestyle also is proving popular with Hispanics and African-Americans, the study found.

All this has turned the $6-billion-a-year marketing battle over consumers from a rapid-acquisition mode into a zero-sum game, a political-style fray where one side is trying to convey its benefits vs. the disadvantage of competitors, Enderle said.

But Jeff Kagan, an independent telecommunications analyst, said the telecom marketing war is far from over. The marketplace is evolving, he said, with new phone features enticing buyers and phones simply malfunctioning after a few years. Even though there are 246 million wireless subscribers, according to telecom-industry association, the expiration of two-year contracts offers consumers incentives to look elsewhere. "There are always new reasons to buy," said Kagan. "That's a good marketplace."

Kagan said for the carriers, there are important financial reasons to keep up wireless subscriptions. Although carriers do not disclose profit numbers by type of service, Kagan said carriers have margins 1.5 to two times higher on wireless service than on landline service.

According to NPD Group, cellphone penetration in the U.S. is about 70%—a far cry from some Asian nations, where some consumers buy more than one device. In some European nations, penetration is as high as 80% to 90%, NPD found.

Wireless market faces a saturation situation - RCR Wireless News