Sour economy may hurt cell phone sales; voice, data plans won't be as hard-hit

Computerworld - Just as the wireless market has been flooded with new smart phones and wireless devices, the economy has turned south.

As a result of the downturn, some forecasters predict wireless customers will spend less on new devices, including an array of sophisticated smart phones such as Apple Inc.'s iPhone 3G, the T-Mobile G1 based on Android software, and the upcoming BlackBerry Storm.

At the same time, wireless customers may start cutting back on their monthly voice and data plan spending, forecasters say, even as AT&T Wireless last week and Verizon Wireless today reported strong third-quarter results in wireless revenues.

Forecasters say wireless carriers, especially AT&T and Verizon, will still see continued revenue growth in voice and data services, albeit at a slower pace. Verizon CEO Ivan Seidenberg even told analysts today that the carrier may see reduced consumer and business spending due to the sluggish economy.

Even in hard times, users want their cell phones

One thing just about everyone in the wireless industry agrees on is that users are unlikely to give up their wireless devices even as the economy falters, and they would be more likely to drop the land lines to their homes instead.

"One of the last things people will get rid of is cell phone service," said Kate Price, an analyst at Technology Business Research Inc. in Hampton, N.H. "People may scrimp in other areas [in a bad economy], including dropping land lines, but people won't get rid of cell phones."

Added Jeffrey Kagan, an independent analyst: "If people are going to cancel one or the other, I see many of them canceling some of their local [wired] phone lines."

In fact, replacing a land-line phone with a wireless phone is a widely recognized market reality, and the carriers acknowledge it as well, these analysts said.

At a demonstration of a high-speed WiMax wireless network in Baltimore recently, Sprint Nextel Corp. CEO Dan Hesse suggested that the economy could force a reduction in the cost of wireless devices, although he didn't announce any specific plans. Hesse also acknowledged that consumers will give up wire-line Internet and TV communications before wireless ones.

Analysts were struck by the strong third-quarter earnings of AT&T Wireless and Verizon Wireless, two companies perpetually battling to be No. 1 in the U.S. However, experts predicted slowdowns in coming quarters.

"Telecom ... seems to be weathering this economic storm," Kagan said, noting the recent performance of the two companies. The big stock-market plunges of October were not a part of both reports, however.

"Will growth be slowed? Sure," Kagan added.

AT&T, which exclusively provides the wireless network for the iPhone in the U.S., took a hit to its profit margins because of subsidies it provides for the Apple device, Price noted. But she also concluded that data revenue will grow over time as iPhones are sold.