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Summary:

Forbes’ Econ Matters blog has a cool way of trying to tell the story behind data. But today’s post, which shows information on the wireless industry in the U.S. based on CTIA’s semi-annual survey, paints an incredibly inaccurate picture. I had to set the record straight.

Relying on rural wireless won't save wholesale operators

Forbes’ Econ Matters blog has a cool way of taking data and trying to tell the story behind that data. But today’s post, which shows data on the wireless industry in the U.S. based on CTIA’s semi-annual survey, paints an incredibly inaccurate picture. Part of this is a reporting error, and part of it seems to be a result of omitting relevant data. Anyhow, the gist of the story is that the wireless industry has invested a lot to feed our mobile obsession (and makes a lot off of that obsession), but because of our competitive market, overall wireless bills have gone down to the point where it’s hard for wireless operators to make a profit. This leads the writers to opine:

A miracle, you say? Well, in a sense: the technology underpinning the wireless revolution is simply jaw-dropping. But we’d give some of the credit to market capitalism (which has been taking its licks in public opinion in recent years). More accurately, to competition, which has forced the wireless carriers to pass on to consumers most of the difference between what it costs to deliver the services and what they are worth.

The blog offers five stats, but one of them is inaccurate and two are misleading. Let’s break it down:

  • The total number of wireless subscribers in the U.S. has risen from 4.3 million (served by 4,800 cell towers) in 1990 to 293 million (served by 252,000 cell towers) today.
  • The total capital invested in the wireless networks is up from $5.2 billion in 1990 to $292 billion in 2010.
  • Industry revenues have increased from $4 billion to $156 billion in the same two-decade span.
  • The number of text messages sent ballooned from 57 billion in 2005 to 1.8 trillion in 2010.
  • The final stat states, “the average monthly bill (which typically includes most of the cost for the handset) has declined from $83.94 to $47.47.” Let’s start there. The average monthly phone bill hit the sub-$50 level all the way back in 1996, six years after the $83.94 figure reported, and has actually fallen to as low as $39. For the last decade, it’s been in the high end of the $40 range.

    That’s misleading, but the stat about total capital investments in wireless networks is so misleading I would call it wrong. It’s missing a key word: cumulative. The total cumulative capital invested in wireless network gear has risen by 8 percent for the June 2010 time frame to hit that $292 billion in cumulative investment since 1985. For perspective check out iSuppli’s report stating that the total worldwide spending on wireless equipment will be about $37.8 billion in 2010.

    To create an apples-to-apples comparison to back up the Econ Matters thesis that wireless operators are being unfairly crushed by the competitive environment, one would have to add up the cumulative revenue (or better yet profits from that point in time). According to the same CTIA data used for the Forbes’ blog post, in the six month periods of January through June from 1985 thought 2010 mobile operators made a total of $685.44 billion in revenue. So, after putting in $292 million since 1985 wireless firms have recorded about $1.37 trillion in revenue if we roughly double the amount they made in the first half of each of those years (I asked CTIA for the actual data and will update when the organization gets back to me). I’m pretty confident they can continue to fund all those cell towers.

    And the cell towers brings me to the final effort to mislead. At 4.3 million subscribers and 4,800 cell towers, that represents almost 896 paying customers per each cell tower. Compare that to today’s 293 million subscribers and 252,000 towers there are 1,163 customers for each cell tower. When one looks at it that way, the mobile industry has managed to spread its investment into towers across more people, which may be one reason cell phone bills are trending down. Maybe the wireless industry isn’t some delicate flower whose profits are being crushed by a demand for data and consumers who selfishly want to pay the best price for their mobile service.

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    1. Statistics often are like Speedos. A lot is revealed, but the important parts are hidden.

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    2. The CTIA report lists revenues and investments by year already, so it’s probably more expedient to read carefully than to ask for data already presented. The annual revenue data is on page 2, and the annual investment data can be extracted from the labeled graphs on page 10.

      Summing the revenue data, the CTIA report says that US carriers have invested $295B in capital equipment and billed $1.4T.

      The CTIA report doesn’t say anything about overall costs and profitability except the mention of the 235,021 direct employees. In particular, it’s odd they don’t mention the license fees they pay for the use of spectrum or the usage fees they pay to lease space on towers and for backhaul expenses. The figures on the volume of data moving through their networks are also interesting.

      The Econ Matters blog does not say wireless operators are “some delicate flower whose profits are being crushed by a demand for data and consumers who selfishly want to pay the best price for their mobile service;” that’s your own projection.

      I agree that their phrasing of the cumulative investment thing isn’t very artful, but that’s probably not intent to deceive; I doubt that many people are going to believe that the carriers are investing twice as much for equipment as they’re billing.

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      1. The tone of the Forbes item and the stats presented offer a misleading picture of the wireless industry, and those who might not have looked at the source material, or who looked but didn’t have the knowledge that you and I have might not have realized that the numbers as presented don’t support the argument of the Forbes piece. I don’t think the intent is to deceive, but Forbes isn’t relaying information correctly.

        And yes, license fees are a huge chunk of capital that isn’t really accounted for in the elements presented by CTIA here, and those aren’t exactly cheap.

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        1. Well, it’s only a blog after all. What I got out of it is they regard the mobile network as something magical, and they didn’t offer the numbers so much for analysis as for their jaw-dropping magnitude. The statement: “The total capital invested in the wireless networks is up from $5.2 billion in 1990 to $292 billion in 2010″ isn’t incorrect as it stands.

          You have to take “total” for “annual” to be confused by it.

          I think their main point is that you get a lot more utility from your 2010 smart phone than you did from your 1985 dumb phone, and you get it at a lower price thanks to the well-functioning market for cellular services, which is hard to deny.

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    3. [...] blog presented the data somewhat inartfully, leading some bloggers to cry foul. According to GigaOm’s Stacey Higginbothman, Econ Matters wants us to believe that wireless operators are “some delicate flower whose profits [...]

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    4. It’s interesting that when I left the FCC as chief of the division licensing cellular at the end of June 1985, there were 500,000 subscribers nationwide. As I recall, the industry’s own estimates then were that there would be around a million or so subscribers by the turn of the century. And the CTIA report shows that there were nearly *100 million* in June 2000, and nearly triple that ten years later. This was occurred virtue of addition of 5 MHz of spectrum at 850 MHz, the introduction of multiple digital technologies, the allocation of PCS spectrum, and the incredible buildout of cellsites — from just over 1000 in 1985 to nearly 100,000 in 2000, and today over 250,000.

      Stacey observes that the Forbes article inferred that there had been a continuous decrease in a user’s bill (average revenue per unit, or ARPU), because Forbes looked only at the beginning and endpoints, while in fact the low point in ARPU was over a decade ago, and that bills have risen since. This indicates that the wireless industry is highly competitive — when consumers have used their accounts about as much as they can for the traditional service of cellphone calls, and there aren’t any new calls make, the industry found ways for consumers to use their devices in new and productive ways.

      Moreover, with the expansion of messaging and the introduction both featurephones and smartphones with apps, people have more uses for data services that in some cases reduce their need for voice telephone calls. This increase in ARPU since 1998 reflects the added user benefits of advanced 2G services and 3G services. If consumers had not found them beneficial, ARPU would have continued downhill after 1998. In fact, consumers not only found them worth paying more per month, they also found them worth increasing subscriptions. The number of subscribers grew from about 60 million to 292 million from 1998 to 2000.

      And while the price of service overall decreased and number of subscribers grew dramatically from the 1980s to 2010, while the types of services multiplied dramatically and the number of cellsites needed has grown exponentially, a typical cellsite continues to serve about 1000 customers. These aren’t your granddad’s cellsites, though. 1000 customers back then could make calls. Now, 1000 customers can post to Facebook, tweet, check email, retweet, locate friends, check real-time traffic, become Mayor of Starbucks, get directions, Google “what is metonymy,” check out the lyrics to “I kissed a girl,” see what’s new on YouTube, play online games, check the FCC releases, and read GigaOM (and perhaps other blogs and news sites) — and also, as before, make and receive calls (to the extent they are still needed). The wireless vendors and operators and the application and service providers have done an incredible job of making innovative and meaningful new opportunities available. The statistics barely reveal that fact.

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