Earlier this week, I read a piece on CNN Money, which took a rather simplistic view of the mobile data market. The author argued Internet mobile video was costing the carriers billions every year as they try to keep up with the demand for wireless data. Actually it’s not video; in reality, it’s apps on smartphones and their grown-up siblings — the tablets — along with web in general that are boosting the demand for mobile bandwidth. From the article:
But that’s an expensive task. The U.S. wireless industry is spending $30 billion to $50 billion annually to improve their networks, according to Dan Hays, partner at consultancy PRTM.
Verizon Wireless spent $17 billion alone improving its network in 2009, and AT&T spent about $19 billion over the past year on upgrades. Sprint laid out about half the money for the $14.5 billion it cost to launch its 4G network venture with Clearwire and other partners. T-Mobile said its network improvements have cost less but are in the same ballpark as its competitors.
No one is denying that the wireless data networks are getting crowded and requiring more investments, but one has to look beyond the woe-is-me arguments carriers continue to use for everything. But it’s not a one-way street! Sure, carriers are spending the dollars, but data is bringing in the big bucks too. If it was a voice-and-text world, they would all be beating each other up on low-margin, flat-rate plans, scratching for market share. Data has given them something to cheer about.
Chetan Sharma, an independent analyst and a contributor to our GigaOM Pro research service estimates that U.S. carriers will generate about $165 billion in revenues in 2010. Of the total, nearly $55 billion will come from sales of data services alone.
“The average margins for the US operators are around 37% with VZ and ATT in 40%+ margins overall,” Sharma said. He estimates that the carrier data margins as of 2010 are generally around 40-50 percent. Because their margins are declining, the companies are looking to spend money on network upgrades and use tiered pricing to offset some of those upgrades.
AT& T, which the article claims spent $19 billion upgrading its networks, has been a major beneficiary of the iPhone boom. Without the iPhone, the company labeled as the worst by Consumer Reports would be facing tough times. To paraphrase Johnny Cochrane, if the smartphone is a hit….!
Related content from GigaOM Pro (sub req’d):
- 4G State of the Union
- Mobile Broadband: Pricing for Profit
- What Happens When Data-Friendly Phones Come To Prepaid?