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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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