September 29, 2005

Mobile Web, Video Revenue Seen Growing Strongly

SAN FRANCISCO -- U.S. wireless services could see their percentage of revenue from data services such as Web surfing or video streaming doubling or tripling in the next five years, according to a top executive at Sprint Nextel Corp., the country's third biggest mobile service.

Wireless carriers around the world are beginning to put everything from music and video to Web browsers in phones in a bid to keep revenue growing as phone calls get cheaper and the number who do not already have a mobile phone dwindles.

Such data services, the most basic of which have been offered for about five years already, currently contribute about 7 percent of average monthly revenue per customer (ARPU) in the United States, according to Ovum analyst Roger Entner.

Len Lauer, the Chief Operating Officer of Sprint Nextel said the average data contribution for the industry could grow to a range of 15 percent to 20 percent in the next five years if services are attractive enough to consumers.

"If we offer a wide array of content and if we make that very simple to use I believe the U.S. industry will have significant data growth over the next five years," Lauer said in an interview on the margins of the San Francisco CTIA wireless conference that has mobile computing and entertainment as its central theme.

Sprint, which bought Nextel Communications last month, has been most successful among U.S. operators at getting its customers to spend money on data services. It reported data ARPU of more than 10 percent in the second quarter.

Lauer declined to reveal his growth target for Sprint Nextel's data services but said he is "confident (Sprint Nextel) will keep its leadership position."

Operators are betting that services such as music and video downloads will be a key element of future data growth.

Sprint Nextel plans to start selling song downloads to mobile phones in time for the winter holiday shopping season, ahead of bigger rivals Cingular Wireless and Verizon Wireless which are planning their music services for early next year.

Lauer said that Sprint Nextel's song downloads would cost about $2.50 on average or two and a half times as much as Apple Computer Inc's popular iTunes desktop download service which charges 99 cents for each song.

While pricing has been a hotly debated issue among wireless analysts Lauer believes mobile users will pay extra to download songs on the go, especially if the payment included extras such as a musical ringtone. He did not give further details.

Analyst estimates vary on how fast data services will grow in the coming years. Ovum's Entner believes data could represent 20 percent of ARPU in five years but Forrester analyst Charles Golvin expects slower growth.

"The mid teens is probably a reasonable expectation for the next five years," said Golvin, who is not convinced that enough new customers will start using data services and that existing users will not increase their usage levels enough for the higher end of Lauer's estimate.