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MediaTalk | Season 2 | Ep. 35: Where future wireless growth will come from

 

Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, where the news and research staff explore issues in the evolving media landscape. Today, I'm joined by Lynnette Luna, a senior research analyst in the Kagan media research group within S&P Global Market Intelligence. She leads its coverage of the US consumer mobile and tower markets. How are you doing today, Lynnette?

Lynnette Luna: I'm well, thank you, Mike. Thanks for having me.

Reynolds: All right. Thanks for joining us. Lynette is going to help us make some sense of the mobile business in this nation this year and a decade out. She recently published her forecast for the industry under the headline, "US Mobile Projections Through 2034." It's a business that impacts just about every American one way or another. As such, industry revenues are expected to nudge the $300 billion mark this year. Let's get to it. I guess it's a postpaid phone subscription world, one that's growing, albeit slowly. Lynette, where did subscriptions map out in ‘23?

Luna: For postpaid phone subscriptions, we estimated 254 million postpaid subscriptions. That includes our public operators that we cover, and then we run a few estimates for some of the private operators that don't report. So that's still below the US population, but when you consider postpaid subscriptions as a whole, it's reaching almost on par with the US population.

Reynolds: Okay, and growth, a little bit of growth for this year, Lynette?

Luna: There was a little bit of growth. It's what industry executives have expected. It's just slowing a little bit because of market saturation. And I think there's a little less impetus for consumers to upgrade their smartphones right now. The economy has kept them from upgrading to new, more expensive plans. Also, I think there's a lack of new form factors and new services. So there's a lot of hope on the next iteration of the iPhone, which has more AI capabilities in it. So we'll see how that impacts Christmas sales and things going forward.

Reynolds: All right. Yeah, again, most of us have a phone, right? It's a question of, do you have the money? Do you want to upgrade? Is it good enough until something really catches your eye? So I guess we're in that mode a little bit. If postpaid is climbing a little bit, maybe prepaid is on the downturn. There was a subscriber retreat from '22 to '23. More of the same this year, Lynette?

Luna: Yeah, that's what we're seeing, especially from Verizon. It keeps recording either plateaued or keeps recording a decline. Postpaid offerings are so good that customers are really attracted to those. I think companies like T-Mobile have done a pretty good job of things like if you pay your bill on time for 12 months, you qualify for a postpaid plan. Some of the pricing pretty much mirrors postpaid. You pay as you go, but it's still pretty similar. Carriers are really putting a lot of their efforts into postpaid offerings, kind of smartphone deals, etc.

Reynolds: Yeah. They're pushing the customers in that direction in one form or another.

Luna: Yeah. And they're higher-paying customers too.

Reynolds: The Affordable Connectivity Program (ACP) has been mentioned in MediaTalk in the past. And I guess that's a factor here as well. I think with ACP's impact, Verizon got hit pretty hard with this, right, Lynette?

Luna: We saw that in the second quarter.

Reynolds: On the other side, T-Mobile's benefiting here.

Luna: I don't think they saw as aggressive of a loss, but it also depends on where they're offering prepaid services. Are they offering it in more rural areas? I think Verizon was hit harder just because they have more of a widespread prepaid presence. T-Mobile benefited from its acquisition of Mint and Ultra Mobile, so it saw a nice bump in prepaid.

Reynolds: Okay, there again. And I guess the other thing I just wanted to catch up on, if we can, after the Mint acquisition closed, and obviously it's having an impact now, back in May, T-Mobile announced its intent to buy United States Cellular Corp. [assets] for, I think, about $4.4 billion. Can you remind us, Lynette, of the strategy behind the prospective acquisition? Any update? These things usually take a year or more to close, right?

Luna: Yeah. I haven't heard any updates. I always felt like it would pass regulatory muster just because of the type of spectrum assets that it bought. It didn't buy a whole bunch of mid-band spectrum from UScellular, which I think might have caused a little problem there because it has a lot of mid-band spectrum already. So it bought more of some millimeter wave and it bought some lower-band spectrum. Some other things like AWS. I think some of it did buy some 3.45 gigahertz. It also bought some C-band. So it bought a variety of spectrum bands from UScellular to round out its portfolio. Then I saw on Friday Verizon is another buyer of UScellular spectrum. It looks like a lot of it is complementary in the 850 band. I think there was another unnamed carrier that bought some other spectrum. So really it's UScellular getting broken up piece by piece rather than one entity just swallowing it up. I think that helps pass some regulatory muster there.

Reynolds: Interesting. Before the other players jumped in more recently, again, if things are quiet, no news is good news. Is that kind of an operating metric there, if you will?

Luna: I think so. A lot of these carriers really test the waters first to see if these things will pass. I saw AT&T and T-Mobile a long time ago try to merge, and that didn't pass. But I think now they really look into and talk to regulators first to see whether these things might pass because that's a lot of money they'd be losing.

Reynolds: Sure. Exactly. Better to be safe than sorry for sure. All right. Let's get back to the prepaid mobile realm. Longer-term, Kagan sees some slight growth out into the next decade.

Luna: Yes, I think just less than 1% growth. So there's always that subset of customers that want prepaid or can't qualify for postpaid. But I think the majority of the efforts continue to be on postpaid services.

Reynolds: How about in the wholesale subscription realm? This is where the cable companies are, right? Growth ahead here?

Luna: Yes, they are forecast to record some of the greatest growth in the industry. That's primarily because of cable operators and their aggressiveness in getting new subscribers. They've been really aggressive in the market, offering pretty good deals on smartphones. I think they've been revamping some of their pricing plans. And they have a lot of room to grow in terms of, I did an article a while back in terms of broadband passings versus postpaid cable customers, and there's still a lot of room to grow. So I think we'll see them pretty aggressive. I think some of the standard wholesale operators will get more aggressive as well. We'll probably see the rise of new types of wholesale providers, especially as 5G advances and 6G comes. There's the whole idea that the IoT market will explode. We already have seen MVNOs in the market that specialize in things like IoT. So I can see different MVNOs targeting different segments of the market going forward.

Reynolds: Interesting. 5G is also helping Comcast Corp., Charter Communications Inc. and Altice USA Inc. and others boost their mobile positions, going after a little bit harder in the business-to-business arena.

Luna: Yes. I think it's all about bundling too in the consumer market. You see mobile carriers competing with cable providers on fixed wireless. Then you see cable providers competing with mobile providers on mobile services. I think we'll see a bigger rise in bundled services, and T-Mobile getting into the fiber business because fixed wireless has been so popular. I was on a conference call recently where they talked about having a million people on a waiting list to get on fixed wireless. They're hoping things like fiber will help offset that demand.

Reynolds: Interesting. Okay. Nice to have that kind of buildup, or conversely, let's get at it, guys. Anyway, now let's get to the money. As noted, total US mobile revenue is expected to finish at just under $300 billion this year, and that was up, I think, like 4% from ‘23. What levers are helping the business financially at this point?

Luna: I think mobile service revenue is really strong. Mobile equipment revenue has been less so just because of the slow hardware upgrades, and that's not necessarily a bad thing because that can also be a drag on financials when you start offering really aggressive smartphone upgrades. I think carriers will continue to be careful if this is a mature business. So it's a lot easier to forecast as well. I think we'll see a real focus on driving service revenue. A lot of the strategy is adding new services to higher-end bundles, right? There is an element of smartphone upgrades in terms of allowing customers to upgrade anytime they want, but they also have to pay more per month to do that.

Reynolds: So you see, again, looking ahead to next year, '25, you see an uptake and then longer term, where do you take us out as we get into the next decade? Lynette, I think 2034 is the timeframe you guys have predicted where the business will be at.

Luna: Yeah, we see total mobile revenue growing at 5%. You have to account too for new technologies coming in, like 6G coming in around 2033, 2032. And there's a lag time, right? You have investment first, and then you finally see revenue from that. So I think starting in 2034, we see 6G starting to contribute to mobile revenues. There'll be continual enhancements to 5G that should help drive revenue. What I don't cover is the business side, and that's really what a lot of carriers are focusing on in terms of more capabilities for 5G. You may have public-private partnerships, private wireless, and IoT with RedCap coming. There are a lot of things on the business side that don't really account for consumer, but that usually trickles down into the consumer side eventually.

Reynolds: Gotcha, I gotcha. You mentioned the word before: saturation, maturation. Saturation sounds better. Yeah. Anyway, is there, everybody's going mobile? Kids, they have phones; old folks like me, maybe we don't know how to use our smartphones properly or to their best advantage. But how big can this get? Are we near the end of the people that want to have or already do have?

Luna: Every quarter when I write up the quarterlies, I'm like, where is this growth coming from? Because they keep seeing growth, right? I think you're right. It's kids getting smartphones at younger ages. I think it's people getting more than one phone. A lot of people lately have been carrying around a corporate phone and also a personal phone because they don't want their company tracking them on their private phone. I've seen that a lot. I've seen older generations also adopting more advanced phones. I think my mom is an example. She moved from just a flip phone recently to a smartphone finally. So I think a lot of them are seeing the need for more advanced phones to connect with their family. So yeah, it's interesting. I think it's just pushing more and more into more sub-segments and people owning more than one phone as well.

Reynolds: I think I read in your article almost 606 million subscriptions in 2034. That's a total penetration of 169%. Seems ginormous.

Luna: Yes. And I think that also comes from postpaid connected devices going forward. We have pretty high growth for that, 8.8% CAGR. That's just because of 5G and higher data speeds. There's a lot of movement towards enabling more devices with 5G that you can add to a subscription. I think smartwatches are an example of that. I think we'll finally see maybe more PCs, 5G enabled. We haven't seen a lot of that, even though the capability's there; it's just that the price needs to come down. It depends on what carriers want to sell in their pricing plans. There used to be a big push for tablets, and then they eased off on tablets. It depends on how they want to bolster their customer base. Those are also lower customers when you add more devices, but it also makes for a stickier customer, right? When they're subscribed to more than one device and service on your plan, it's harder to leave.

Reynolds: That's why I pay on the video side. That's why I pay $250 a month. Anyway, we've heard this before, and color me devil's advocate or naysayer: AR/VR glasses, better 5G networks. Is this going to make an impact? Again, if you don't have to wear glasses, you don't want to wear them. I'm sorry. And Lynette, tell me why. Is this for real, or is this just again the threat, the potential of AR/VR making a mark?

Luna: I think it's still for real. Everything goes through that proverbial hype cycle, right? Where, oh, there's going to be amazing growth, and then reality kind of sets in. Then there's growth again. I don't know if you've gone on Meta's website where they sell smart glasses, but it's pretty interesting. I'm interested in getting a pair where you can look at things and be like, "Oh, what kind of flower is that?" and your smart glasses can tell you. If you're a gardener, et cetera, or if you're shopping for something. So I think it's going to be slow. These technologies take a little while just for adoption and to understand how to use them. I think that's the same thing I talked about AI in smartphones too. I think that probably takes a little while. There's like a user curve, right? A usage curve just getting used to these types of technologies. I think the AR/VR glasses are getting better. The price point needs to come down a little more. It's going to happen, but I can't say on this day, all of a sudden everybody's going to start buying AR glasses. I think it's just like a gradual, like I said earlier, AR/VR glasses that really have taken off more on the enterprise side, especially. You have plumbers that need to look at something—that's just an example—to figure out a part, and they can look at it, and their smartphone might tell them what kind of part they need. So there are business or hobby reasons...

Reynolds: If you're really into it, you can get some nice assistance from these products.

Luna: Yes.

Reynolds: Okay. All right. You had alluded to 6G earlier; 5G is still wending its way through. 6G is going to bring us what? Mind transmissions?

Luna: Yeah, more of the same, but faster data speeds. It operates in very high frequencies. So we're not going to see the entire nation covered. It'll be in hot pockets where it's really needed, maybe in more urban areas overlaid on 5G. So 5G is going to be around for a really long time. 6G is more kind of complementary to it. They're still trying to even figure out what spectrum could be used for. It won't be like what we've seen with 4G and 5G, like all of a sudden somebody's lit up a nationwide 6G network. It's just a little different that way, just because of the propagation characteristics are so high. Although you have companies like Qualcomm really working on using MIMO antennas, etc., to make it more of a layered technology that can be used in wider spread areas. Technology is an amazing thing, right? Things you thought were impossible 10 years ago are possible today.

Reynolds: And as you mentioned earlier, probably starting to see some 6G action early in the next decade. And again, then there's the lag time before there's adoption.

Luna: Yes.

Reynolds: In closing, Lynette, where do we stand? The business continues to grow — maturation, saturation — but again, as you've mentioned all along here, the technology continues to improve, and we always want better, right?

Luna: Oh, yes. I think near-term, growing postpaid service revenue is a priority among operators. It's been that way for a little bit. As the market matures, operator strategies for subscription and revenue growth will continue to center on upgrading existing lower-paying customers to premium plans. How many times has T-Mobile introduced a new premium plan? I think a couple of times now, right? A new premium plan that costs more, and you get a few more bells and whistles in there. Carriers are really working hard to expand to more rural markets and adding additional devices to subscriptions. Like I mentioned earlier, AI is going to be pretty prominent in these businesses. T-Mobile came out recently and said that AI is really going to fuel the next wave of growth for the company in terms of where it deploys network equipment and how it responds to network complaints. AI-based customer segmenting is emerging as a tool to reach new customers and create a lot more loyalty by actually anticipating churn and other capabilities such as that. Then there's shifting towards ongoing upgrades in 5G technology. Carriers are adding new spectrum to enhance their network capacity so they can add faster services and more data-heavy services. They're also improving the cost efficiency of their network. So it's more going to be not about grabbing growth at all costs, which kind of stopped several years ago, but really tightening their belts and being smarter about what customers they acquire and how they use their network resources.

Reynolds: All right, that concludes this episode of MediaTalk. I just wanted to thank Lynette for spending a lot of time sharing her views on what's currently shaping the US mobile industry, as well as her insights about some of the things that will come into play over the next decade, going out to 2034.

Luna: Thank you, Mike, for having me. I appreciate it.

Reynolds: This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon on the next edition of MediaTalk.