Telecom Price War Could Lift BlackBerry Sales
Smartphone makers, especially BlackBerry manufacturer Research In Motion (RIMM), are in an attractive position to benefit from the latest battle wireless service providers are waging for subscribers, analysts say.
In their aggressive promotional campaigns, some wireless service providers are offering unlimited calling plans for $99.99 a month, while others such as Sprint Nextel (S) are giving customers unlimited data and voice calling for the same price.
With the carriers in position to reap greater profits from data services, they are more likely to focus on promoting devices such as those from RIM, which have a high data plan attach rate, some analysts say.
"With carriers now locked in price wars on the voice side, we see continued promotional momentum around smartphones as they are critical tools for carriers to attract high-value mobile data subscribers," says Vivek Arya, an analyst for Merrill Lynch in a recent research note. Merrill Lynch makes a market in RIM shares and has an investment banking relationship with the company.The rollout of the new calling plans began last week when AT&T (T) and Verizon (VZ) introduced the $99.99 unlimited voice calling plan, where users pay extra for data services. Rival T-Mobile responded by including unlimited nationwide text messaging in its offering for the same price. Sprint went a step further Thursday and announced the "simply everything" plan that includes voice, data and other services such as navigation and music. Data services are the fastest growing part of the wireless business as more users go online to surf the Internet or check their email. In 2007, U.S. wireless carriers saw 4% to 8% annual decline on the voice business in their average revenue per user, an important metric for telecom companies. At the same time, average revenue per user (ARPU) from data services jumped 30% to 50% from the year before. "We believe smartphones such as Blackberries enable wireless carriers to attract new subscribers and convert existing subscribers to higher ARPU data plans," says Arya, the Merrill Lynch analyst. That means that carriers who will now spend millions advertising their new unlimited calling plans are likely to also focus on pushing smartphones for users. Despite competition from rivals such as Nokia (NOK), Motorola (MOT) and Apple (AAPL), RIM continues to have a strong hold on corporate users and the company's devices could gain the most from the introduction of unlimited calling and data plans. And unlike Apple which is wedded to AT&T in the U.S., RIM offers its phones on all carriers, making the device more likely to be promoted by a greater number of carriers. About 80% of RIM's revenue in the last quarter came from sales of devices, while about 14% was from services. The company generates service revenue from a monthly infrastructure access fee that it charges a carrier who bills the BlackBerry subscriber. The promotion of BlackBerry devices by carriers could help soothe the frayed nerves of RIM investors. After soaring nearly 165% last year, RIM's stock has lost its momentum this year on fears that a slowdown in the U.S. economy could affect sales of the BlackBerry products, which are largely used by business. RIM shares have declined 7% since the beginning of the year. Shares of RIM were down $3.34, or 3.1%, to $105.71 in recent trading. It's not as much the unlimited calling as the unlimited data plan that is likely to drive high-end users, typically business customers, to smartphones, says Scott Ellison, vice-president of mobile and wireless at IDC.
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