Telcos Butter Up the Churn

The wireless industry is reaping another bountiful harvest. But digging into the subscriber basket can yield a surprising amount of chaff.

Service providers like Verizon Wireless, Cingular and Sprint (FON Quote) have roared to better-than-expected results in 2005, as new customers have stampeded into prepaid packages, cheaper rollover minutes and multiline family plans.

But lumped in with all the pretty numbers, skeptics say, are some practices -- ranging from tallying dead accounts to double-counting users -- that can muddy the telcos' true subscriber growth and user loyalty performance. And while Wall Street loves a technology growth story, those who have predicted a slowdown wonder how long the industry can keep its foot on the gas.

"The growth has been surprising," says Roger Entner, an analyst with Ovum, a tech strategy shop in Boston. "I've been trying to come up with good reasons to explain it before I think of nefarious reasons."

It could be that the U.S. market has a much greater appetite for mobile phone service than conventional wisdom would dictate. In other countries, as cell-phone use approached 70% of the population, the pace of new subscriber additions started to taper off.

But in the first quarter all the big players, ranging from Verizon and Cingular to Sprint partner Nextel Communications (NXTL Quote) and Deutsche Telekom (DT Quote) unit T-Mobile, posted stronger-than-expected numbers. That has some people wondering whether the U.S. market is really different -- or whether those numbers are really what they seem.

"This quarter is when we expected to see some slowing," says Yankee Group analyst Marina Amoroso. "It was right around now when we saw an end to strong net adds, but these numbers are challenging that."

One obvious explanation for the recent growth is the surge in new lines on family plans and the success of youth-aimed prepaid services. Both approaches help telcos reach people outside their main customer pools.