Verizon Is Mapping a New Road to Riches - TheStreet

Verizon Is Mapping a New Road to Riches

Wireless telcos are embracing global positioning systems.
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Some telcos have located a promising new revenue source in satellite navigation services.

As the cell phone morphs into an all-in-one communications and entertainment device, phone companies are constantly on the lookout for ways to make it pay off.

With the approach of

Apple's

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iPhone, music on cell phones is finally starting to take off -- but not in the lucrative way wireless service providers had hoped. It seems instead of spending a fortune downloading tunes over cellular networks, kids prefer loading their playlists off their computers.

And before music, cameras were going to be the big wireless revenue opportunity. But then it turned out cell phone pictures, if they were transferred at all, went to the PC, not over the air in any billable fashion.

In fact, despite a big push into multimedia and so-called third-generation, or 3G, networks, it's the lowly text messaging that still makes up most of the telcos' wireless data traffic.

The industry, and its investors, are

still waiting for the golden age of mobile broadband -- complete with streaming music and live TV.

Meanwhile, other services are starting to catch on -- such as global positioning systems, or GPS. Though not quite as bedazzling as video clips, driving directions to a given destination received over a speaker on a cell phone have an appealing usefulness.

"This is a trend that will take off with cell phones," says Ovum analyst Roger Entner.

"You need it occasionally as a regular consumer, but you need it frequently if you are a business traveler," says Entner, who estimates that 2008 will be the breakthrough year when GPS services account for more than $100 million in telco revenue.

The market for GPS receivers has heated up in recent months, with easy-to-use navigation devices entering the mainstream.

Today, the GPS business is dominated by outfits such as

Garmin

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, which makes $400-plus portable dashboard receivers. Using mapping software and satellite signals, these devices pinpoint your location and tell you the turn-by-turn route to your destination.

Garmin posted a blockbuster quarter last week since GPS device sales took off during the holiday season. But some analysts think Garmin may have reached a peak as new rivals enter the picture to cash in new mass market gadget.

American Technology Research analyst Rob Sanderson reiterated his sell rating on Garmin in a note Thursday, saying the company has had the personal navigation device market to itself for too long.

"Many competing PND's are coming to market and cellular operators/smartphone vendors see an opportunity with GPS navigation," wrote Sanderson.

The cell-phone-navigation linkup's appeal seems real, says Ovum's Entner.

"The dedicated GPS device will have a harder time," says Entner. "People are drowning in different gadgets. And charging them all becomes the difficult part to manage. There's more utility having it all in one device."

Among the telcos,

Sprint

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and

Verizon Wireless

-- co-owned by

Verizon

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and

Vodafone

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-- have taken the lead on GPS. Both offer navigation service on certain phones for $10 a month, an additional charge not covered in the subscribers' monthly data fee. Verizon also has a $3-a-day option for those who use it infrequently.

AT&T

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and

T-Mobile

, a unit of

Deutsche Telekom

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, have only recently introduced GPS devices for a couple of phones.

A Verizon representative declined to say how much its VZ Navigator service brings in for the company, but he said it was catching on.

The test for the telcos will be finding services such as email and GPS that help boost the all-important average revenue per user, or ARPU, figures.

Though no one can specifically point to the GPS contribution, it's notable that Verizon Wireless has seen its data ARPU grow 158% in 2006 to $7.91, from $3.06 in 2005. Meanwhile, AT&T, formerly Cingular, saw data ARPU grow a more-modest 53% over the same period.

Unlike MP3s and grainy cell phone pictures, the phone companies may have pinpointed a billable service that users can't easily detour past.