Optimism is overloading the wireless carriers.
Investors are gaga over mobile-phone service providers. Sheer common sense holds that after the shock of the Sept. 11 terrorist attacks, Americans want their loved ones to have mobile phones in tow when emergency strikes. A run on cell phones means subscriber growth in the third and fourth quarters. And there is a potential spike in existing users' use, as they spent last week on their mobile phones bypassing a clogged phone network.
In a week of dour market conditions,
is up 9%,
is up 5% and even
, which lost more equipment than any other carrier in lower Manhattan, is up 6% in this week's trading.
Yet while there are anecdotes to support boosted carrier performance in these last few weeks of the third quarter, there are also arguments that the effects will be short-lived and have the potential to drag down carrier results. So don't get carried away -- it will take months for a brief jump to translate into overall improvement.
Last week the wireless carriers picked up more traffic than ever. Verizon reported double its previous record of wireless calls,
experienced a 20% nationwide jump and a 400% jump in Washington, D.C., Sprint PCS described usage as "high volume," and
checked in with "extraordinary caller volume" on the East Coast and "sharp" increases across the country.
It was a big proving ground for mobile phones, which have not achieved must-have status in the U.S., reaching 43% of the population, according to current Cellular Telecommunications and Internet Association U.S. subscriber numbers, compared with European rates, which are closer to 70%. Make no mistake: We're going to see a lot more cell-phone users.
The money that carriers are going to make off of those users, however, isn't guaranteed. In the short term, some carriers have implemented plans to alleviate bill shock to customers. AT&T Wireless will not charge customers for "unusual and extraordinary service" on Sept. 11. "They're very good in these times. Telling the average Joe on the street, 'Hey, we understand times of trouble and if you're living right around the disaster area, don't worry about it,' " says Wireless Mobile Services analyst Roger Entner of the
. "It creates more goodwill than the couple of dollars they could make."
Additionally, you're hearing the term "emergency" users, cell phone holdouts who realize they want to make sure they can get through in a crisis. But in an industry ruled by average revenue per user (ARPU), the caller who only uses a mobile phone when she or he has a flat tire isn't a great customer. AT&T Wireless has spent the past few months defending the dreaded "prepaid" customer, a person who pays ahead because they don't have the credit or the patience for a big phone bill.
"Wireless carriers are going have a great quarter, but in the fourth quarter you'll see the customers they're adding stink," says a hedge fund manager who owns
, and likes AT&T Wireless. "They'll get a big splurge in subscribers in the third quarter, and the new guys just added won't have been on for long
enough to drive ARPU down. Also, the existing base didn't have any way to call except wireless, so you'll see tons of overage minutes, at three or four times the cost of normal minutes. Everybody you know who usually spends $50 gets one $100 bill in their lives. Now it's happening to everybody at once."
New emergency customers will be fighting prepaid users for least-desirable status, as a customer who will drag down the average spent by subscribers per month. AT&T Wireless has been trying to convince investors that the opportunity exists, of course, to convert that low-end user to a mobile phone lover. Therein lies the opportunity, that over time these new users can be convinced to go from being mobile on the cheap to hooked on wireless communications and willing to foot bigger bills.
AT&T Wireless confirms it is signing up the masses this week. Spokeswoman Danielle Perry says that the carrier has "seen an increase in sales over the past few days, beginning toward the end of last week. We're not quantifying that in any way, but we have officially seen an increase nationwide." Then again, Cingular's Director of Media Relations Clay Owen says his carrier has seen bursts of buying limited to San Diego and Philadelphia, adding that "there is no clear national trend for customer traffic, so it would be unfair to characterize it."
Before Sept. 11, carriers were already benefiting from their reports that the third quarter is coming in as planned. AT&T Wireless confirmed it will turn in 700,000 to 750,000 new subscribers; Nextel said it would exceed its forecast of 500,000 new customers; and Sprint PCS radiated from
August results, led by wireless product sales. We'll have to wait until the third-quarter's results are announced to quantify a subscriber jump. It will take months to turn reluctant users into the big spenders the industry wants.