Wireless carriers make money when they sign up more customers. It's as simple as that.

And though U.S. wireless carriers are still signing up lots of customers, they're not signing them up as quickly as they once were, as investors discovered when fourth-quarter results emerged over the past few weeks. And that trend points to the increasing maturity of the U.S. market, indicating that the era of torrid growth is over.

Subscriber numbers became the ultimate driver of revenue and growth for the wireless carriers over the past few years, helping lure investors to the stocks. However, the slowing growth of these numbers, which will only become more pronounced with time, is forcing analysts and investors to seek other measurements to justify the valuations of these companies. But for now, investors may not be buying them. The shares of the carriers are down in the past month since they reported their numbers.

Is There Anybody Out There?
Since their December-quarter reports, cell-phone service providers' stocks have fallen, in part because of weak subscriber numbers.

Of the publicly traded national wireless carriers, No. 3

AT&T Wireless

( AWE), No. 4

Sprint PCS

(PCS)

and, most egregiously, No. 6

VoiceStream Wireless

(VSTR)

all reported that they didn't sign up as many new subscribers (or "net additions") as industry analysts expected.

No. 2

Cingular Wireless

, a privately held joint venture between

SBC Communications

( SBC) and

BellSouth

( BLS), also came in light, at 814,000, below expectations of 850,000 to 900,000.

Standing Alone

Only No. 1

Verizon Wireless

and

Nextel Communications

( NXTL) beat estimates. The former posted 1.22 million net adds, better than the low-million range expected, and the latter came in at 521,200 net adds, ahead of the 510,000 to 515,000 expected.

According to Peter Friedland, an analyst at

W.R. Hambrecht

, AT&T Wireless, with 865,000 net adds, missed expectations by 4%; Sprint PCS, with 1.2 million, missed by 11%; and VoiceStream, with only 558,700, missed by a staggering 26%. The industry overall recorded 6.6 million net adds for the quarter, below Friedland's estimate of 7 million. (He rates AT&T and Sprint buys and VoiceStream a neutral. His firm hasn't done underwriting for any of the companies.)

Though some of the shortfall can be attributed to the weak retail environment at the end of last year, the dip in the numbers also means that the U.S. wireless market may well be headed toward maturity, which means that growth prospects for these companies aren't as strong as they've been.

That's when other measures become increasingly important, such as average revenue per user (or ARPU, the average amount of money a carrier collects from each customer) and churn (the percentage of customers who stop using the carrier).

"Net adds aren't always going to keep increasing, especially as penetration gets higher and higher," says Elliott Hamilton, director of the global wireless division at

Strategis Group

, a telecommunications research and consulting firm.

Still Big

He says the PCS (personal communications services) industry recorded 18.8 million net adds in 2000, and he expects that figure will drop slightly to 17 million in 2001. Hamilton is careful to emphasize that 17 million is still a large number of new subscribers, adding that "Last year was really a record year for the industry."

At the end of 2000, the penetration rate in the U.S. -- or the percentage of the population that owns a cellular phone -- stood at 37%, according to Hamilton, and he sees that figure getting to 70% by 2007, with 200 million people owning cell phones by that point.

Others are less optimistic that the U.S. will ever see 70% penetration, though Friedland of W.R. Hambrecht is convinced it could approach European levels, like the U.K.'s current penetration rate of 68%, Germany's 59% and France's 50%.

Meanwhile, Vivian Mamelak, an analyst at

Arnhold & S. Bleichroeder

, thinks U.S. cellular penetration will reach only 46% this year, with growth slowing further after that. "We've hit a pretty good saturation level," she says, citing poor quality of service outside the metropolitan areas, with no incentive from the major carriers to upgrade that service in more rural regions.

Big Bucks

Certainly, the carriers haven't cut back on marketing costs in bids to capture more subscribers. AT&T Wireless and Sprint recorded increased fourth-quarter selling, general and administrative costs of 36% and 30%, respectively. Meanwhile, VoiceStream, which posted the worst shortfall in net adds, spent 284% more in sales and marketing costs.

"They're all out there," Friedland says, especially with Verizon and Cingular aggressively ramping up ahead of initial public offerings that they hope to pull off later this year. (Verizon filed last August, while there's speculation that Cingular will file by the end of March.) In trying to sign up more users, Verizon and Cingular hope to have spectacular numbers to show off to potential investors.

In fact,

Alltel

(AT) - Get Report

, a regional wireline and wireless player, attributed its 29% shortfall in net adds partly to Verizon's decision to give away handsets in some of Alltel's markets.

"Going forward, net adds are absolutely going to be important," says Friedland. "But they're not going to be the end-all and be-all."