Wireless Wags Talk Slowdown

The fourth quarter looks strong at Verizon but weak at Cingular, and 2006 could be bumpier.
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Wireless growth remained on track in the fourth quarter, but some see signs of a slowdown ahead.

Early estimates from industry watchers show a familiar pattern as

Verizon Wireless

continues to add record numbers of new users, nearly doubling the subscriber gains at No. 1 cell-phone service provider

Cingular

.

But industrywide growth for the holiday quarter, which is typically the strongest period of the year, may not hit the scorching levels of the third quarter.

"I think the overall numbers will be average at best," says Ovum analyst Roger Entner.

With weak preliminary results from wireless resellers like

Radio Shack

(RSH)

and

InPhonic

(INPC)

, Entner predicts total net new subscribers for the group of 4 million to 4.5 million for the quarter. That is below the 5.1 million subscriber additions of the third quarter.

Cingular, a joint venture of

BellSouth

(BLS)

and

AT&T

(T) - Get Report

, looks like the laggard of the group. The Atlanta wireless shop is expected to have added slightly more than 1 million net new users in the past quarter.

Fans say the company isn't putting a priority on user growth but is instead focusing on the integration of AT&T Wireless and cutting costs to improve margins.

But critics say the company hasn't done much to stand out from the pack. For example, Cingular arrived late to the fast wireless market. In some markets it started offering the popular service nearly a year after

Sprint

(S) - Get Report

and the Verizon Wireless joint venture of

Verizon

(VZ) - Get Report

and

Vodafone

(VOD) - Get Report

.

Cingular also hasn't played ball on price cuts with rate-cutter

Deutsche Telekom's

(DT) - Get Report

T-Mobile

. T-Mobile is expected to have added 1.2 million users last quarter.

Sprint, with the help of Boost, its prepaid wireless service unit, is expected to exceed its 1.4 million new-subscriber target by adding 1.5 million users. And Verizon Wireless will likely continue its record streak with about 2 million net new customers, say investors and analysts.

But say goodbye to the big-growth era in wireless, say analysts. The market, with more than two-thirds of the population already carrying phones, is reaching the long-awaited saturation point. The industry is basically running out of people to sell service to, say analysts.

"2006 will be interesting," says Ovum's Entner. "Wireless will finally start to miss expectations."

Some investors say they agree with the slowdown forecast for this year, but as next generation or 3G services like music downloads and video streaming catch on, sales growth will start to pick up again.

"The growth party isn't over," says one New York money manager, "it will just get postponed until next year."