The Smartphone Saturation Point. Are We There Yet?

How many cell phones does your family have? How many do you carry on a given day? What other type of connected devices do you use? Wireless providers care about these numbers.

If you're one of those people (and you know who you are) who loves to crawl through financial reports, you can quickly identify the challenges that wireless carriers are facing, and the biggest impact to the bottom line in the coming years could be cellular saturation. Simply put, the number of consumer-oriented devices (primarily smartphones) being put on the networks is slowing to a crawl. Can you think of many people who don't already have a smartphone or at least some type of cellular device? The average billing for these types of devices is around $60 a month. When you multiply this monthly reoccurring revenue times the number of customers (around 150 million each for AT&T and Verizon) this works out to $9,000,000,000 dollars a month (that's billion with a B), which gives you an idea of what's at stake and why advertising campaigns are so aggressive to attract (and keep) new customers. No doubt you've seen a few ads from the big kids on the block.

As smartphone technology has proliferated and data services have become ubiquitous, the price of these services has decreased and consumers expect an all-you-can-eat plan at bargain prices.

This can lead to flat-lined revenue figures, which contribute to cyclical pricing increases and decreases tied to boosting quarterly revenue or expanding the customer base. We've watched AT&T, Verizon, T-Mobile and Sprint battle it out for decades in this fashion.The carriers used to be able to lure customers with free phones, but now that we're entrenched in 0% interest monthly phone payment models (where customers pay the full price of a phone over 24 months) the movement between carriers has decreased somewhat. We will most likely see new offers for free phones and contract buy outs being offered to potential customers. However, at the end of the day, managing churn of customers is a costly business and does nothing to exponentially grow the bottom line. Margins continue to shrink, eroding the strong revenue which flows into these companies monthly.

So, where do the wireless carriers look for new business? The approach is varied and wholly dependent on the philosophy of the carriers and the vision of their CEOs.

For example, AT&T has pursued a "best content" approach. They hope to attract and keep customers with rich content offerings. They also seek to package services such as DirectTV/U-verse, cellular and voice (the Triple Play). Verizon on the other hand has adopted a "best network" approach and will focus on building-out speeds and feeds with 5G and fiber optics. Verizon dipped it's toe into the content pool with the AOL/Yahoo acquisition (Oath) and ended up writing down $4.6B in 2018. Hence, a return to core capabilities. With the planned merger of T-Mobile and Sprint looming on the horizon it will be interesting to see which direction they head in, and whether they will focus on businesses, consumers, or both. With combined network prowess (and spectrum) they may be able to heartily compete with Verizon and AT&T on the business side of the house. Only time will tell.

Will 5G drive the next revolution of wireless? Well, yes and no. There are numerous factors which must be considered when attempting to predict the future.

I believe 5G will change the hardwired landscape forever. It will untether people and businesses from the terrestrial lines that were required for true high speed communications. In many cases it will make copper lines obsolete and drive the price point of fiber connectivity into the realm of current broadband pricing -- think Gig speeds at Meg prices. However, 5G is not a panacea and it will require significant densification of wireless cells. 5G will also be used by private organizations in a similar way that WiFi is used today. Also 4G and slower speeds are perfectly acceptable for 90% of the current applications of wireless technologies. I will cover this topic in-depth in a future article.

If we have in fact reached a point of total smartphone saturation, what comes next as a profit center for the wireless carriers? Cue the music for the "Rise of the Machines" and hold on tight.

The Internet of Things (IoT) will be the primary revenue driver over the next decade and that's what companies prioritizing network capabilities over content are relying on. Right now we are on the very low end of a dizzyingly steep curve which will climb from the millions to the trillions, and beyond. Think about the Internet connected devices you have in your house or on your person, and then, think about all the devices which could be connected to the Internet. As such, yes we have reached somewhat of a smartphone saturation point in the First World countries, but the big dollars have yet to arrive for the wireless carriers when it comes to machine-to-machine communications.

If there's still a pot of gold at the end of the rainbow for the cellular providers, do they really have anything to worry about from a profit perspective? Yes, they do.

As mergers continue to occur in the traditional wireless carrier space and competing technologies emerge, Telcos will need to tighten their belts. They will need to do this for two reasons -- one, to boost bottom line profitability, and two, to funnel enough money into a build-out and build-up of existing wireless infrastructure. Secondly, consumer consumption of wireless services will continue to be a driving factor in profitability, and competition will become devastatingly fierce as we move into the 2020's. Carriers will need to intimately understand their customer's changing needs and proactively sell to them before their competitor does. This will require heretofore unseen levels of Business Intelligence (BI) and advanced Customer Experience (CX) constructs. Lastly, the future of wireless communications is global in nature and carriers who have not invested in integrative technologies and strategies will find themselves on the losing end of lucrative IoT deals. These global initiatives will also require significant back office acrobatics and secure wireless infrastructures that facilitate safe transactions across systems of varying capability.

At the end of the day, let's say we're at "Saturation Level 1," with many levels to go before we bump our heads on the ceiling. I welcome your comments on this article and can be easily reached on LinkedIn or at [email protected].