Cell Phone Companies Tout Strong Gains

Elizabeth Moore talks on her cellular telephone while waiting to vote Tuesday, Nov. 7, 2006, in Denver. Voters were reporting long wait times to cast their ballots in Colorado. (AP Photo/David Zalubowski) (David Zalubowski - AP)

The salad days of subscriber growth may continue for another five years or longer. But at some point, probably in less than 10 years given the current growth rates at Verizon and Cingular, there won't be enough potential first-time cell phone users left to fuel the industry's growth.

Already, roughly three-quarters of the nation's 300 million people have cell phones, according to a running tally maintained by a leading industry group called CTIA-The Wireless Association.

On the brighter side, industry executives assert that prices for voice service have steadied dramatically after years of price wars, suggesting that data may become more a source of growth.

"Over the last 12 months, prices are higher on single-line plans," Robert Dotson, chief executive of T-Mobile USA, said in a recent interview. "You can't find a $19.99 plan now."

Richard Lynch, chief technology officer for Verizon Wireless, also sees stability taking hold for the calling business.

"One could argue that it's dropping ever so slightly, but it's not a worrisome trend that's falling off the end of the cliff," said Lynch. "I'm not going to lie to you and say we never worried about it. Sure we have. But we keep driving down our cost structure and data is clearly the upward driver in our whole revenue picture."

Until recently, T-Mobile would have seemed the poster child for making a profitable go of the cellular business without plowing billions of dollars into newfangled multimedia capabilities, having built a very prosperous enterprise despite being the only national carrier without a next-generation data network.

That changed over the summer. T-Mobile's parent company, Deutsche Telekom AG, plunked down $4.2 billion as the most aggressive bidder in a federal auction of new licenses to use the public airwaves. T-Mobile needed the additional spectrum capacity to deliver more robust services with a network upgrade slated to cost $2.7 billion.

Verizon has been spending about $500 million per year on its network upgrade, which began in 2004.

"Give us another year of like investment and we're fully covered," Lynch said, a remark suggesting the carrier's investment in the network upgrade would come to about $2 billion.

Comparing that total with the revenue growth from non-voice services, "I think you can see that the payback period is not that far out there," said Lynch.

Another wild card that looms over the equation is whether data-based services can avoid the sort of price competition that led to the arms race of bigger, cheaper calling plans.

So far, the carriers have mostly succeeded in holding the line on data rates, generally charging $15 or $20 a month for accessing the Web and other services on a handset. Likewise, rates for connecting a laptop to the Internet with a cellular modem card have been holding steady at about $60 a month at most carriers, though Verizon Wireless did originally charge $80 a month for that service.

"You're talking about a commodity situation, and at some point in time it's certainly possible" that data prices may come down, said Lynch. "The important thing is that we continue to have data growth that is profitable regardless of whether the price to the consumer comes down."