mocoNews - Why More Wireless Subs Doesn't Always Translate Into More Revenue

There was a fair bit of talk at CTIA about the innovation conducted by telcos saving the economy, and also about the possibilities for growth. In particular, Verizon Communications (NYSE: VZ) CEO Ivan Seidenberg spoke about the potential for its network: "There will be no limit on the number of connections as part of the mobile grid. Everything has the potential to be connected to the web" ? provided there are broadband mobile networks and open platforms.

So far, Verizon Wireless has certified 36 devices in its Open Development Initiative (ODI), as it moves towards open access (mandated on its 700MHz spectrum) ? and most of these are 'smart grid' gadgets like health monitors, not phones. "If we think in terms of the complex web of wireless connectivity that next generation technology will bring about, then the opportunity to explode past the 100 percent ceiling to 300 percent, 400 percent, or 500 percent is not only possible, it's probable," Seidenberg is quotes as saying by The Register.

This could be a tad disingenuous?"500 percent penetration" sounds like fantastic growth, but not all connections are created equal. Specifically, people are unlikely to be willing to pay the same for machine-to-machine communication than for their personal phone, so ARPU will go through the floor. As an example, the first device Verizon launched under its Open Development Initiative was "a battery-powered modem that connects to sensors for large storage containers like diesel tanks. When a tank runs low, the modem sends a text message to SupplyNet, which tells the customer it needs to refill".

Now, SupplyNet has something like 25,000 of these gadgets running on different networks around the country, but they're sending a single SMS message whenever a massive tank empties. Verizon will still make a profit of course, and the more devices connected the larger the profit, but a five-fold increase in connections will not lead to a five-fold increase in profits.

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