Wireless Carriers Recycle Consumers as Future Promise of Mobile Data Diminishes

If anyone is still skeptical about the likelihood of, at best, no more than a marginally profitable future for wireless data carriers (at least as these data networks are currently designed), the recent promotions offered by most of them should be seen as ample indication of the accuracy of this prediction. At least three of the major carriers — Verizon, AT&T, T-Mobile — are offering the same offer: Switch over to us and we will pay you, per line, to make the change. The reason for the sign-on compensation is simple: pay prospects for the financial pain they will experience when they try to terminate their existing service contracts, or else they won’t make the change.

At the same time the wireless carriers have decided to make this very costly attempt to convince customers to switch over from competitors, the investment community seems to be finally seeing the mirage of enormous profits from this business for what it really is, namely a pure commodity business with, at best, marginal profitability on the near term horizon. On Thursday, January 9, 2014 the publicly traded stock for Sprint declined by more than 5%, while AT&T and Verizon each dropped by 2%.

I don’t think it is likely the manufacturers of cell phones will be insulated from the financial pain of this price war. The combined purchasing power of these 3 carriers is, of course, very great, so Samsung, Apple and Nokia may be assuming some of the cost burden relative to provisioning brand new phones as others are recycled (Disclaimer: this opinion is purely my conjecture as I have no data to indicate any participation by the cell phone manufacturers in this activity).

Cisco’s latest quarterly report makes a lot more sense when seen, now, in the context of these price wars. If AT&T, Verizon, etc, are not making the profits they planned on making from wireless data and the explosion of internet offers, then one can better understand why Cisco would be looking at a far more dismal near term market than one would have otherwise expected.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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