Study: Mobile Phone Carriers’ Profit Margins Surging

Profit margins for American and Canadian mobile phone carriers are soaring — having reached the highest point this decade during the fourth quarter of last year.

EBITDA (earnings before interest, taxes, depreciation and amortization) margins among North American cellular carriers jumped four percentage points during the fourth quarter of 2005, reaching 32 percent, their highest fourth quarter level this decade, according to Strategy Analytics’ report, “Wireless Operator Performance Benchmarking, Q4 2005.”

American carriers, in particular, are in excellent financial shape, with margins jumping seven percentage points at Verizon Wireless and 15 points at T-Mobile.

“Verizon Wireless continues to stand out in the U.S. market,” David Kerr, vice president, global wireless practice at Strategy Analytics, told the E-Commerce Times.

Customer Acquisition Costs

Verizon’s customers “do not generate spectacular ARPUs (average revenues per user) among the tier one carriers, but Verizon spends the least on acquiring and serving these customers by far,” said Kerr, adding that in spite of that, “its market-leading average monthly EBITDA margins topped the US$23 mark for the first time this decade.”

Despite the cost of supporting new customer acquisitions, which were also at a decade high, the North American wireless industry delivered a solid financial performance in Q4. ARPUs continued their recent declines in the quarter, the report said, but operational expenditure (OPEX) was lower, helping to fuel capital expenditure (CAPEX) increases near the 30 percent level.

U.S. carriers are improving their technology infrastructure, for example, which falls under the category of CAPEX.

Capital Spending Solid

CAPEX includes both hardware and software purchases. Verizon Wireless reports that a customer survey it conducted indicates that more than seven out of 10 prefer to use self-service options when they have customer service questions.

A customer calling Verizon Wireless customer service — *611 from a Verizon Wireless phone or 1-800-922-0204 from any other phone — can shortcut the introductory menu and reach a live customer service representative by entering “0, 0” or “0, 4.” The survey shows, however, that more than 70 percent of customers choose automated services to get account balance, payment or minutes remaining information, or to find the closest Verizon Wireless Communications Store.

Verizon expects to see continued growth in capital spending in the customer service area.

“Our customers told us that they want quicker access to account information,” said Marquett Smith, vice president, customer service for Verizon Wireless. “These improvements are just the first step in our plan to enhance our automated call-in systems.”

Opportunities Overseas

Carriers are also breaking new ground in emerging markets. “The cost of serving customers continues to fall,” said Phil Kendall, Strategy Analytics’ director of global wireless research. “While OPEX per user averages $40 per month in North America, it is already below the $5 level for carriers in China, Indonesia, Iraq, the Philippines, Russia and the Ukraine.”

Mobile operators are adding new, innovative technology overseas to keep up with the customer demand. Kanata, Ontario-based BelAir Networks last week debuted a new, wireless mesh network technology for mobile operators. The technology was demonstrated live at the CTIA Wireless Booth at the Las Vegas Convention Center.

“We expect the combination of cellular and WiFi services to become the dominant metro implementation strategy,” said Craig Mathias, an analyst with mobile advisory research consultancy Farpoint Group. “With access and backhaul in a single architecture, this points the way — with WiFi as a more than equal partner in this alliance.”

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