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No sign of wireless downturn in North America yet

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Independent Analyst Comment Steven Hartley, Senior Analyst at Ovum North America was the first region to be affected by the current economic crisis and, to date, has been the hardest hit. Although the full effects of the downturn are yet to be felt, the wireless operators' results in the third quarter reflect how mobile services have become indispensable and two year contracts are protecting the sector in the region. Mobile telecom remains on track to grow in the region in 2009.

Demand continues to power growth - except at Sprint

Both the US (85% in 2007) and Canada (60%) have low mobile penetration rates, relative to other mature economies, meaning that demand for mobile services has not yet been fully met and connections growth is still possible.

The US added 3.9 million connections in the third quarter and year-on-year total connections growth was 10%. Significantly this growth was not limited to the largest players. Only Sprint saw a decline in connections in the third quarter (another 1.3 million) - a decline that helped the other operators continue to grow strongly.

Canada's national wireless operators also saw continued connections growth, with Rogers' connections base growing 8% year-on-year, Bell Canada by 7% and Telus 10%.
Postpaid emphasis reduces risk moving forward, but prepaid is an opportunity

Also significant is the fact that in the US 79% of connections in the third quarter were postpaid, with Canadian operators reporting even higher figures. The risk of these connections defaulting on their contract should be reduced, although not eradicated. There is always the risk that contract customers will be more selective when renewing a contract in 2009, but from a net additions perspective, most of these customers will be here for 2009.

As North America has relatively low penetration, prepaid could actually be an opportunity for North American operators in 2009, as shown by T-Mobile's 26% rise in prepaid subscriptions in the third quarter. Assuming offerings are positioned carefully so as not to erode contract revenues, then the customer base could grow further in the currently underserved lower end segment.

Financials look strong too - except at Sprint

Financial indicators for the North American wireless market also looked healthy in the third quarter. AT&T, Verizon Wireless, T-Mobile and Metro PCS in the US and Rogers Wireless in Canada all reported double-digit revenue growth, with the remainder in the high single digits, including US MVNOs Tracfone and Virgin Mobile. Sprint was the only operator to mention €˜tough economic times' in its results and reported a 13% year-on-year revenue decline.

Margins, where reported, saw no adverse effects due to economic conditions either, although the full picture will be revealed in 4Q08 and 1Q09. In 3Q08 the most high-profile margin erosion came from AT&T and Rogers Wireless as a result of iPhone subsidies, but this will aid profitability in 2009.

Data lift-off offers growth potential

The North American market also reported stunning growth in mobile data services. Admittedly this is from a small start, but the demand for mobile data looks like continuing into 2009, even if it proves to be less than what was anticipated 12 months ago. Just a few metrics serve to illustrate this point: Telus grew wireless data revenues by 56% year-on-year, AT&T by 51% and Verizon by 43%.
Outlook unchanged

The above leads us to reiterate our outlook for North America in 2009. We feel that the North American mobile market will escape catastrophe as a result of macroeconomic conditions in 2009 and will continue to grow, albeit not at the rates we have seen in 2008.

The region's relatively low penetration has stimulated growth to date. However, increasing saturation means that segments currently unserved by wireless are likely to be those most affected by the economic conditions. Therefore, our latest Mobile regional and country forecast pack: 2007-13 predicts a 6.3% rise in both connections and revenues in the US from 2008 to 2009. In Canada it is 7.5% for connections and 11.3% for revenues.

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