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AT&T Data Fee Hike Escalates Battle for Control of Wireless Data Revenue

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AT&T's warning that it will levy extra fees on heavy users of smart phone data services represents an escalation in the battle for control of wireless subscribers and the revenue they generate, according to iSuppli.

An AT&T executive this week said that the company will implement a special pricing scheme for subscribers who make extensive use of data services. The company noted that 40 percent of data usage on its wireless network is generated by only 3 percent of subscribers - mainly iPhone users in specific regions who are accessing video and audio services.

For carriers like AT&T, the capability to garner sufficient returns from data services represents not only a matter of control of its revenue stream - but also a matter of survival.

"All members of the wireless supply chain - from operators, to cell phone makers, to content developers and aggregators - are vying for the same thing: ownership of the wireless subscriber," said Jagdish Rebello, PhD, senior director and principal analyst for iSuppli. "With growth in voice service revenue having evaporated, the only opportunity for expansion in the wireless business is in data. For wireless operators, data revenue growth is essential to fund investments in new network technology that are required to attract and retain subscribers."

In recent times, providers of smart phone hardware and content aggregators appear to be prevailing in the battle for subscriber control.

"With much of the iPhone experience intrinsically tied to iTunes and application downloads, Apple has usurped AT&T's ownership of these critical users," Rebello noted. "Because of this, Apple has generated major revenue and margin growth based on its iPhone business-while AT&T largely has been unable to cash in on the growth in data services beyond monthly access fees. This is making it difficult for AT&T to make the required investments to upgrade its network to support greater bandwidth. The net result is a deterioration in the mobile broadband user experience."

While the headlines have focused on relationship between Apple and AT&T, the issue of subscriber control affects the entire wireless industry.

"The fight over which companies will control revenue generated by applications and data services will represent the key battleground in the global wireless business during the next two years," Rebello said. Companies including Apple, Google, Nokia, RIM and Microsoft are trying to muscle in on the wireless carriers for a share of the lucrative and growing mobile premium content, service and application pies. Regardless of who wins, this battle will alter the balance of power in the mobile value chain."

Global revenue for wireless data services, excluding messaging, is projected to grow by 26.2 percent to reach $87.7 billion in 2009. This follows 57.1 percent growth in 2007 and a 60.3 percent expansion in 2008 for total data revenue. iSuppli is forecasting that total data revenues of carriers worldwide, excluding messaging, will grow to approximately $188 billion by 2013.

However, to achieve this growth, carriers must develop efficient business models - models that leverage their existing relationships with customers. While iSuppli believes that carriers will represent just another source for mobile broadband content and application download, carriers must look to develop and actively promote services like user-generated content management, social networking, mobile TV and mobile commerce.

"Carriers now are in a unique position to offer these revenue-generating, churn-reducing services to their subscribers," Rebello said. "But carriers must realize that their window of opportunity is closing fast. Failure to act now will allow other players to usurp the carriers and relegate companies like AT&T to the role of mobile, dumb-fat-pipe providers. This is definitely not something that the carriers want, nor is this good for the wireless industry."

Operator Non-Messaging Data Revenue by Country

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Tags: at&t  broadband  nokia,  video  cell phone