Sunday, September 04, 2011

Mobile - Analyst challenges the view that smartphones generate enough revenue to pay for network investments

[fierce wireless] The gospel in the wireless industry the past few years has been that increasing smartphone penetration will deliver immediate and significant benefits to carriers: higher ARPUs and stickier customers.

However, in a research note entitled "The Dark Side of Smartphones," Credit Suisse analyst Jonathan Chaplin challenges that conventional wisdom. Chaplin argues that ARPU growth has been disappointing, smartphone-driven costs are rising faster than ARPU, pressuring margins, and capital expenditure requirements are rising, again due to smartphones.

Chaplin said three things need to happen for the smartphone situation to improve: competitive intensity needs to return to pre-Verizon (NYSE:VZ) iPhone levels, carriers need more spectrum to blunt capex costs, and there needs to be industry consolidation.

Some carriers are clearly feeling the "dark side" effects of smartphones. For example, MetroPCS (NASDAQ:PCS) said it will increase capex this year from a previous estimate of $700 million to $900 million to a new target of $900 million to $1 billion. On the company's earnings conference call, CEO Roger Linquist said, according to a SeekingAlpha transcript, that the increase is "primarily driven by an increase in capacity expenditures for future subscriber and data growth driven by the popularity of our Android handset offering."

Are smartphones worth the cost to carriers?

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