Wireless Data/Internet Market Gains Momentum: Five-Year Subscriber Forecast

For TheFeature.com

Rebecca S. Diercks, (Peter Fabris) 11/13/00

Despite Growing Pains, Wireless Internet Will be a Winner

By Rebecca S. Diercks

By all measures, the potential for wireless Internet services is enormous. In 2003, more than 1 billion wireless handsets will be sold worldwide, and by 2004, global wireless data subscriptions will reach 1.3 billion, Cahners In-Stat Group forecasts. More than 500 million of those subscribers will use wireless Internet services based on WAP/WML, iMode/compact HTML, or something else.

Wireless Internet adoption will not happen uniformly throughout the world, however. In Japan, adoption has been phenomenal. NTT DoCoMo's wildly successful iMode service now boasts more than 14 million subscribers. iMode’s success is due to DoCoMo’s smart tailoring of applications for specific groups—train schedules for commuters, cartoons for kids, for example. The price for the packet-based service is affordable and billing for multiple services is easy to understand.

In addition, Japan’s low wireline Internet adoption rate hasn't hurt. For most subscribers, wireless is their first experience with the Internet. Only about 15% of Japanese homes today have wireline Internet access. In fact, wireless carrier DoCoMo is Japan’s largest ISP. Although its service is based on somewhat antiquated PDC technology that offers only 9.6 Kbps throughput, DoCoMo has proven there’s plenty of demand for wireless data if it’s marketed wisely

The U.S. market for wireless Internet services, on the other hand, is experiencing growing pains. Adoption rates have been disappointing partly due to high wireline Internet penetration in the United States. More than 60% of U.S. homes have wireline access. U.S. carriers confuse potential customers through misleading advertisements that imply the wireless Internet experience is the same as the wireline one. Most U.S. users view the wireline Internet on large, bright color monitors and many have high-speed access. The wireless Web, when viewed on tiny monochrome mobile phone screens at slower speeds, doesn’t come close to this experience.

Wireless data carriers in the United States also tout their services as "free," when in fact they are not. Users pay by the minute for circuit-switched services such as those provided by Sprint PCS, Verizon, and others.

In-Stat does believe that the wireless Internet, despite some misleading marketing, will catch on in the United States. According to a survey conducted this summer, 22 percent of U.S. workers who use wireless phones for business purposes and do not currently have wireless data access, plan to subscribe to it within a year. This demographic group will be the U.S. wireless data industry’s ripest over the next couple of years.

In-Stat expects that Europeans will comprise the largest portion of the wireless Internet subscriber base over the next several years. Although the European industry is ramping up slowly, the region's low wireline Internet penetration, and high SMS service usage implies customers will be receptive to a service tailored to their needs. European carriers are fumbling to find the right formula to market and sell these services, but In-Stat expects them to fare better in 2001 and beyond.

Today, SMS garners the lion's share of the global wireless data market. The heaviest SMS users are European GSM subscribers. In-Stat believes both the wireless Internet and SMS subscriber bases will grow, but the number of wireless Internet subscribers will surpass total SMS subscribers during 2004. But first, carriers must build out networks to support WAP/WML, compact HTML and other services based on 3G.

As they navigate through the unfamiliar skies of a new industry, carriers are finding that one global solution will not work; services must be tailored regionally. With average revenue per user (ARPU) for wireless voice services declining, providers have a strong incentive to invest in regionally targeted applications to make wireless Internet take off. Future improved solutions based on 2.5G, 3G and 4G technology will also boost the market. After fits and starts, it appears the wireless Internet market will soon shift into high gear.

Rebecca S. Diercks is director of wireless research for Cahners In-Stat Group (www.instat.com) based in Newton, Mass. Data used in this article was taken from In-Stat’s report, “Wireless Data/Internet Market Gains Momentum: Five-Year Subscriber Forecast.”