The once cozy US wireless telephony industry1 is becoming less comfortable by the day. New players are entering the market, capacity is expanding at a breakneck pace, and prices are set to tumble. Most players take comfort in the belief that demand will rise as prices fall, but not everyone is likely to achieve enough growth to offset plummeting prices. As growth stalls and revenue per user declines, profits will become increasingly elusive.
Many executives are only now recognizing the magnitude of the change facing their industry. Our analysis suggests that net earnings for some players could shrink to between 25 and 30 percent of revenue over the next three to four years—a far cry from forecasts of nearly 45 percent by industry players and Wall Street analysts as recently as last Fall. Large incumbents such as AT&T Wireless, Bell Atlantic NYNEX Mobile, and AirTouch Cellular will need to make radical changes if they are to succeed in the new environment.
New attackers entering the wireless market in the wake of the recent bandwidth auctions pose a threat to which incumbents must respond swiftly, while there is still time. They will have to improve their operations and restructure...