No one has to be told that mobile wireless telephony is booming. In the world as a whole, 1 person in 20 owns a mobile telephone; penetration rates are way up; and usage is rising inexorably. Why then are wireless service providers not reaping bumper profits—indeed, why is the profit per customer falling?

The answer is simple: for the first time in the short history of wireless, subscriber growth alone isn’t enough to generate profits. Plunging prices, merciless customer "churn," and high capital expenditures have combined to create a vortex of "profitless prosperity" in which power has shifted from wireless companies to their customers. So while growth—particularly in untapped markets—remains essential, providers must achieve both growth and profitability by learning to segment their customers in maturing markets more shrewdly and by restructuring their businesses to offer these segments distinctive services.

Profitless growth

Most industries can only dream about the wireless industry’s skyrocketing penetration rates (Exhibit 1).¹ This phenomenal expansion has resulted from such developments as the introduction of longer-lived batteries for handsets, digital services providing greater privacy, highly competitive offers (including large bundles of minutes at low average prices), and high rates of adoption in emerging markets with...