2009 north-american-wireless-industry-survey

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2009 north-american-wireless-industry-survey

  1. 1. Change is in the air* 2009 North American Wireless Industry Survey *connectedthinking
  2. 2. Acknowledgments The PricewaterhouseCoopers 2009 North American Wireless Industry Survey was led by Pierre-Alain Sur, PwC’s U.S. wireless industry leader; Shara Slattery; and Ashley Wright and represents the efforts and ideas of many members of the firm’s Entertainment, Media and Communications Industry practice. The principal contributors were Brian Caisman, Seth Claus, Jamal Douglas, David Enquist, Michael Gibbs, Mariam Harutyunyan, Michelle Mahan, Steve Payette, Karen Plunkett, Michael Riordan, Dominic Wong, and Jacob Young. PwC especially thanks the companies that contributed topics and participated in the survey: AT&T Mobility, Leap Wireless, Metro PCS, Sprint Nextel, T-Mobile USA, U.S. Cellular, Verizon Wireless, Rogers Wireless, and TELUS Mobility. Their support of this project and their candid responses are much appreciated. Together we have created valuable insight into the operations of and the challenges faced by today’s wireless industry. About this survey The PricewaterhouseCoopers 2009 North American Wireless Industry Survey is an annual publication that covers the financial and operational reporting policies and practices of wireless telecommunications service providers. The 2009 survey comprises companies in the United States and Canada. The survey is conducted by PwC’s Entertainment, Media and Communications Industry practice, which prepares the survey questions, solicits company participation, and compiles and analyzes the survey results. The survey period covers year-end 2008 as well as certain information as of June 30, 2009. Companies participate voluntarily, and individual survey results are kept confidential by PwC. PwC has taken reasonable steps to ensure that the information contained in this publication accurately summarizes the survey responses received from the participating companies; however, PwC has not performed any procedures to verify the accuracy of the survey responses. The survey provides a summary of the participating companies’ financial and operational reporting policies and practices and does not purport to render accounting guidance or any other type of professional advice. Should such advice be required, readers should contact their local PricewaterhouseCoopers office. PwC’s worldwide office directory is accessible at www.pwc.com.
  3. 3. Table of contents Executive summary 1 Participating company information 4 Company type and subscriber base 5 Annual service revenue 6 Employee base 6 Sales locations 8 Customer care 9 Licensed spectrum 14 Environmental sustainability 15 Revenue recognition 16 Service contracts and family plans 17 Termination fees and bad-debt expense 18 Prepaid 21 Data services 25 Mobile advertising 28 Wi-Fi data services 28 Customer retention 29 Sales incentives 30 Market development funds and rebates 32 Other revenue activities 33 Revenue assurance 34 Customer billings and payments 36 Handset insurance 40 All-inclusive packages 41 Performance measures 42 Customers/metrics 43 Subscriber costs 52 Data 56 Ring tones 57 Games 58 SMS and premium SMS 58 Phone/BlackBerry-based e-mail and Web access 58 Laptop cards 59 Internet access from handsets 59 Picture revenue 59 Network 60 Long-distance and interconnect expenses 62 Rate plans and billing 63 Property, plant, and equipment 66 Capital expenditure reporting 67 Technology usage 70 Capitalization policies 74 Capitalized labor 76 Site acquisition costs 78 Asset impairments and fair value 79 Business combinations 80 Asset tracking 82 Asset useful lives 85 Data network 102 Taxes and tax-useful lives 105 Colocation 109 Asset retirement obligations 110
  4. 4. Executive summary We are pleased to publish the 13th annual PricewaterhouseCoopers Wireless Industry Survey. This survey is a continuation of the 11 years of the North American Survey and the 2008 Global Wireless Industry Survey. Based on the candid feedback of participating companies, the survey for 2009 focuses on North America only, and comparisons to the 2008 survey responses have been recast as necessary to reflect comparable results. Via the survey, PricewaterhouseCoopers continues to strive to help companies better understand 1) industry performance measures and their evolution over time 2) the policies and procedures utilized by responding companies, and 3) the comparability of financial statements within the industry. We also have the goals of addressing general financial accounting and reporting practices in the industry and of identifying emerging trends or issues related to technology and service offerings. The Wireless Industry Survey has become a resource for many wireless communication industry executives; it has evolved with the changing businesses and trends in the industry; and it is based on feedback received from participating companies. This Executive summary provides highlights of this year’s survey results. As in prior years, we hope you find this year’s survey informative, relevant, and thought provoking. The PricewaterhouseCoopers 2009 North American Wireless Industry Survey results reflect the participation of the seven largest U.S. wireless operators, plus the two largest Canadian wireless companies. Because of the breadth of coverage and participation,we believe the survey provides the most representative summary of industry accounting and reporting policies and practices available for North America. Compared with the 18 participating carriers that participated in the Wireless Industry Survey in the early 2000s, the decline in the number of participating carriers is consistent with consolidation in the industry. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 1
  5. 5. We have highlighted throughout the survey the industry’s important changes and trends, including two very notable milestones for the wireless market in the United States and Canada. First, there was a dramatic advance in terms of technology evolution—specifically, the evolution of the smart phone. Second, mobile penetration reached a mass-market saturation level. It is the combination of those two events that triggered a significant transition in the industry’s competitive landscape. Where the battle once focused on customer experience, increasingly the emphasis is now shifting to price. We see this with both high- and low-end providers. Based on a new paradigm, we believe management must rethink a key component of its business strategy: the definition of a profitable customer and the resulting implications for its business model and cost structure. Following are a few highlights from this year’s results that cover 2008 year-end and certain 2009 metrics. Revenue and performance measures As the economy continued in a downturn throughout 2008 and into 2009, the communications industry experienced both a continuous shift toward wireless substitution and increases in prepaid plans. On average, prepaid minutes of use have increased more than 147% in the past four years, from 270 minutes in 2006 to 667 in the 2009 results. In addition, prepaid plans continue to represent a significant and growing portion of revenue: on average, 26.1% of total service revenue for all responding companies. Finally, during 2009 the historical postpaid carriers put greater focus on the prepaid segment. From an operational perspective, protecting the base by focusing on subscriber retention remained critical. As overall market penetration rates have slowed, retention costs continue to increase year over year. In such an environment, evaluations of customer profitability—to ensure that investments and retention provide adequate returns—become increasingly important and challenging. And the competition is fierce. 2 | Change is in the air
  6. 6. Smart phones (mobile phones offering advanced capabilities with PC-like functionality) are becoming a larger part of companies’ sales and have significant higher average revenue per user than traditional wireless phones do. As of June 30, 2009, on average, 21% of all sales are smart phones, and an average of 12% of overall subscribers use smart phones. The average revenue per user for smart phones is $74 compared with total postpaid average revenue of $54. As companies continue to look for ways to reduce costs and also exert an impact on environmental issues, electronic payments or e-bills are becoming more significant. The average percentage of postpaid subscribers receiving paper invoices decreased from 81% in the 2008 Global Wireless Industry Survey to 72% in 2009, and the average percentage of subscribers that received electronic invoices increased from 6% in the 2008 Global Wireless Industry Survey to 14% in 2009. In addition, companies have increased their targeted e-bill penetration rates: the average rate for 2009 subscribers increased from 12% in the 2008 Global Wireless Industry Survey to 19% in the current year. Property, plant, and equipment Given continued demand for new products and services— especially in the area of data, the importance of service quality, and the nascent development toward fourth-generation (4G) technologies—companies have continued to invest despite the difficult economic environment. On average, capital expenditures as a percentage of service revenue were 21.5% in 2009 compared with 18% in the 2008 Global Wireless Industry Survey. Half of the responding companies indicated that more than 75% of cell sites use third-generation technology. Companies are also beginning to migrate to 4G technology, with one company already using it; two respondents expecting to begin utilizing it in 2010; and two more expecting to by 2011. Asset tracking continues to be an area in which companies spend time and resources. In the 2009 survey, 76% of respondents indicated they use automated tracking systems with bar code scanning. Compared with the 2008 Global Wireless Industry Survey—in which 75% of respondents had completed an inventory of network assets within the previous 12 months—only 57% of this year’s respondents completed an inventory within the past 12 months. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 3
  7. 7. Participating company information The following pages provide the demographics and general corporate data and structure of the responding carriers. As Listing of companies applicable, any information related to the 2008 Global Wireless that participated in the 2009 Wireless Industry Survey has been updated to remove the impacts of the Industry Survey global carriers as presented in the prior-year’s survey. United States AT&T Mobility Leap Wireless MetroPCS The average customer care activity via Internet Sprint Nextel transactions is 9% for postpaid and 5% for T-Mobile USA U.S. Cellular prepaid subscribers. Verizon Wireless Canada Rogers Wireless TELUS Mobility 4 | Change is in the air
  8. 8. Company type and subscriber base All of the companies surveyed reported that they were required to file interim and/or annual financial statements—either individually or through their parent companies— because they are listed on stock exchanges. In addition, all of the companies report financial statements or financial information externally on Web sites or via press releases. The following chart depicts the various stock exchanges on which the responding companies are listed. Stock exchange distribution 11% 22% Toronto Stock Exchange 67% New York Stock Exchange NASDAQ The majority of responding companies prepare their financial statements primarily under U.S. and Canadian generally accepted accounting principles (GAAP), with one respondent preparing financial statements under International Financial Reporting Standards (IFRS). The following chart shows the number of responding companies that prepare their financial statements according to the respective accounting principles. Accounting principle followed US GAAP 6 Canadian GAAP 2 IFRS 1 Number of respondents The following chart shows the responding companies’ reported subscribers as of June 30, 2009. Subscribers as of June 30, 2009 11% 22% 2.5 million – 5.0 million 22% 45% 5.1 million – 10.0 million 10.1 million – 50.0 million Greater than 50.0 million The industry continues to experience subscriber growth as more people substitute wireless devices for traditional wireline service. Wireless industry service revenue grew 6.3% in the United States and 10.1% in Canada, while the number of subscribers grew by 5.4% in the United States and 7.1% in Canada, according to Pyramid Research. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 5
  9. 9. Participating company information Annual service revenue The following chart illustrates the responding companies’ service revenue reported as of December 31, 2008, which was the most recently ended fiscal year. The average service revenue was $29.4 billion for carriers with revenue greater than $5.0 billion and was $3.0 billion for carriers with revenue less than $5.0 billion. Annual service revenue 33% 45% $1.0 billion – $5.0 billion 22% $5.1 billion – $20.0 billion Greater than $20.0 billion Employee base Eighty-nine percent (89%) of the responding companies reported operating their companies on a centralized basis (whereby a single headquarters location performs the accounting/finance function for the entire organization) as opposed to a decentralized basis (whereby multiple business units or segments perform separate accounting or finance functions that are consolidated by a headquarters office). The following chart represents the number of full-time employees as of June 30, 2009, as reported by the responding companies. Full-time employees 22% 22% 1,000 – 5,000 employees 5,001 – 10,000 employees 22% 22% 10,001 – 20,000 employees 12% 20,001 – 50,000 employees Greater than 50,000 employees Carriers with revenue greater than $5.0 billion had more than 10,000 full-time employees and averaged 50,082 employees; carriers with revenue less than $5.0 billion had 10,000 or fewer full-time employees and averaged 5,844 employees. 6 | Change is in the air
  10. 10. The following charts depict the number of full-time employees in each functional category as of June 30, 2009. The responding companies were split between carriers with revenue greater than $5.0 billion and carriers with revenue less than $5.0 billion. Average number of employees per functional position 2,224 Retail employees 18,041 1,935 Customer care 16,858 634 Network/engineering 5,676 661 Information technology 1,932 Average number of employees Carriers with revenue < $5.0 billion Carriers with revenue > $5.0 billion Average number of employees per functional accounting and finance position 19 Financial planning and analysis 141 12 Internal audit 81 17 Income and nonincome tax 75 13 Commission accounting 62 11 Inventory accounting 39 24 Revenue accounting 33 11 Property accounting 22 10 Payroll accounting 21 Average number of employees Carriers with revenue < $5.0 billion Carriers with revenue > $5.0 billion PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 7
  11. 11. Participating company information Sales locations All but three of the responding companies reported using company-owned retail stores and kiosk locations to sell to and provide services for customers. The following chart depicts how many company-owned retail stores and kiosk locations were reported by the responding companies. Company-owned retail stores and kiosk locations 26% 37% 100 – 200 retail stores and kiosk locations 37% 201 – 450 retail stores and kiosk locations 1,000 – 2,500 retail stores and kiosk locations No responses were received in the less-than-100 and 451–999 categories. The average number of company-owned retail stores and kiosk locations increased over the prior year from 1,430 to 1,500 for carriers with revenue greater than $5.0 billion. Carriers with revenue less than $5.0 billion experienced a jump from 189 to 274 in the current year. The following charts depict the number of reseller retail stores (third-party companies) and branded franchise locations that sell each carrier’s services. Reseller retail stores 25% 25% 13% Less than 1,500 reseller retail stores 4,001 – 4,500 reseller retail stores 37% 5,001 – 7,500 reseller retail stores Greater than 25,000 reseller retail stores No responses were received in the 1,501–4,000, 4,501–5,000, and 7,501–25,000 categories. The average number of reseller retail stores (third-party companies) that sell services for carriers with revenue greater than $5.0 billion is 71,628, up from 53,034 as reported in the 2008 Global Wireless Industry Survey. For carriers with revenue less than $5.0 billion, the number of reseller stores rose to 2,983 from 2,301 in 2008. 8 | Change is in the air
  12. 12. Branded franchise locations 12% 25% 25% Less than 1,000 branded franchise locations 1,001 – 2,000 branded franchise locations 38% 3,501 – 4,000 branded franchise locations 7,001 – 7,500 branded franchise locations No responses were received in the 2,001–3,500 and 4,001–7,000 categories. Branded franchise locations represent a branded store that is independently owned by a third party. The average number of branded franchise locations that sell services for carriers with revenue greater than $5.0 billion is 3,898, compared with 2,782 in the 2008 Global Wireless Industry Survey. For carriers with revenue less than $5.0 billion, that number is up to 1,322, compared with 535 in the 2008 Global Wireless Industry Survey. Customer care The following charts depict the responding carriers’ percentages of customer care activity provided for postpaid and prepaid subscribers, categorized by the source. Customer care activity via Internet transactions (postpaid) 20% 40% No customer care activity via Internet 40% 1% – 10% of customer care activity via Internet 11% – 20% of customer care activity via Internet No responses were received in the 21%–100% category. Customer care activity via Internet transactions (prepaid) 13% 25% 62% No customer care activity via Internet 1% – 10% of customer care activity via Internet 11% – 20% of customer care activity via Internet No responses were received in the 21%–100% category. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 9
  13. 13. Participating company information The average customer care activity via Internet transactions is 9% for postpaid subscribers and 5% for prepaid subscribers. No significant variances existed between carriers with revenue greater than $5.0 billion and carriers with revenue less than $5.0 billion related to Internet transactions. In the 2008 Global Wireless Industry Survey, the average percentage of all customer care activity (postpaid and prepaid) performed via Internet transactions was 23% by carriers with revenue greater than $5.0 billion and 8% for carriers with revenue less than $5.0 billion. Customer care activity via interactive voice response (IVR) (postpaid) 40% 40% 1% – 10% of customer care activity via IVR 20% 11% – 25% of customer care activity via IVR 51% – 75% of customer care activity via IVR No responses were received in the 26%–50% and 76%–100% categories. Customer care activity via interactive voice response (IVR) (prepaid) 13% 25% 25% 11% – 25% of customer care activity via IVR 26% – 50% of customer care activity via IVR 37% 51% – 75% of customer care activity via IVR 76% – 100% of customer care activity via IVR No responses were received in the 1%–10% category. Customer care activity via live customer service representative (postpaid) 40% 40% 26% – 50% of customer care activity via live rep 20% 51% – 75% of customer care activity via live rep 76% – 100% of customer care activity via live rep No responses were received in the 1%–25% category. 10 | Change is in the air
  14. 14. Customer care activity via live customer service representative (prepaid) 37% 37% 1% – 25% of customer care activity via live rep 26% 26% – 50% of customer care activity via live rep 51% – 75% of customer care activity via live rep No responses were received in the 76%–100% category. The average customer care activity via interactive voice recognition (IVR) is 29% for postpaid customers and 55% for prepaid customers. Live customer service via a customer service representative is utilized 62% of the time for postpaid subscribers and 37% for prepaid subscribers. In addition, prepaid customers utilize their handsets to complete 3% of customer care activity. Responding companies indicated that on average, calls are transferred only once before an issue or inquiry gets resolved. Carriers with revenue greater than $5.0 billion completed 26% of customer service via IVR for postpaid and 66% for prepaid subscribers. Live customer service averaged 66% for postpaid and 30% for prepaid for carriers with revenue greater than $5.0 billion. Carriers with revenue less than $5.0 billion completed 34% of customer service via IVR for postpaid and 44% for prepaid subscribers. Live customer service averaged 56% for postpaid and 34% for prepaid subscribers for carriers with revenue less than $5.0 billion. In the 2008 Global Wireless Industry Survey, live customer service via a customer service representative was utilized the most, at 55%, and carriers with revenue greater than $5.0 billion used IVR for 25% of all customer care activity and used live customer service representatives approximately 50% of the time. Carriers with revenue less than $5.0 billion in the 2008 Global Wireless Industry Survey had more live interaction (60% of all transactions) for customer care activity and completed 29% of all transactions through IVR. The following chart shows the types of activities available to subscribers over the Internet. Available Internet activities Equipment purchases 100% Customer payments 100% Billing inquiries, excluding 86% customer payments Technical issues related 71% to device service Personal information changes 71% Changes to service plans 71% Percentage of respondents Chart sums to greater than 100% because multiple responses were allowed. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 11
  15. 15. Participating company information We asked companies to indicate the level of customer care activities that are outsourced to third parties. All of the responding companies outsource at least a portion of their customer care call volume. We noted that carriers were generally inclined to outsource more of their prepaid call volume than their postpaid call volume. All of the responding companies outsource some percentage of postpaid, and 67% of the companies outsource all of their customer care activity for prepaid. In the 2008 Global Wireless Industry Survey, 15% of the responding companies outsourced all of their customer care call volume, while an additional 15% did not outsource any of their customer care call volume. The remaining 70% of the responding carriers outsourced a portion of their customer care call volume. The following charts depict the percentage of outsourced call volume for both postpaid and prepaid subscribers. Outsourced customer care activity (postpaid) 40% 40% 0% – 25% outsourced 20% 26% – 49% outsourced 50% – 75% outsourced No responses were received in the 76%–100% category. Outsourced customer care activity (prepaid) 25% 75% 75% – 99% outsourced 100% outsourced No responses were received in the 0%–74% category. 12 | Change is in the air
  16. 16. There continues to be interest in the outsourcing of customer care activity to international locations. In the 2008 Global Wireless Industry Survey, responding companies indicated that in total (prepaid and postpaid), an average of 37% of customer care activity was outsourced internationally. The following chart shows the percentage of outsourced volume that is handled domestically (primary country of operation) versus internationally. Domestic versus international outsourcing Postpaid average 81% 19% Prepaid average 40% 60% Percentage of respondents Domestic International Outsourced locations for postpaid customer care activities include Guatemala, India, Mexico, Panama, and the Philippines. In addition to the postpaid locations, prepaid customer care activity is also outsourced to the Dominican Republic, Nicaragua, and South Africa. The following chart depicts the number of respondents that outsource a portion of their primary accounting functions. For those functions that are outsourced, the average percentage of the responding company’s activity that is outsourced is indicated. Outsourced accounting functions Rebate processing 8 89% 1 Inventory management 7 75% 2 Sales and use taxes 6 48% 2 Remittance processing 6 46% 2 Income taxes 6 36% 2 Accounts receivable 6 35% 4 Payroll processing 4 38% 3 Information technology 4 27% 5 Property taxes 3 53% 5 Accounts payable 3 37% 6 Internal audit 1 40% 7 Payment processing 1 8% Number of respondents No outsourcing Function outsourced PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 13
  17. 17. Participating company information Licensed spectrum The responding companies own and use licenses primarily in the cellular (~850 megahertz [MHz]) and personal communications services (PCS) (~1.9 gigahertz [GHz]) categories to provide service. A large number of responding companies also own advanced wireless services (AWS) spectrum. The following chart shows the number of companies that own and use each of the reported license types. Licensed spectrum 9 PCS (~1.9 GHz) 9 8 AWS (1,700 MHz) 3 7 AWS (2,100 MHz) 2 6 Cellular (~850 MHz) 6 Federal Communications 4 Commission Cellular (~700 MHz) 1 Web log-in service communication 2 services (~2.3 GHz) Specialized mobile radio 2 services (~800/900 MHz) 2 1 Non-US wireless licenses 1 Number of respondents Own Use Chart sums to greater than the number of responding carriers because multiple responses were allowed. In addition, broadband wireless spectrum (2.5 GHz and 3.5 GHz) is owned and used by one carrier, and certain AWS spectrum (1,700 MHz and 2,100 MHz) is owned by one carrier each but not used by any carriers. 14 | Change is in the air
  18. 18. Environmental sustainability Given the growth in environmental responsibility by individual companies and the increase in environmental concerns by consumers, we asked companies about their environmental responsibility programs. Seventy-five percent (75%) of the responding companies indicated that the responsibility for environmental performance rests with a C-level executive. One company assigned responsibility to a functional organization, and one had no one specifically assigned. The surveyed companies were asked several questions related to their views on environmental practices. The companies were asked to respond on a scale of 1 to 5, with 1 being “Strongly agree” and 5 being “Strongly disagree.” The following chart represents the average response received for each question in 2009, compared with the 2008 Global Wireless Industry Survey. Environmental views Green efforts are more of a fad than they are an enduring 3.9 transformation for our company and our industry 4.4 Our industry has a moral responsibility to help consumers change their own behaviors 2.2 (through editorial, effective programming, and advertising) 2.6 Investors and stakeholders will increasingly reward companies with above-average 2.2 performance on sustainability issues 2.5 These initiatives make a positive contribution to the 1.4 workplace, employee morale, recruitment, and retention 1.8 We can achieve cost savings by implementing 1.4 sound environmental practices 1.8 We must demonstrate progress on our environmental 1.7 records to continue to attract and retain subscribers 2.1 These efforts are valuable to our brand, 1.6 to who we are as a company, and to our subscribers 2.0 The adoption of environmentally friendly practices 1.3 can drive stronger corporate performance 1.8 Average response 1. Strongly agree 4. Disagree 2008 average 2. Agree 5. Strongly disagree 2009 average 3. Neutral Sixty-three percent (63%) of the responding companies reported their performance on environmental or social issues to the public through either triple-bottom-line reporting or another discretionary report, such as a corporate responsibility report. Another 29% of the respondents indicated that they plan to report environmental performance in the future. All of the responding companies reported supporting existing programs to recycle mobile phones/accessories and reduce their environmental impact. The programs include in-store collection, donating proceeds to local charities, planting trees, and customer account credits. Eighty-eight percent (88%) of the respondents reported monitoring their carbon footprints to determine ways of reducing environmental impact. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 15
  19. 19. Revenue recognition The following pages cover wireless company practices in the area of revenue recognition. On average prepaid minutes of use have increased more than 147% in the past four years. 16 | Change is in the air
  20. 20. Service contracts and family plans Of the responding companies, 78% indicated they have postpaid service contracts with their subscribers. Of the nine total respondents, six offer one-year contracts, six offer two-year contracts, and three offer three-year contracts. The following chart illustrates the responding companies’ terms of postpaid service contracts and the approximate percentage of subscribers on each contract term. Percentage of subscriber base by contract term 2% Carrier E 10% 60% 28% 1% Carrier D 9% 76% 14% Carrier C 11% 72% 17% 1% 1% Carrier B 77% 21% 3% 1% 1% Carrier A 79% 16% Percentage of subscribers One year Out of contract Two years Other Three years Responses in the other category include primarily month to month. An increasing number of companies are offering family plans to their customers. Seventy-eight percent (78%) of the responding companies offer family plans to their postpaid subscribers, while only 33% offer family plans to prepaid subscribers. The following chart shows the percentage of postpaid subscribers who are enrolled in family plans compared with the 2008 Global Wireless Industry Survey. Percentage of postpaid subscribers on family plans Greater than 75% 17% 44% 51% – 75% 33% 12% 26% – 50% 17% 44% Less than 25% 33% Percentage of respondents 2008 2009 No responses were received in the greater-than-75% category in 2008. Of the responding companies that offer family plans, 29% indicated that family plans average two subscribers per plan, compared with 45% in the 2008 Global Wireless Industry Survey; 71% indicated that family plans average three subscribers per plan compared with 45% in the 2008 Global Wireless Industry Survey. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 17
  21. 21. Revenue recognition The following chart illustrates the average postpaid monthly revenue per user for subscribers enrolled in family plans. Compared with the 2008 Global Wireless Industry Survey, monthly revenue per user for family plan subscribers appears to be decreasing. Sixty-six percent (66%) of respondents said average revenue per family plan subscriber ranged from $41 to $50. In the 2008 Global Wireless Industry Survey, 62% cited a higher average revenue range for family plans, from $51 to $60. Average monthly family plan subscriber revenue 17% 17% $21 — $40 $41 — $50 66% $51 — $60 In order to add subscribers to family plans, many of the respondent companies charge for each additional subscriber enrolled. Seventy-one percent (71%) of the respondents charge $10 or less per additional subscriber on family plans; the remaining 29% charge $10.01 to $20.00. Termination fees and bad-debt expense The following chart illustrates how responding companies charge contract termination fees and how strictly the companies bill and enforce the collection of contract termination fees or early-disconnect fees. Compared with the 2008 Global Wireless Industry Survey there has been a slight increase in the number of carriers that charge termination fees or early-disconnect fees. Contract termination or early-disconnect fees 2008 77% 23% 2009 86% 14% Percentage of subscribers Charge somewhat (most early-termination fees are billed, and most have to pay except in certain situations, e.g., close to the end of the contract term, waived for high-value subscribers) Charge rarely or not at all Five companies responded that contract termination fees or early-disconnect fees are prorated over the lives of contracts. Among them, the five companies use several different methods to determine prorated amounts. Some prorate on a straight-line basis, while others prorate per month down to a minimum fee. 18 | Change is in the air
  22. 22. We also asked the responding companies to comment on their success in collecting contract termination fees or early-disconnect fees. As indicated in the following charts, the collection rates on such fees vary drastically depending on whether the customer has voluntarily terminated service or whether service has been involuntarily terminated by the company. Eighty percent (80%) of the 2009 responding companies are collecting approximately 50% or more of contract termination fees related to voluntary terminations, which is an approximately 40% increase compared with the 2008 Global Wireless Industry Survey. Collection rates: Voluntary termination fees 10% Greater than 75% 8% 40% 30% 51% – 75% 33% 40% 30% 26% – 50% 18% 20% 10% – 25% 33% 20% 10% Less than 10% 8% Percentage of respondents 2007 2008 2009 Collection rates: Involuntary termination fees 51% – 75% 8% 20% 26% – 50% 17% 20% 10% – 25% 42% 50% 60% Less than 10% 33% 50% Percentage of respondents 2007 2008 2009 PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 19
  23. 23. Revenue recognition Compared with the 2008 Global Wireless Industry Survey, collection rates related to involuntary termination fees have decreased significantly. The decrease in collection rates correlates with the economic challenges faced in late 2008 and 2009. The following charts illustrate the responding companies’ average charges for voluntary and involuntary early-termination fees for postpaid subscribers. Average charges for voluntary early-termination fees Greater than $125 20% $101 – $125 20% $75 – $100 40% Less than $75 20% Percentage of respondents Average charges for involuntary early-termination fees $301 – $400 20% $201 – $300 20% $101 – $200 60% Percentage of respondents The responding companies use several different methods to record revenue related to termination fees. The results are consistent with the 2008 Global Wireless Industry Survey. The following chart illustrates what percentage of companies uses each type of method identified. Revenue recognition of early contract termination or early-disconnect fees Record as revenue only the portion of the billed 17% termination fee that is expected to be collected, and record any additional bad-debt expense against this amount; represents net reporting of revenue Record 100% of billed termination fee as service 17% revenue, and record bad-debt expense (through the company's allowance method); represents 66% gross reporting of revenue Recognize no revenue until amount billed is collected (no bad-debt expense is ever recorded); represents reporting revenue on a cash basis 20 | Change is in the air
  24. 24. The following chart illustrates bad-debt expense related to postpaid receivables as a percentage of total postpaid revenues. The average of responses was 1.8%, which is consistent with 2008 Global Wireless Industry Survey responses. Postpaid bad-debt expense 10% 3.01% – 4.00% 20% 2.51% – 3.00% 10% 2.01% – 2.50% 40% 20% 1.51% – 2.00% 40% 10% 1.01% – 1.50% 20% 30% 1.00% or less Percentage of respondents 2008 2009 Prepaid All of the responding companies offer customers the opportunity to pay for service in advance. The following chart illustrates the percentage of the responding companies’ total subscribers who are prepaid subscribers. Percentage of prepaid subscribers 1 100% 2 1 80% – 90% 6 11% – 25% 3 5 10% or less 4 Number of respondents 2008 2009 No responses were received in the 26%–79% category. For companies with revenue greater than $5.0 billion, the average response of the percentage of prepaid subscribers as a percentage of total subscribers was 11% compared with 12% in the 2008 Global Wireless Industry Survey. For companies with revenue less than $5.0 billion, the average response of the percentage of prepaid subscribers as a percentage of total subscribers was 56% compared with 36% in the 2008 Global Wireless Industry Survey. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 21
  25. 25. Revenue recognition The average prepaid subscriber life for responding companies is 18 months. The following chart represents the average prepaid subscriber life for the current year compared with the 2008 Global Wireless Industry Survey. Average prepaid subscriber life 7 10 – 15 months 5 2 16 – 20 months 1 1 21 – 25 months 26 – 30 months 1 3 31 – 35 months 1 Number of respondents 2008 2009 No responses were received in the less-than-10-months category. For companies with revenue greater than $5.0 billion, the average prepaid subscriber life was 17 months in 2009 compared with 18 months in the 2008 Global Wireless Industry Survey. For companies with revenue less than $5.0 billion, the average prepaid subscriber life was 19 months compared with 20 months in the 2008 Global Wireless Industry Survey. The following chart illustrates the average expiration periods for cards that have been activated for the responding companies. Expiration periods 11% 26% 63% 1- to 2-month expiration 3- to 4-month expiration 12-month expiration No responses were received in the 5- to 11-month category. Of the responding companies, 43% have expiration periods for cards if they have not been activated. 22 | Change is in the air
  26. 26. The following chart illustrates the average monthly minutes of use (MOU) per prepaid subscriber for the responding companies. Average monthly MOU per prepaid subscriber 18% Less than 100 minutes 11% 64% 100 – 500 minutes 45% 18% 501 – 1,000 minutes 11% 1,001 – 1,500 minutes 22% Greater than 1,500 minutes 11% Percentage of respondents 2008 2009 Companies with revenue greater than $5.0 billion reported an average prepaid MOU of 537 minutes compared with 362 minutes in the 2008 Global Wireless Industry Survey, and companies with revenue less than $5.0 billion reported average prepaid MOU of 830 minutes compared with 350 minutes in the 2008 Global Wireless Industry Survey. The overall MOU for prepaid has increased 147% in four years. Average prepaid MOU trend 667 356 320 270 2006 2007 2008 2009 PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 23
  27. 27. Revenue recognition Of the responding companies, 56% offer unlimited voice prepaid plans. Of those companies, 64% of their prepaid customers participate in the unlimited voice plans, and the average monthly MOU is 1,181. The following chart illustrates the average fee charged for an unlimited voice prepaid plan. Average fee for an unlimited voice prepaid plan $50.01 – $55.00 40% $40.01 – $45.00 40% $36.00 – $40.00 20% Percentage of respondents No responses were received in the $45.01–$50.00 category. The following chart represents prepaid revenues as a percentage of total revenues for the responding companies. The average prepaid revenue as a percentage of total revenues for companies with revenue greater than $5.0 billion is 5.3% compared with 11.7% in the 2008 Global Wireless Industry Survey; for companies with revenue less than $5.0 billion, prepaid revenue increased to 52.3% from 36.1% in the 2008 Wireless Industry Survey. Prepaid revenue as a percentage of total revenues 2 91% – 100% 2 3 6% – 10% 3 8 5% or less 4 Number of respondents 2008 2009 No responses were received in the 11%–90% category. 24 | Change is in the air
  28. 28. Data services Data services continues to be an area of focus, as most of the responding companies are seeking opportunities to grow revenue. The following charts illustrates the percentage of responding companies’ total service revenues—excluding short message services (SMS)/text—generated by data services, compared with the 2008 Global Wireless Industry Survey for postpaid and prepaid. Percentage of service revenues generated by postpaid data services 20.1% – 25.0% 1 15.1% – 20.0% 1 3 10.1% – 15.0% 4 6 5.1% – 10.0% 1 0.0% – 5.0% 1 Number of respondents 2008 2009 Percentage of service revenues generated by prepaid data services 4 5.1% – 10.0% 4 6 0.0% – 5.0% 3 Number of respondents 2008 2009 PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 25
  29. 29. Revenue recognition The following chart indicates the monthly contribution of data services, excluding SMS/text to total, prepaid, and postpaid average revenue per user (ARPU). Compared with the 2008 Global Wireless Industry Survey responses, the contribution of data services—excluding SMS/text—to ARPU has increased. Current-year responses included five carriers that indicated that data services—excluding SMS/text—have contributed more than $8 to ARPU compared with $0 in the 2008 Global Wireless Industry Survey. Data services’—excluding SMS/text’s—effect on ARPU 56% Greater than $8.00 25% 56% 11% $6.01 – $8.00 11% 22% $4.01 – $6.00 11% 11% $0.01 – $2.00 75% 22% Percentage of respondents Total ARPU per user Prepaid ARPU per user Postpaid ARPU per user No responses were received in the $2.01–$4.00 category. The responding companies reported that approximately 60% of their postpaid subscribers use SMS/text, while 55% of their prepaid customers use SMS/text. 26 | Change is in the air
  30. 30. The following chart illustrates the percentage of responding companies’ total data service revenues generated by SMS/text services. Overall, SMS/text services are becoming a greater percentage of total service revenues. In the current year, two respondents indicated that SMS/text services constituted 10% to 15% of postpaid revenues compared with 0% in the 2008 Global Wireless Industry Survey. Percentage of service revenues generated by postpaid and prepaid data services 1 Greater than 15.0% 3 10.1% – 15.0% 2 1 5.1% – 10.0% 4 1 0.0% – 5.0% 1 Number of respondents Prepaid Postpaid The following chart indicates the monthly contribution of SMS/text services to total, prepaid, and postpaid ARPU. SMS/text’s effect on ARPU 14% $5.01 – $7.50 17% 57% $2.51 – $5.00 50% 66% 29% $0.00 – $2.50 50% 17% Percentage of respondents Monthly ARPU per SMS/text user Monthly prepaid ARPU per SMS/text user Monthly postpaid ARPU per SMS/text user Of the responding companies, 56% indicated they charge for incoming calls and text messaging. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 27
  31. 31. Revenue recognition All of the respondents’ subscribers can access third-party content that the company does not source through their handsets (e.g., through a short-code SMS/text, m-sites, or a premium rate). The following chart illustrates how the respondents account for the revenue share payment made to the third-party content provider. Third-party content 22% 33% 12% Reduction of revenue Cost of service 33% Operating expense other than cost of service Other Mobile advertising We asked the responding companies whether they include any nonsubscriber revenue in calculating average revenue per user (e.g., roaming revenue, wholesale revenue, and advertising revenue). Eighty-eight percent (88%) of the responding companies include other nonsubscriber revenues in their ARPU, which is consistent with the 2008 Global Wireless Industry Survey of 85%. Eighty-six percent (86%) of those carriers reported that they include roaming revenues. Of the responding companies, 75% record revenue related to mobile advertising. Sixty-seven percent (67%) of the respondents indicated they recognize the revenue by using the gross method; the remaining 33% indicated they use the net method. Wi-Fi data services Wi-Fi hot spots and wireless broadband access cards are common in today’s marketplace. Of the responding companies, 44% offer Wi-Fi hot spots in public locations such as airports, coffee houses, hotels, and offices compared with 62% in the 2008 Global Wireless Industry Survey. One hundred percent (100%) of the companies that offer hot-spot services and pay the hot-spot location a portion of the fee billed to the customer said they account for those fees as operating expenses. Of the responding companies, 89% provide wireless broadband access through personal computer cards, which is consistent with the 92% in the 2008 Global Wireless Industry Survey. 28 | Change is in the air
  32. 32. Customer retention Companies continue to focus on retaining current customers because overall market penetration rates have slowed. Accordingly, retention-related activities have increased in recent years. The following chart illustrates the percentage that retention-related costs increased for the responding companies. All responding companies expense retention costs. Increase in subscriber-retention-related costs 10% Greater than 50% 29% 10% 31% – 40% 30% 21% – 30% 43% 30% 11% – 20% 14% 20% 0% – 10% 14% Percentage of respondents 2006 – 2007 2007 – 2008 No responses were received in the 41%–50% category and no responses were received in the 31%–40% category in 2007–2008. Subsidies offered on handset upgrades to retain current customers can be a significant component of customer retention costs. The range of subsidy costs per handset upgrade reported by the responding companies is presented in the following chart. Average handset subsidy for customer retention 8% Greater than $250 8% $176 – $200 24% 19% $151 – $175 24% 19% $126 – $150 24% 8% $76 – $100 19% $51 – $75 14% 19% Less than $50 14% Percentage of respondents 2008 2009 No responses were received in the $101–$125 category and no responses were received in the $76–$100 or greater-than-$250 categories in 2009. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 29
  33. 33. Revenue recognition Sales incentives Many of the responding companies offer significant subsidies on handsets to attract new customers. The following chart represents the range of average handset subsidies the respondents offer to all new customers, as compared with the 2008 Global Wireless Industry Survey. Average new customer handset subsidy 8% Greater than $200 8% $176 – $200 25% 17% $126 – $150 17% $101 – $125 50% 8% $76 – $100 25% 17% $51 – $75 25% Less than $50 Percentage of respondents 2008 2009 No responses were received in the $151–$175 category. In addition, no responses were received in the less-than-$50, $51–$75, $126–$150 and greater-than-$250 categories in 2009. 30 | Change is in the air
  34. 34. The following charts illustrate when companies allow subsidies to existing customers for a new handset under both one- and two-year contracts. Postpaid customer eligibility to receive retention subsidy for new handset (one-year contract) 17% 17% 17% One month before contract expiration Two months before contract expiration 32% Three months before contract expiration 17% Only upon expiration of current contract Other (dependent on rate plan and tenure) Postpaid customer eligibility to receive retention subsidy for new handset (two-year contract) 29% 29% Two months before contract expiration 13% Six months before contract expiration 29% Twelve months before contract expiration Other (dependent on rate plan and tenure) We also asked the responding companies to comment on how they account for demonstration unit handsets, personal digital assistants, and smart phones that are available in retail stores as floor models. The following chart shows how the costs are recorded. Accounting for demonstration unit handsets (floor models) 11% 22% Cost of goods sold 67% Marketing/sales expense General and administrative PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 31
  35. 35. Revenue recognition Market development funds and rebates Of the responding companies that receive marketing development funds from their vendors, 78% classify these receipts as contra-expense. The following chart illustrates the incentives and services offered as customer subsidies by the respondents. New customer incentives and services offered Instant rebate (cash based) 9 Free goods (accessories, etc.) 8 Mail-in or Internet-based rebate (cash based) 8 Waive activation fees 7 Free services 6 (free minutes of service) Other 4 In-store gifts 3 Number of respondents Chart sums to greater than the number of responding companies because multiple responses were allowed. Many companies use mail-in rebates as a way of attracting new customers to buy their handsets. Of the responding companies, 88% offer mail-in rebates to their postpaid customers, while 56% offer mail-in rebates to their prepaid customers. Of the companies that offer mail-in rebates, all indicated that they use a third-party provider to process mail-in-rebate programs. Rebate requirements vary widely among the responding companies; however, most respondents require that customers return the receipt, rebate redemption form, and UPC code. Other companies require a packing slip and a copy of the customer’s bill. The following graph illustrates the dollar value of instant rebates offered. Dollar value of instant rebates offered Greater than $100 5 $76 – $100 6 $51 – $75 6 $30 – $50 8 Less than $30 6 Number of respondents Chart sums to greater than the number of responding companies because multiple responses were allowed. 32 | Change is in the air
  36. 36. Seventy-eight percent (78%) of the responding companies team with their handset and accessory vendors to provide rebates for subscribers, whereby the manufacturer reimburses the carriers. Of the responding companies, 86% recognize a liability under the program when the related revenue is recognized. The following graph shows the responding companies’ average historical redemption rates for all mail-in-rebate programs for all subscribers. Average historical redemption rate for all mail-in-rebate programs 17% 17% 17% 21% – 30% redemption 41% – 50% redemption 51% 51% – 60% redemption 61% – 70% redemption No responses were received in the less-than-21%, 31%–40% or 71%–100% categories. Other revenue activities Sixty-seven percent (67%) of the responding companies are currently or expect to be eligible for the status of Eligible Telecommunications Carrier (ETC) this year, which is consistent with the 2008 Global Wireless Industry Survey. Of those respondents that currently receive or expect to receive ETC status this year, 83% expect the amount to be less than 1% of service revenues, with the other 17% expecting the amount to be less than 5% of service revenue. Of the companies with revenue greater than $5.0 billion, 80% receive ETC revenue compared with 63% in the 2008 Global Wireless Industry Survey. Of the companies with revenue of less than $5.0 billion, 50% receive ETC revenue, which is an increase from 37% in the 2008 Global Wireless Industry Survey. The following chart illustrates how the responding companies classify costs related to directory assistance (e.g., 411 calls) on the income statement. Classification of directory services 11% 11% Cost of services 78% Cost of revenues Network costs PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 33
  37. 37. Revenue recognition Revenue assurance The revenue assurance function plays an important role in ensuring adequate internal controls over financial reporting and minimizing revenue leakage. In fact, each of the nine respondents currently has a dedicated revenue assurance function. The following graph shows the dedicated number of revenue assurance individuals. Dedicated number of revenue assurance individuals 2 Greater than 200 2 1 101 – 200 1 3 41 – 100 2 3 16 – 40 1 4 1 – 15 3 Number of respondents 2008 2009 The following graph shows the number of dedicated revenue assurance individuals per $1.0 billion in total revenue. Dedicated number of revenue assurance individuals per $1.0 billion 1 Greater than 11 2 7 6 – 10 3 4 1–5 2 Number of respondents 2008 2009 34 | Change is in the air
  38. 38. Primary responsibility for the revenue assurance function varies across the responding companies. The following chart shows the primary departments that oversee revenue assurance functions. Responsibility for revenue assurance 12% 33% 12% Corporate finance Revenue assurance and fraud/risk management 43% Accounting and customer care Accounting department Eighty-eight percent (88%) of respondents indicated that more than 80% of annualized revenue is subject to revenue assurance programs, compared with 69% in the 2008 Global Wireless Industry Survey. The following graph illustrates the revenue assurance and fraud management opportunities reported by the responding companies. Revenue assurance/fraud management opportunities Unbilled roaming charges 9 Improper accounting or tracking 8 of rollover minutes Incorrect rates 8 Unbilled text messages (SMS) 7 Unbilled access charges for content 7 Unbilled international calls 6 Issues with shared or 6 family plan minutes Incorrect billing of taxes 6 Active telephone numbers at the switch that do not exist in billing 6 Usage not being captured 6 at the network Unbilled wireless Web 5 monthly charges Usage being lost or not corrected between the switch and the bill 5 Unbilled per-minute charges after a 5 customer exceeds the contract amount Incorrect billing of surcharges 4 Incorrect decrementing 1 Number of respondents Chart sums to greater than the number of responding companies because multiple responses were allowed. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 35
  39. 39. Revenue recognition When asked which components of the revenue process represent the greatest areas for revenue and margin leakage, the respondents identified the following in order of importance: financials, network reliability, fraud, and roaming and carrier settlement. Forty-three percent (43%) of respondents utilize an internally developed revenue assurance platform or tool, compared with 28%, which use a purchased platform or tool. The remaining respondents use a combination of internally developed and purchased platforms or tools. Customer billings and payments Practice varies among carriers as to whether certain charges can be included in a new subscriber’s first billing cycle. Of the responding companies, 78% allow equipment purchases, and 89% allow activation fees to be included in a subscriber’s first billing cycle. The average number of billing cycles per month varies by respondent. The following chart illustrates the distribution of billing cycles per month. Average number of billing cycles per month 12% 50% 38% Less than 15 cycles 15 – 20 cycles Greater than 20 cycles Practices vary from carrier to carrier as to whether postpaid subscribers are billed in advance or in arrears. The following charts illustrate the range of percentages of postpaid customers billed in arrears versus in advance for the responding companies. Customers billed in arrears 12% 50% 38% Less than 10% 10% – 20% Greater than 90% No responses were received in the 21%–90% category. The average percentage of customers who are billed in arrears is 18% compared with 21% in the 2008 Global Wireless Industry Survey. 36 | Change is in the air
  40. 40. Customers billed in advance 12% 50% 38% Less than 10% 80% – 90% 91% – 100% No responses were received in the 11%–79% category. The average percentage of customers who are billed in advance is 82% compared with 79% in the 2008 Global Wireless Industry Survey. We asked the responding companies to indicate the percentage of customer payments that they received through each payment channel for both postpaid and prepaid customers. The results are depicted in the following charts, including the average of all responding companies. Postpaid customer payment channel Average 7 2 24 4 9 4 16 8 5 22 5 2 10 Carrier G 21 2 3 60 9 3 2 Carrier F 10 8 2 3 5 18 2 52 1 Carrier E 11 4 17 9 13 8 7 16 14 Carrier D 3 4 24 6 5 2 13 5 26 7 5 1 Carrier C 22 4 31 20 4 6 2 7 3 1 1 1 Carrier B 2 33 5 13 2 16 5 2 6 7 6 1 Carrier A 3 33 5 8 3 4 9 17 8 9 Percentage of customer payments In-store payments Automatically charged to credit card (preauthorized) Agent/reseller locations Charged to credit card (customer Lockbox/direct mail/bank initiated monthly) Retail kiosks Automatically charged to debit card (preauthorized) Telephone: Interactive voice response (IVR) Charged to debit card (customer initiated monthly) Telephone: Customer care/call center Internet payments (non-IVR based) Initiated via handset menu Automatically deducted from bank account (e.g., ACH, online banking) Other* *Other includes PC banking, sales central, and pay by phone. In the 2008 Global Wireless Industry Survey, about a third of respondents (30%) said greater than 60% of their payments were received via a lockbox, a bank, or direct mail, while the majority of respondents (60%) reported receiving more than 30% of their payments through those methods. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 37
  41. 41. Revenue recognition In comparison, the 2009 survey shows that no respondents reported receiving more than 60% of their payments through a lockbox, a bank, or direct mail, and less than half of respondents (43%) receive more than 30% of their payments via those methods. Meanwhile, respondents said 16% of postpaid payments are now being deducted automatically from bank accounts, up from 11% in 2008. Prepaid customer payment channel 1 11 Average 9 45 2 25 2 10 22 1 Carrier G 16 46 4 9 10 2 3 7 2 1 Carrier F 10 62 21 4 2 1 Carrier E 3 80 16 1 Carrier D 47 3 48 1 1 Carrier C 60 28 2 4 4 Carrier B 30 60 7 3 Carrier A 5 10 2 63 222 12 2 Percentage of customer payments In-store payments Automatically charged to credit card (preauthorized) Agent/reseller locations Charged to credit card (customer Lockbox/direct mail/bank initiated monthly) Retail kiosks Internet payments Telephone: Interactive voice Initiated via handset menu response (IVR) Other* Telephone: Customer care/call center (non-IVR based) *Other includes one bill interface, and pay by phone. In the 2008 Global Wireless Industry Survey, 40% of respondents received greater than 45% of their payments through agent/reseller locations, while 20% of respondents received greater than 80% through agent/reseller locations. In 2009, a much higher number (72%) reported that they received greater than 45% of their payments through agent/reseller locations; however, no respondents received greater than 80% of their payments that way. 38 | Change is in the air
  42. 42. Compared with the 2008 Global Wireless Industry Survey, an average of 45% of prepaid payments are made through agent/reseller locations—an increase of 31%. The following graphs show the sources of payments by percentage for both postpaid and prepaid subscribers and compared with the average of all responding companies. Methods of postpaid customer payments Average 37 5 29 12 17 1 Carrier F 79 17 3 Carrier E 66 4 26 4 Carrier D 8 52 40 Carrier C 25 13 30 7 25 Carrier B 36 7 23 9 25 Carrier A 8 6 25 9 52 Percentage of customer payments Check (including e-check, electronic banking, and home banking) Cash Credit card (preauthorized and onetime use) Debit card (PIN activated or PIN-less) ACH/ARC/wires In the 2008 Global Wireless Industry Survey, 70% of respondents received greater than 30% of postpaid payments via check. In 2009, that number dropped to 50%. Compared with the 2008 Global Wireless Industry Survey, responding carriers received more postpaid payments via credit card, which increased from 21% to 29%, and via debit card, which increased from 4% to 12%. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 39
  43. 43. Revenue recognition Methods of prepaid customer payments 1 Average 36 40 3 20 Carrier F 5 69 26 1 Carrier E 68 31 Carrier D 60 40 1 Carrier C 99 1 Carrier B 80 7 12 Carrier A 18 3 79 Percentage of customer payments Check (including e-check, electronic banking, and home banking) Cash Credit card (preauthorized and onetime use) Debit card (PIN activated or PIN-less) Other In 2009, 50% of respondents received greater than 65% of their payments via cash, up slightly from 44% in 2008. In 2009, 30% of respondents received at least half of their payments via credit card compared with 33% in 2008. There was no significant change in the overall averages year over year for prepaid. Handset insurance Eighty-six percent (86%) of respondents offer handset protection programs to postpaid subscribers. This program can be either self-insured by the provider or provided through a third party. Of the respondents that offer a handset replacement program, 83% use a third-party provider; the remaining 17% are self-insured. Eighty-three percent (83%) of the responding companies that offer handset replacement programs bill subscribers based on a fixed monthly amount; the remaining 17% bill subscribers a onetime fee. Thirty-three percent (33%) of respondents offer handset protection to prepaid subscribers. Of those offering handset protection programs to prepaid subscribers, all use a third-party provider for the service and charge $4.95 to $5.95 monthly. 40 | Change is in the air
  44. 44. All-inclusive packages The responding companies were asked whether they offer all-inclusive packages to subscribers. Seventy-eight percent (78%) of the responding companies said they do, compared with 67% in the 2008 Global Wireless Industry Survey. Of those companies, half indicated that less than 2% of their subscribers participate in the plans they offer, and 67% charge at least $99 a month. The following graph illustrates the services the respondents include in their all-inclusive packages. Services offered in all-inclusive package Voice 100% Pictures 67% Text/SMS to in-system customers 67% Internet 67% Roaming 50% Long distance 50% Text/SMS to any number 50% E-mail 50% Web surfing 50% Video 33% GPS navigation 33% Music 17% Percentage of respondents Chart sums to greater than 100% because multiple responses were allowed. In addition, responding companies also include such items as incoming text/SMS, call waiting, caller ID, international texts, video messaging, directory assistance, DirectConnect, and voice mail. In the 2008 Global Wireless Industry Survey, 33% of respondents offered other features in their all-inclusive packages, compared with 86% this year. In addition, 57% of respondents offered pictures in their all-inclusive packages in 2009, while only 44% of respondents offered those services in their all-inclusive packages in the 2008 Global Wireless Industry Survey. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 41
  45. 45. Performance measures The following pages cover performance measures for evaluating results. The average percentage of subscribers receiving paper invoices decreased from 81% to 72% in 2009, and the average percentage of subscribers receiving electronic invoices increased from 6% in 2008 to 14% in 2009. 42 | Change is in the air
  46. 46. Customers/metrics The following chart depicts the average lengths of the responding companies’ relationships with postpaid customers. Average length of customer relationship (postpaid) 40% Greater than 80 months 67% 30% 61 – 80 months 30% 40 – 60 months 33% Percentage of respondents 2008 2009 The average length of customer relationships was approximately 64 months in 2009 compared with 70 months in the 2008 Global Wireless Industry Survey. For companies with revenue greater than $5.0 billion, the average customer relationship was 66 months in 2009 compared with 73 months as reported in the 2008 Global Wireless Industry Survey. We asked companies how they define minutes of use (MOU). Fifty-six percent (56%) of respondents define MOU as billed minutes (whether included as part of a plan or as additional nonpackaged minutes); 44% of the respondents define MOU as minutes per the switch regardless of whether those minutes are ultimately billed to the customer. According to the responding companies, the average percentages of MOU that were billed as excess (i.e., over plan) minutes were 3%. That’s compared with 7% in the 2008 Global Wireless Industry Survey and 6% in 2007. Average monthly minutes of use per postpaid subscriber 801 744 670 MOU 2007 2008 2009 Year Average MOU The average monthly MOU for all responding carriers was 670 minutes in 2009, compared with 801 in the 2008 Global Wireless Industry Survey and 744 in 2007. PricewaterhouseCoopers 2009 North American Wireless Industry Survey | 43

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