35% of new wireless customers in 2008 to be pre-paid
Fitch expects that wireless revenues and EBITDA will increase in the high-single digit range in 2008 compared to approximately 11% and 12%, respectively in 2007. Fitch expects that aggregate gross additions will be approximately 68 mln for the top six operators in 2008, with prepaid subscribers increasing to 35% of gross additions. Similarly, modestly higher churn, driven by a growing prepaid customer mix, should lead to aggregate net additions of approximately 17 mln with post-paid subscribers representing approximately 11 mln of this total in 2008, which would represent an approximate 15% reduction in net additions compared to 2007. Strong data revenue growth remains paramount to the stability of average revenue per user (ARPU) for the wireless industry. Providing that operators can successfully shift subscribers to third-generation (3G) handsets and data services, aggregate data revenue could accelerate beyond the current $500 mln quarterly increase to reach an annualized amount of $36 bln by yearend 2008. This growth in data revenue would reflect that 3G users generate nearly double the ARPU of second-generation (2G) customers. Fitch believes that wireless competition will remain fierce and the forthcoming 700 MHz auction by the Federal Communications Commission (FCC) could ultimately introduce two new entrants to the market in the next couple years further intensifying this pressure.
In the consumer market, access line losses are again going to be strongly impacted by competition from cable MSOs and wireless substitution. Additionally, access line losses could experience some upward movement due to the weak new home market reducing the inflow of new access lines in 2008. In 2008, Fitch believes that wireline operators could experience a modest increase in access losses compared to 2007 or a level of 6-6.5 mln access lines. Rural market wireline operators could experience a growth in access line declines in 2008 as cable MSOs have moved more widely into these markets in 2007. Digital subscriber line (DSL) additions have begun to slow and this trend will continue in 2008 due to increasing levels of penetration, but also the new low-tier roll-out of cable MSO offerings, which had been a customer segment marketed only by the wireline operators over the past few years. Fitch expects that 2008 DSL new additions could be approximately 10-15% lower than the 2007 level, but that DSL ARPU will remain stable. The relatively weaker growth in the consumer market in 2008 will have a greater impact on non-diversified wireline operators, particularly in rural markets. In contrast, exposure to the consumer segment for AT&T and Verizon is approximately 20% of revenue due to a broad service portfolio that includes both wireless and business services. AT&T and Verizon’s consumer segment continues to grow, benefited by their successful video strategies. These wireline operators will have a combined video customer base of approximately 1.2 mln by yearend 2007 on their wholly-owned network based video platforms. Fitch expects that this total will more than double in 2008 and should reach 2.5-3.0 mln total combined video customers. The growing strength of the AT&T and Verizon video offerings will provide support to their consumer market segment and allow them to compete more effectively with cable MSOs bundling offerings.