Analyst Angle: OMG, the teen market is slowing
October 20 2008 - 5:59 am ET | Frank Dickson, co-founder, chief research officer, MultiMedia Intelligence |
Frank Dickson, co-founder, chief research officer, MultiMedia Intelligence
Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
The last few years have seen significant growth in the U.S. teen market, a market that MultiMedia Intelligence defines as the age group of 12- to 17-year-old individuals. In 2007, the market grew 12% to surpass 16 million subscribers. The emerging cellular proclivity of the young demographic has been a pleasant evolution of the market for the operators, helping to continue healthy subscriber growth.
The teen market is an especially appealing market for two reasons. First, it is a primary source of new subscribers for carriers. Less than 40% of pre-teens have mobile service. By age 17, 84% of teens have wireless services, with the penetration skewing higher for females. Second, teens teach older demographic how to use their handsets. Studies indicate that teens often teach their parents how to use value-added services, adding to the ARPU of older demographics.
Things are cha-cha-changing
Regrettably, all good things must come to an end. By 2012, the number of teen subscribers will reach 17 million, a delta of only 1 million subscribers from 2007. Wireless penetration rates for teens are reaching saturation, resulting in stagnating growth. Since the teen market is not a multiple handset demographic, subscriber growth is forced to slow.
The teen market has been the 'golden child' for cellular providers in the U.S. In addition to growing subscribers, teen ARPU has been growing higher than that of the overall market. Teens simply use their phones to do more, from text messaging to purchasing premium content. However, pricing pressures and teen cellular saturation are bringing an end to the teen cellular gold rush.
Teens consume wireless differently
As we stated earlier, teens are not simply young cellular subscribers. They acquire and use wireless differently. Gender is a critical component to the teen consumption of wireless. In 2007, 91% of U.S. 17-year-old females had cellphones whereas only 78% of US 17-year-old males had cellphones. The difference is quite striking as there is little difference in handset ownership between the genders at age 13, with 57 percent of overall teenagers having cellphones.
Not only is the net difference in the gains between the genders quite striking, but also the manner in which the gains are made. When one segments teenage females by age, one sees steady gains in cellular owners by segment. However, teen male segments see strong ownership gains at two particular ages:
--at age 13 and
--At age 16.
In 2006, 13-year-old teen males with cellphones accounted for about one million subscribers, over 40% higher than the 12-year-old teen male segment. Likewise, the number of 16-year-old teen male cellular subscribers in 2007 numbered over 1.6 million, almost 30% higher than the 15-year-old teen male group. By comparison, the difference between 16-year-old and 15-year-old teen females was only 6%.
The differences in the cellphone consumption patterns among the teen segments are remarkable and need to be noted. Targeting teens at the right age and gender is critical to maximize subscriber gains. Targeting teens at the wrong age and not considering gender will cause operators to miss the boat.
The quarterly subscriber figures are reflective of the annual trends. However, an aspect of the quarterly results that almost “jumps off the page” is the seasonality associated with teens. The seasonality is not readily apparent in the gross numbers; however, when one looks at the quarter to quarter changes, it is apparent that Q3 (July, August, and September) and Q4 (October, November, and December) are stronger months for subscriber growth.
Differences within the teen segment
It is also important to note that the teen segment is far from homogenous. There are many sub-segments with different consumption patterns. One significant difference arises when we look at the differences in the Hispanic ethnicity.
Hispanic teens tend to use their handsets differently than non-Hispanic teens. Non-Hispanic teens tend to use advanced handset features more pervasively such as mobile games and camera and camcorder functionality. Hispanic teens are tending to focus on personalization features such as ringtones and use voice centric applications more predominantly than their non-Hispanic counterparts.
The Hispanic teen segment will become increasing important to carriers. While the non-Hispanic segment is starting to stagnate in terms of growth of subscribers, the Hispanic teen market will continue to see continued subscriber growth as a result of the growth of the demographic segment overall.
Personalization and voice are important to Hispanic teens. In handset offerings, emphasize those features when promoting to Hispanic teens. Marketing messages should focus on voice services and usage. Personalization features such as ringtones should be emphasized.
Key take-aways
Teens are a big and lucrative market. However, they consume wireless services differently, and those differences should be accounted. Key characteristics that should be noted include:
1. Growth in the teen segment is slowing due to saturation. We do not see teens carrying multiple handsets within the forecast period. Strong seasonality: It is apparent that Q3 and Q4 are stronger months for subscriber growth.
2. Over half of teens are cellular subscribers by age 13.
3. On average, girls mature cellularly early than boys.
4. Even at the higher age groups, teen female subscribers outnumber male subscribers, showing a naturally higher proclivity to cellphone usage. However, the gap among those in the 17-year-old age group has narrowed greatly.
5. Boys tend to add cellular services in a strong bimodal pattern. Over 30% of males add handset subscriptions at age 13 or 16.
6. Hispanic teens are more voice centric than their non-Hispanic counter parts. Personalization and voice are important to Hispanic teens.
Questions or comments about this column? Contact Frank at frank@multimediaintelligence.com or contact RCR Wireless News at rcrwebhelp@crain.com.
October 20, 2008 02:28 pm
Something will certainly have to give as the market reaches saturation, but I don't believe it will be handset prices. (I think that consumers are actually becoming comfortable with paying more for more full-featured devices.) High product differentiation among handsets and differentiation between carriers' offering will limit direct price competition for devices. The common denominator is the service plan, which is what consumers will compare and where carriers will compete on price. Most carriers will try to recoup profits through multimedia/data services, but this could be a limited opportunity as third party content providers will begin to provide many of these services for free (in much the same way as internet companies shifted from paid to free services in the late 90's with advertising becoming the primary revenue source). Carriers can close their network to protect margins (as VZW) but this will limit the scope of their content offering and savvy users will tend toward open networks (as AT&T). I think that, ultimately, physical product sales will return as a major profit source, where successful retailers will maximize high-margin accessory sales as a way for users to harness the full capability of devices that ever increase in complexity. They will rely on a better trained, better compensated sales force to generate these sales and implement customer service objectives to create customer loyalty.
October 20, 2008 12:14 pm
Nice Article. This market is definitely reaching its potential and new additions are starting to plateau. This is a parallel relationship to most other wireless consumer segments. This tells us that soon everyone that wants a cell phone will have one. So what to do carriers do next? Teens obviously are a focused on devices and what they can do. The company who can provide the devices and clarify their message of their features will continue to see their growth in the young market to continue upwards. The companies who provide less functionality and value will see their young subscribers flee somewhere else. What will the carriers do? Will price wars become more and more common to try to lure in customers? I think you will see a trend towards very high price sensitivity in the market. I think who ever can capitalize on keeping their young customers happy and continue to provide them the latest technology will be at a huge advantage. The life time value of a young consumer is more valuable then any other segment. With higher ARPU and more extras it is more important now to hold on to younger customers since they will not be going anywhere soon. Carriers are realizing that renewals are more important to their business profitability then ever before. I wonder how long it will be before someone big makes a drastic industry change on how they deal with renewals causing a stir up industry wide. It is an interesting time in the wireless industry and I am interested in seeing the changes come soon.