An interesting article by Mark Lowenstein provides his analysis of how the wireless industry will be affected by the economic downturn.

The wireless industry has been relatively unaffected by the economic downturn as operators report solid first quarter numbers in the first quarter.  The spectrum auction in the U.S and Canada has also exceeded expectations.  However with problems in the financial, auto and retail sectors, it is worth taking a closer look at the wireless industry in the second quarter.

In the U.S, the industry has been taking uncharacteristically proactive steps as a hedge.  For example, the "unlimited" plans are getting more customers into predicable, post-paid pricing plans and have greater potential for voice ARPU stabilization/accretion than dilution. Additionally, having more customers in these sorts of plans potentially reduces costs, as there are fewer calls into customer care.  The pricing of smartphones around the $200 price point is ideal for mass market adoption of a wireless device.

If the economic situation worsens or is prolonged, it is unlikely that people will give up their wireless subscriptions because cellular has become "a must have" for just about everyone.  In fact, wireless subscriptions could see an initial uptick, as households consolidate their number of "lines."

Lowensteins view of those areas likely to be affected are:

• Handset replacement rates: U.S. handset replacement rates average 1.7 years--among the most aggressive in the world.  A slowdown in the handset replacement rate would be a natural result of consumer caution, and could affect the 2008 holiday season, for starters.
• 3G Broadband subscriptions. Mobile broadband subscriptions have grown at a 50 percent or greater annual clip for several years running. This market could start running out of steam if times are difficult.
• Mobile applications. We have already seen a leveling off in the growth of personalization applications such as ringtones and wallpaper. Mobile gaming has been stagnant. The most vulnerable categories are those that require an ongoing subscription.
• Appetite for risk. When times get tough, you focus on the fundamentals. Operators will be less willing to take risks on new applications, and will be more cautious with initiatives that are high on the risk/reward scale.

Some longer-term affects will most likely be greater-than-usual pressure on suppliers. We have already started to see a slight decrease in handset ASPs--this despite a growing percentage of smartphone sales.  There will also be an opening for equipment vendors with particularly aggressive pricing. Second, there will be a reduction in capex spending plans. 3G might not get as widely built out, there could be less need to increase data network capacity, and we could see a delay in 4G rollout plans. 

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