Here are 4 big themes for 5G in 2023
As the fourth quarter earnings season draws to a close, some major themes are emerging in the wireless industry: It is cooling overall; Verizon plans to stay the course; Cable's push for mobile subscribers will gain momentum; and smartphone sales are slowing.
These themes are likely to be reinforced by the handful of earnings reports still to come for the quarter. T-Mobile has already released some details about its fourth quarter 2022 performance, with full results coming on Wednesday. And Dish Network is widely expected to report further subscriber losses when it reports its fourth quarter results, likely sometime early in February. Apple, Qualcomm and others are also scheduled to report their quarterly performance in the coming days.
1. The US wireless industry is slowly but surely cooling
In the early days of the COVID-19 pandemic, the US wireless industry experienced a period of impressive – and mostly unexpected – growth. During 2021, the number of new postpaid wireless subscribers almost doubled to roughly 10 million, up from historic averages of around 5 million. Analysts cited varied reasons for the jump, including young children getting their first phone and business customers adding new lines of service.
At the beginning of last year, there were some expectations that the growth would cool during 2022, but that didn't happen.
"2022 postpaid phone net [customer] adds totaled 9.2 million," wrote the financial analysts at Wolfe Research in a recent note to investors. "Humble pie for us and everyone who forecast slower postpaid phone net adds in 2022."
But most financial analysts agree that 2023 should see a real slowdown in the number of new wireless customers signing up. Indeed, analysts from Morgan Stanley noted that Verizon, T-Mobile and AT&T collectively reported fourth quarter subscriber adds that were down 21% year over year.
"We expect all carriers will feel impact from softening gross [customer] adds in 2023," argued the financial analysts at Wells Fargo in a recent note to investors.
The financial analysts at New Street Research wrote in a note to investors last week that they expect wireless customer adds to slow to close to 6 million this year from almost 9 million last year.
"As industry adds slow, retention will become an increasingly important driver of net adds," the New Street Analysts added.
2. Verizon promises to stay the course
Despite struggling to retain its mobile customers during much of 2022, Verizon officials said the company doesn't intend to implement any major strategic changes during 2023. Instead, Verizon hopes to improve its situation by embarking on a more decentralized promotional strategy that won't focus as heavily on subsidies for smartphones.
Analysts' reaction to Verizon's intentions has been mixed.
"Verizon faces a challenging operating environment, with market share that will be difficult to maintain in an increasingly competitive market," wrote the New Street analysts. "Management pinned its growth aspirations to its superior network today; however, their network advantage is waning. The price gap between them and challengers is growing. While the outlook isn't great, 2023 expectations and the stock price largely appear to reflect this."
Other comments were more pessimistic:
"Verizon's much anticipated 2023 guidance and strategic commentary surprised us by essentially reiterating the company's current strategy," noted the Wolfe Research analysts. "We doubt this strategy because it has failed over the last 2 years and because we see the cost of subscriber acquisition and retention rising over the next 2 years."
3. 2023 should be a good year for cable's mobile efforts
Comcast and Charter Communications ended 2022 with massive gains in their respective mobile businesses, and other cable companies like Cox Communications and Mediacom are expected to expand their own mobile efforts throughout 2023. Concurrently, the fixed wireless access (FWA) attack against cable – led by T-Mobile and Verizon – appears to be winding down.
As a result, analysts expect the broader cable industry to continue its successful march into mobile.
"The pace of cable's wireless gains has only accelerated. And cable's wireless pricing has gotten more, not less, aggressive," wrote the financial analysts at MoffettNathanson, a division of SVB Financial, in a recent note to investors. Indeed, they pointed out that the growth of Charter's mobile business specifically is more than offsetting declines in the company's aging video and wired voice businesses.
Bundled offerings like Charter's Spectrum One have been responsible for some of cable's upswing.
"Charter isn't waiting for FWB [fixed wireless broadband] to run its course; they have taken control of their destiny with a bold strategy," wrote the New Street analysts.
And several analyst firms argued that as the wireless industry and the cable industry increasingly compete directly against each other, it's the cable industry that has the advantage.
"We've called wireless cable's third act," wrote the MoffettNathanson analysts. "Well, the pace of the narrative in Act II has quickened, with Charter now dramatically accelerating its growth in wireless. That acceleration speaks to a much more aggressive posture in the convergence wars. Charter is winning."
4. A slowdown in smartphone sales looms
While the big US mobile providers deal with sluggish sales and increased competition, so too are the world's biggest smartphone vendors. The decline in smartphone sales has implications for a wide variety of companies, including those hoping to get more 5G gadgets into the hands of shoppers.
According to research firm IDC, worldwide smartphone shipments declined 18.3% year over year in the fourth quarter of 2022. "The drop marks the largest-ever decline in a single quarter and contributed to a steep 11.3 percent decline for the year," the firm said.
One reason for the slowdown is that consumers are holding onto their phones for longer periods of time, but it also stems from consumers' worries over inflation and recession, according to IDC analyst Ryan Reith.
"I think we're probably not going to see much recovery this year," Reith told Yahoo Finance.
The financial analysts at Bank of America Research agreed, writing in a note to investors: "The smartphone industry is past the peak of 5G content growth." Separately, Samsung warned of sluggish smartphone growth during 2023 in its latest quarterly report, as noted by Mobile World Live.
Nonetheless, some smartphone vendors appear prepared to march on. For example, Samsung later this week is scheduled to host its first in-person smartphone launch since 2020.
As noted by the Verge, Samsung is widely expected to show off a new batch of Galaxy S23-branded smartphones, alongside some new laptops. Whether those new smartphones will sport phone-to-satellite connections remains to be seen. But that wouldn't be a surprise, considering the large and growing number of companies playing in the phone-to-satellite space. Indeed, analysts see such satellite capabilities as potentially driving a new round of smartphone demand following the bump that early 5G capabilities gave the sector a few years ago.
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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano
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