According to Fitch Ratings’ latest telecom special report (http://www.fitchratings.com), postpaid smartphone penetration increased to 46.8% in third-quarter 2011, a change of 310 basis points (bps) sequentially.
This was a decrease from the average rate increase of 370 bps over the past three quarters as consumers waited for the iPhone 4S launch. Penetration rates could exceed a 400-bps change in fourth-quarter 2011, driven by take-up rates for the iPhone 4S, aggressive LTE data promotions by Verizon Wireless and penetration gains at AT&T Mobility. Fitch Ratings believes smartphone penetration should approach the mid – 60% range by end of 2012.
AT&T’s proposed acquisition of T-Mobile USA will be the key issue in 2012. Fitch believes T-Mobile faces an uncertain future if the deal, which has encountered significant governmental opposition, collapses and could take more aggressive steps using a portion of the proceeds from the break-up fee to stabilize postpaid market share. Consequently, these actions could further pressure future profitability and growth for operators.
T-Mobile would then need to address longer term 4G spectrum shortage issues as some operators are facing greater spectrum capacity limitations than others while the Federal Communications Commission engages in a painfully slow process of allocating new spectrum. Fitch believes this would require reaching strategic agreements in a capital efficient manner with other operators that have significant spectrum positions but possess a need to partner with other companies to achieve scale for national 4G coverage.
This could include companies like Clearwire Corp., DISH and potentially LightSquared. T-Mobile would also need to use Wi-Fi and spectrum refarming to increase capacity in certain markets.
Likewise, if the deal gets blocked, AT&T may also need to take more aggressive steps to ensure sufficient spectrum capacity in its highest usage markets during the next three to five years until the FCC can auction off additional spectrum. This could include building additional cell sites, refarming existing spectrum and reaching agreements to acquire/share spectrum with other operators.
Fitch Ratings is a a global rating agency “dedicated to providing value beyond the rating through independent and prospective credit opinions, research and data.”