Kagan: U.S. Cell Phone Saturation May Spur Mobile Ad Rush

Mobile phone use in the U.S. is expected to hit a saturation point within the next six years, and this tipping point--combined with other converging marketplace factors--may finally unleash the advertising potential of the platform.

Research firm SNL Kagan released a 10-year wireless projection last week which predicts that by the year 2013, mobile phones--including consumer, business and dual users--will achieve 100% penetration in the U.S., when an estimated 322 million cell phone units in use will actually exceed the total U.S. population. Kagan estimates current U.S. cell phone penetration at 84%, or about 233 million units.

Kagan projects that subscriber units and voice revenue will inch along as market saturation is approached--but data revenue will grow at a compound annual rate of 14%, rising to at least 22% of service revenue, compared to under 10% today. Kagan says it may revise its data revenue projections upward after new WiMAX offerings and the winners of the 700 MHz auction emerge next year.



Analysts say the exponential growth of mobile data use--including text, Web browsing, games, music and video--is spurring carriers, WiMAX competitors and other key players to accelerate their pursuit of the "holy grail" of market paradigm shifts: free mobile services fully subsidized by advertising.

Mobile advertising currently brings in about $500 million annually in the U.S., a small slice of the overall revenue generated by Internet advertising. With mobile operators, media companies and Internet giants like Google actively exploring potential applications and huge advertisers like Procter & Gamble, Burger King and Pepsi experimenting with mobile phone ads, some analysts believe that the overall market for mobile advertising could top $11 billion by 2011, or more than one-third of the current Internet advertising market.

"Ad support for mobile services is really a wild card at this point," says SNL Kagan analyst John Fletcher.

The FCC's 700 MHz auction in January should expand the mobile advertising venue. According to Fletcher, one of the expected bidders in the FCC auction, Qualcomm, is planning to use its MediaFLO network to provide cell phone users with access to free, ad-subsidized TV programming.

Sprint Nextel and Clearwire announced last month that they are pooling their efforts to build the first nationwide mobile WiMAX network, and intend to operate as service partners. Sprint Nextel plans to begin activating its initial WiMAX markets in several U.S. cities by the end of this year.

Earlier this year, cell phone carriers including Verizon, Sprint and AT&T (formerly Cingular), began rolling out advertising on mobile phone screens, promising content at reduced prices. Other carriers, including Virgin Mobile USA, are rewarding customers for viewing ads by lowering their cell phone bills.

Industry insiders also believe that Google is developing a phone service that may offer free advertiser-subsidized phones to users.

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